Freezing in NH

Recently I was reading an article in the NYTimes about the FHA and some of its woes.

The Bush administration and Democratic leaders in Congress are counting on the Federal Housing Administration to rescue hundreds of thousands of homeowners from foreclosure by helping them refinance from risky subprime loans to stable government-backed mortgages.

But the F.H.A., the government agency that insures home loans for many first-time, minority and lower-income buyers, is grappling with financial woes of its own.

The agency faces a deficit next (fiscal) year, due to the “seller financed down payment” program.

Under the program, a home seller arranges to cover the buyer’s down payment — using financial help from a nonprofit company — but typically adds that sum or more to the total cost of the house. The arrangement has been particularly attractive to financially struggling buyers and to owners in depressed housing markets, according to Congressional officials.

In 2000, such mortgages made up less than 2 percent of F.H.A.-insured loans, officials say. By 2007, statistics show, they accounted for 35 percent of F.H.A. loans.

Housing officials say these mortgages have foreclosure rates two to three times those of others, leaving the agency reeling from the losses.

If the program continues without any changes, Congressional officials say, the F.H.A. would face a $1.4 billion shortfall in fiscal 2009. This would mean that Congress — and American taxpayers — would have to subsidize the F.H.A. for the first time.

Sounds like this is not the best time to be dumping a bunch of new loans on the FHA, when it’s facing a 1.4 billion dollar shortfall next year.   The taxpayers are going to end up paying for the housing mess, either directly through taxes for things like the FHA, or indrectly due to letting mortgage businesses fail and the market (holding everyones 401ks) crash.

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