July 4, 2012

FHA Mortgage: Another Obama Headache

By Bruce Krasting

In 2008, Fannie Mae and Freddie Mac went bust. The collapse of the mortgage giants put the economy into a tailspin. You can’t blame Obama for that. In 2009 with Fan and Fred in receivership, the White House revved up D.C.’s other mortgage giant, the Federal Housing Authority (FHA). Everything that happened at FHA since January of 2009 is Obama’s headache. 

The Government Accoutability Office (GAO) released a report on the activities at FHA in 2009 and 2010. These were critical years for FHA as it was growing like crazy due to policy actions by the White House. The most significant effort to prop up the housing market was the First-Time Home Buyers Credit (FTHBC). In 2009 FHA doled out $12 billion of FTHBC money.
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There was only one catch to getting the FTHBC money. The borrower had to be current on their federal taxes to become eligible. However, it seems that the nice folks at FHA overlooked those rules. The summary conclusions from the GAO report:

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That’s right. The GAO found that the FHA "insured over $1.44 billion in mortgages for 6,327 borrowers with $77.6 million in federal tax debt who benefited from the 2008 American Recovery and Reinvestment Act. Of these borrowers, 3,815 individuals claimed and received $27.4 million in Recovery Act First-Time Homebuyer Credits (FTHBC).

In addition, the GAO found that those borrowers were 3X’s more likely to default.

To apply for FHA mortgage insurance, one has to supply a valid Social Security Number. It's the law that an individual can’t get FHA insurance, or FTHBC money with a federal tax judgement outstanding. If the GAO can track who got money and who owed taxes, then surely the FHA could have taken the time to look. But they didn’t.

Note:
There is a raging debate about austerity in the US. Fellows like Paul Krugman have been leading the battle for a much bigger role of the government. What the Keynesians fail to understand is that  governments are imbeciles about spending money. 


About The Author - Bruce Krasting had worked on Wall Street for 25 years--"For 25 years I woke up thinking, "What am I going to do today to make some money in the market". I don't do that any longer. But I miss it." Nowadays, Bruce blogs about his take on financial events at Bruce Krasting(EconMatters author archive here.)


The views and opinions expressed herein are the author's own, and do not necessarily reflect those of EconMatters.

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