Tuesday, February 14, 2012

FHA Bankrupt

       WHAT GUMMINT DOES
    
   


 

Why does FHA Mortgage Insurance exist?

Unlike conventional loans that adhere to strict underwriting guidelines, FHA-insured loans require very little cash investment to close a loan. There is more flexibility in calculating household income and payment ratios. The cost of the mortgage insurance is passed along to the homeowner and typically is included in the monthly payment. In most cases, the insurance cost to the homeowner will drop off after five years or when the remaining balance on the loan is 78 percent of the value of the property -whichever is longer.

How is FHA funded?

FHA is the only government agency that operates entirely from its self-generated income and costs the taxpayers nothing. The proceeds from the mortgage insurance paid by the homeowners are captured in an account that is used to operate the program entirely. FHA provides a huge economic stimulation to the country in the form of home and community development, which trickles down to local communities in the form of jobs, building suppliers, tax bases, schools, and other forms of revenue. [FHA]

In the wayback, when the newly married us were buying our first home,  my dad jokingly offered that the FHA insurance fee was something of a gummint money making scam.  The default rate on FHA loans (going back to 1933) was so low that administration fees alone  cost more than any payout.  Of course that was long before  Bill Clinton, Barney Frank, and  Chris Dodd  became  the nation's banking engineers. Fast forward.

For the first time in its 78-year history, the 100 percent taxpayer-backed Federal Housing Administration is projected to run out of its remaining $4.7 billion financial reserves and trigger an infusion of funds from the Treasury.
 



2 comments:

Anonymous said...

It makes me think of the Mustang Ranch story going around the net some time back.
Tim

Anonymous said...

That's right Tim. It's hard to turn a profit when you're tapping the til.

Casca

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