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September 27, 2013

Subprime 2.0? FHA Needs $1.7 Billion Government Bail Out

By Tyler Durden of ZeroHedge 

One would think that five years after the bail out of the GSEs, that the Federal Housing Authority(FHA), the government agency created to insure loans made by banks and other private lenders for home building and home buying, would be stable and growing. After all, the "housing recovery" and those $3 trillion (and rising exponentially) in liquid injections by the Fed should have assured it. Right? Wrong. 

Moments ago, the FHA, just as we predicted, officially announced it needs a government bailout - the first in its 79 year history - in the form of a $1.7 billion in funding from the Treasury to "cover projected losses in a mortgage program for seniors" and specifically losses due to reverse mortgages: those Fonzy-advertized fake piggy bank programs that end up anyone who uses them through the nose, and now taxpayers too.  But... but... but... if the FHA just failed.... does that mean they lied about the housing recovery too? Unpossible!

From AP:
At issue are reverse mortgage programs, which allow seniors to borrow against their homes for everyday living expenses.

Carol Galante is Federal Housing Administration Commissioner. Galante wrote Congress Friday that her agency will withdraw the money from the Treasury before the fiscal year ends Monday. Congressional approval is not required.

The agency insures mortgages for millions of homeowners. It’s struggling with $5 billion in losses on its reverse mortgage program.

The FHA suffered big losses when many borrowers 62 or older took large payments up front and later ran into financial problems, often due to falling home values during the financial crisis.
And to think it was only November 2009 when the Clevelend Fed lied when it said "are FHA-insured loans truly the new subprime? From our analysis it doesn’t appear so. In fact, several findings that emerged from our examination of FHA lending in Ohio point to "no" as the answer." Once again, the answer turned out to be yes.

Courtesy Tyler Durden, founder of ZeorHedge (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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