The Next Taxpayer Bailout: The Federal Housing Administration
The Federal Housing Administration (FHA), hit hard by the collapse of the housing bubble, is still making risky loans on the taxpayers’ dime, and may need a bailout in 2013.
An exhaustive study of the subject by the American Enterprise Institute’s Edward Pinto reveals some shocking statistics:
An estimated 40 percent of the FHA’s business consists of loans with either one or two subprime attributes—a FICO score below 660 or a debt ratio greater than or equal to 50 percent (based on loans insured during FY 2012). The FHA’s underwriting policies encourage low- and moderate-income families with low credit scores or high debt burdens to make risky financing decisions—combining a low credit score and/or a high debt ratio with a 30-year loan term and a low down payment. A substantial portion of these loans have an expected failure rate exceeding 10 percent.
Across the country, 9,000 zip codes with a median family income below the metro area median have projected foreclosure rates equal to or greater than 10 percent.These zips have an average projected foreclosure rate of 15 percent and account for 44 percent of all FHA loans in the low- and moderate-income zips.