FHA Losses Increasing

I and many others have mentioned before that FHA could be the next subprime debacle.  Their originations are getting close to $1 trillion just like Fannie Mae and Freddie Mac. 

FHA is required to keep a certain amount of reserves equal to 2% or more and according to the article they were at 3% as of last year.  “A senior official at HUD, which oversees the FHA, said there is “no risk” that the FHA would require money from Congress if the ratio falls below 2%. Asked about the agency’s capital ratio, the official said a report detailing that number won’t be completed until the FHA’s fiscal year ends Sept. 30.”

Call me a pessimist but I don’t believe for one second that there is “no risk” of falling below the 2% threshold.  Maybe it’s due to a lack of trust that I now have but at the same time I think this because I am in the business and see it from a micro prospective where they are only looking at it from a macro prospective.

Think about it, these borrowers are only putting down 3.5% and a lot of the time they are getting the seller to pay for closing costs and prepaids, getting a grant, etc, etc.  Many borrowers cannot save money and need this which is a risky business in my opinion.  I am not saying I don’t originate these loans because I do but god forbid they get a flat tire, their air conditioner breaks, etc. they are out of money.  It is very hard to break any habit especially spending habits.

“A bad habit never disappears miraculously; it’s an undo-it-yourself project- Abigail Van Buren.”  Many don’t have the discipline and it certainly isn’t easy.