Bet the house: Why the FHA is going (for) broke

Article Highlights

  • The #FHA is deeply insolvent, with a capital shortfall of tens of billions of dollars

    Tweet This

  • Using its own rosy numbers puts the FHA's leverage at 840 to 1, a far more scandalous ratio than even #Fannie and #Freddie

    Tweet This

  • FHA raising its conforming loan limit to $729,750 pleased realtors, but poured fuel on the fire burning up its capital

    Tweet This

No serious observer of the Federal Housing Administration (FHA) believes its financial future is bright. But few Bet the House: Why the FHA is Going (For) Broke

Download PDF
recognize just how troubled this government agency really is. That is because it uses lax accounting standards that obscure real and present danger to its own bottom line and the American taxpayer. In fact, when measured against the accounting system used by private mortgage insurers, the FHA is deeply insolvent, with a capital shortfall of tens of billions of dollars. If it were a private firm, state regulators would immediately shut it down. 

Even using its own rosy numbers puts the FHA's leverage at 840 to 1, a far more scandalous ratio than even Fannie Mae and Freddie Mac. As shown by Fannie and Freddie as recently as 2008 and the slow-motion collapse of the savings and loans (S&Ls) in the 1980s, if government-backed entities are allowed to continue operating when they are insolvent, their losses will only compound.

Indeed, the FHA has almost tripled its insurance in force in only three years, in part to cover its losses. And Congress made matters worse last fall when it raised the FHA's conforming loan limit to $729,750. That pleased the powerful National Association of Realtors, but it simply poured fuel on the fire. Before the agency's losses skyrocket, triggering a massive taxpayer bailout that deepens our nation's debt, Congress should reverse that mistake and enact reforms to pull the FHA back from the brink. 

Also Visit
AEIdeas Blog The American Magazine
About the Author

 

Peter J.
Wallison

What's new on AEI

image Recovering from tax time blues
image 10 welfare reform lessons
image Let HHS nominee Sylvia Burwell explain Obamacare lie
image Why bold ideas backfire in politics
AEI on Facebook
Events Calendar
  • 14
    MON
  • 15
    TUE
  • 16
    WED
  • 17
    THU
  • 18
    FRI
Wednesday, April 16, 2014 | 10:00 a.m. – 11:00 a.m.
Calling treason by its name: A conversation with Liam Fox

Join us at AEI as the Right Honorable Liam Fox sits down with Marc Thiessen to discuss and debate whether America’s intelligence agencies have infringed on the personal privacy of US citizens.

Event Registration is Closed
Thursday, April 17, 2014 | 4:00 p.m. – 5:00 p.m.
The curmudgeon's guide to getting ahead

How can young people succeed in workplaces dominated by curmudgeons who are judging their every move? At this AEI book event, bestselling author and social scientist Charles Murray will offer indispensable advice for navigating the workplace, getting ahead, and living a fulfilling life.

No events scheduled this day.
No events scheduled this day.
No events scheduled this day.
No events scheduled this day.
No events scheduled this day.
No events scheduled this day.