The nation is enduring continuing foreclosures because too many people bought houses they couldn’t afford and too many have zero equity. Now they owe more than the house is worth and many are inclined to simply mail the keys to the lender.
In the aftermath of the housing bubble, the Federal Housing Administration is doing more to help prop up the market. But there are signs the FHA is overextended. Worse, its lenient lending terms could be sowing the seeds of future foreclosures.
The FHA helps funnel capital to the market by guaranteeing that lenders will be paid back if borrowers default. Taxpayers don’t back up this guarantee; the money comes from insurance premiums.
But the risk is rising that the FHA will become another in a series of agencies requiring a taxpayer bailout. In November, an auditor’s report found that the agency’s capital reserves had fallen to 0.5 percent of its $685 billion pile of insured loans — dangerously below the 2 percent cushion it’s supposed to have.
At the same time, Congress doubled the maximum mortgage the FHA could guarantee to more than $729,000 for single-family homes and $1 million for multi-family properties.
This was supposed to be a temporary move, and it may have made sense in the higher-priced California market. But in the halls of Washington, the danger is that temporary steps tend to become permanent. Sure enough, some in Congress want to boost the new maximums even more and make them permanent. That would put the FHA outside its traditional mission of concentrating on mortgages for low- and moderate-income families.
To read the complete editorial, visit The Kansas City Star.
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