Home Loan agency in trouble, is a bailout needed

Home Loan agency in trouble, is a bailout needed?

As things seemed to be taking a turn, or beginning to make a turn for better another bombshell has hit the home loan industry. The world’s biggest home lender maybe in serious trouble. FHA, the Federal Housing Administration guarantees payments on millions of home loans. Due to the current home loan and general economic crisis the Federal Housing Administration (FHA) share on home loans has increased to 30%. If the Federal Housing Administration (FHA) has problems it “could send the nation’s already wobbly economy into yet another tailspin” said U.S Rep. Stephen Lynch to Boston Herald in an interview last week.

The scary part is that there are no hard facts at the moment. Currently the FHA is only required to provide a yearly financial report. One of the changes Lynch is lobbying for is that FHA is required to provide two financial reports a year.

The Federal Housing Administration is required by law to have cash reserves to cover at least 2 percent of the total value of its outstanding mortgages. The percentage of outstanding mortgages the FHA has in cash reserves is a good indication of the health of the real estate industry. This percentage dropped from 6 percent to 3 percent in the last fall and we do not know what the situation is like now. However, since things have got rather worse since the last financial review the FHA may need a taxpayer bailout.

Lynch said to do above mentioned newspaper “I want answers now, so it’s not a surprise”. In an economy as shaky as this one just the fear of the Federal Housing Administration running out of cash can create a crisis of its own. According to some estimates there could be billions in liability. Covering this financial hole would require more money printing from the White House to cover yet another gap in our ailing economy.

Some sectors are requesting an immediate review of the situation to avoid further surprises.
The signs that have come from the Federal Housing Administration are not great. Just recently the Housing and Urban Development Secretary Shaun Donovan explained that the FHA will be requesting extra cash to increase its program of mortgages for senior citizens.

The Federal Housing Administration was created in 1934 to increase the number of homeowners in America. Currently the FHA is the largest home loan insurer, it would be no surprise taking in account the world home loan situation that the FHA is also in serious trouble.

This new warning comes behind a series of alarm bells of fraud and abuse of FHA insured loans. One of these alarms was related to the scheme the FHA provides for senior citizens. This scheme lends money to senior citizens based on the equity of their home. The senior citizen borrower does not need to pay back any of the money until he / she sells their home or dies. Apparently this scheme has been abused by mortgage salespeople and family members.

We will have to wait and see how the FHA reacts to this new crisis in the Home Loan industry.