Is the FHA destined for a taxpayer funded bailout? Depends on which expert you ask. On the one hand former chief credit officer for Fannie Mae, Edward Pinto believes you might as well put $54 billion more on the taxpayer tab right now.
"It appears destined for a taxpayer bailout in the next 24 to 36 months," Pinto said.
The FHA program's volumes have quadrupled since 2006 as private lenders and insurers pulled back amid the U.S. housing slump, Pinto said. The jump has left the agency backing risky loans and exposed to fraud in a "market where prices have yet to stabilize," he said.
Backing risky loans and susceptibility to fraud almost sounds like the kind of reckless subprime behavior that led us to where we are today. But we're a democracy. There are other experts whose opinions should be taken into consideration. Maxine, please give us your professional assessment.
It is a myth that FHA is the new subprime and has adopted lower underwriting standards and the other worst abuses of the subprime market. In fact, just the opposite is true.
Let's be clear. Without FHA, there would be no mortgage market right now. Private mortgage insurance companies have raised prices and tightened standards to a level that leaves out many potential homebuyers. With 30 percent of the overall market, and nearly 80 percent of the first-time homebuyer market, FHA is a crucial tool for ensuring our housing recovery.
The experts have spoken. Take your pick.