FHA Watch, March 2013 (Vol. 2, No. 3)
Edward J. Pinto | American Enterprise Institute
March 28, 2013

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Article Highlights

  • FHA should implement VA lending best practices.

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  • FHA continuing to fail working-class families and communities.

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Read Volume 2, No. 2, March 2013.
Explore the Nightmare at FHA project.

This Issue's Highlight

Veterans Affairs (VA) charges one-third the premium of the Federal Housing Administration (FHA) on a present-value basis and experiences a loss rate that is 20 percent of the FHA’s. VA mortgage-backed security (MBS) issuers absorb a loss rate 1.6 times that of FHA issuers yet are paid the same servicing fee and pay the same Ginnie Mae guarantee fee.

Implementing VA’s best practices, including reducing the FHA’s loan loss coverage percentage from 100 percent to 50 percent, would reduce the deleterious impact of FHA practices on working-class families and neighborhoods and help promote the responsible expansion of credit access to working-class families.

As demonstrated by the VA best practices over many decades, a coverage level well below 100 percent may be sustained without impacting the cost of FHA financing. Over time, the cost of FHA financing could go down.

This Month’s Features

Spotlight on Insolvency
FHA’s Estimated GAAP Net Worth Equals –$32.13 Billion, with a Capital Shortfall of $52–72 Billion

Spotlight on Delinquency
Overall Rate Declines to 15.97 Percent

Spotlight on Best Price Execution
FHA, VA, and USDA’s Pricing Dominance Little Changed

Spotlight on Differences Between the Practices of the VA and the FHA
Comparing the VA’s and the FHA’s Loan Loss Coverage Percentages

End the Nightmare at FHA
Fundamental and Comprehensive Reform of the FHA Is Urgently Needed

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About the Author

 

Edward J.
Pinto

  • Edward J. Pinto is a resident fellow at the American Enterprise Institute (AEI), where he specializes in housing finance and the effect of government housing policies on mortgages, foreclosures, and the availability of affordable housing for working-class families. He is currently researching policy options for rebuilding the US housing finance sector and writes AEI’s monthly FHA Watch.

    An executive vice president and chief credit officer for Fannie Mae until the late 1980s, Pinto has done groundbreaking research on the role of federal housing policy in the 2008 mortgage and financial crisis. Pinto’s work on the Government Mortgage Complex includes seminal research papers submitted to the Financial Crisis Inquiry Commission: “Government Housing Policies in the Lead-up to the Financial Crisis” and “Triggers of the Financial Crisis.” In December 2012, he completed a study of 2.4 million Federal Housing Administration (FHA)-insured loans and found that FHA policies have resulted in a high proportion of working-class families losing their homes.

    Pinto has a J.D. from Indiana University Maurer School of Law and a B.A. from the University of Illinois at Urbana-Champaign.

  • Phone: 240-423-2848
    Email: edward.pinto@aei.org

  • Assistant Info

    Name: Emily Rapp
    Phone: 202-419-5212
    Email: emily.rapp@aei.org
Show More | See Full Profile

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