Luxury builder Robert Toll says the Federal Housing Administration (FHA) is a train wreck waiting to happen.
If he’s right, that’s bad news, because the FHA has played a huge role in buoying the housing market in recent months.
The agency insured lenders against mortgage defaults on 20 percent of homes bought in the last year.
The problem is that it requires down payments of as little as 3.5 percent.
“Yesterday’s subprime is today’s FHA,” Toll Brothers CEO Robert Toll said at a recent conference.
“It’s a definite train wreck, and the flag will go up in the next couple of months. Bail us out. Give us more money.”
Toll Brothers is the largest U.S. luxury home builder.
The FHA’s capital reserve fund plunged 72 percent in the year ended Sept. 30 to 0.53 percent.
And Toll isn’t the only one worried.
“There is a real risk. Nobody has a crystal ball,” Shaun Donovan, secretary of Housing and Urban Development, told The New York Times.
“We recognize there is a possibility that the reserves go below zero and stay there.”
Housing economist Thomas Lawler is even more pessimistic.
“If it were private, it would need a substantial capital infusion now, period,” he told The Wall Street Journal.
“They're a monoline mortgage insurance company that has just gone through the worst housing environment since the Great Depression. How can anyone argue that they wouldn't need more capital now?"
© 2017 Newsmax. All rights reserved.