Tags: fha | nearly | broke

Agency Backing One in Four Home Loans Nearly Broke

By Julie Crawshaw   |   Monday, 21 Sep 2009 10:09 AM

The Federal Housing Administration — which guaranteed about a quarter of all U.S. home loans made this year — has been hit so hard by the mortgage crisis that the agency's cash reserves will drop below the minimum level set by Congress for the first time.

"It's very serious," FHA Commissioner David H. Stevens said in an interview reported by The Washington Post.

"There's nothing more serious that we're addressing right now, outside the housing crisis in general, than this issue."

Stevens says an independent audit due out soon will show that the agency's reserves will drop below the 2 percent level as of October 1.

He also says he will announce several measures that will help FHA reserves, which are intended to ensure that the agency can cover unexpected losses, will rebound quickly.

Though the Obama administration says it is starting reduce support for the private sector, Peter Lansing, president of mortgage firm Universal Lending, says it isn’t.

At the height of the boom, just 20 percent of Universal's mortgages were backed by the FHA; today, that figure has risen to 80 percent.

"Over 29 years in business, we've always thought of ourselves as being in the free-enterprise system,” Lansing told The Wall Street Journal.

“Today I think of myself as a government contractor.”

The government bailed out Fannie Mae and Freddie Mac last year and now effectively owns the mortgage finance giants and their combined $5.4 trillion in loans and guarantees.

To keep mortgage rates low, the Federal Reserve is on track to purchase nearly $1.5 trillion in debt issued or guaranteed by the government's various mortgage arms.

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The Federal Housing Administration — which guaranteed about a quarter of all U.S. home loans made this year — has been hit so hard by the mortgage crisis that the agency's cash reserves will drop below the minimum level set by Congress for the first time."It's very...
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