The Next Mortgage Lender Bailout: The FHA

Critics think fallback agency will need a rescue in next couple of years
By Kevin Spak,  Newser Staff
Posted Oct 9, 2009 8:38 AM CDT
In this photo made April 24, 2009, Lorrin Montag, 65, and his wife, Dianna, 61 pose for a picture at their home in Corona, Calif. The unemployed Montags are hoping for FHA loan modification help.   (AP Photo/Chris Carlson)
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(Newser) – Another mortgage lender specializing in low income borrowers is in trouble: the Federal Housing Administration. The agency which oversees Fannie Mae and Freddie Mac could soon share their fate, as borrowers default on the low-downpayment mortgages it insures, critics told a House subcommittee yesterday. “It appears destined for a taxpayer bailout in the next 24 to 36 months,” said an ex-Fannie Mae executive.

The agency’s commissioner insisted that isn’t the case, saying the agency is managing its risks well, but he did acknowledge that roughly 20% of its loans went belly-up last year. The issue has split Congress; with Republicans want to rein in the agency, but with private lending virtually non-existent, Democrats say the FHA is too vital. “Let’s be clear,” said Maxine Waters, “Without the FHA, there would be no mortgage market right now.”