80% of mortgages backed by FHA, which is low on funds

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80% of mortgages backed by FHA, which is low on funds

Tuesday, September 22nd, 2009 | Economics |

The Money Times - Rising foreclosures to drop FHA’s reserves below mandated level:

Battered by the slump in the housing market, Federal Housing Administration (FHA) said Friday that its reserves will fall below the congressionally mandated level for the first time in its 75-year-old history. Battered by the slump in the housing market, Federal Housing Administration (FHA) said Friday that its reserves will fall below the congressionally mandated level for the first time in its 75-year-old history. Despite falling reserves, FHA Commissioner David Stevens said that the agency will not ask Congress for support to rebuild the reserves

And here’s why it matters. iTulip - Mission Accomplished – Part I: Wrecking of the world’s greatest economy:

If we told readers in 2005 when we warned about the housing bubble that GSEs Fannie Mae and Freddie Mac were to be nationalized within three years, we’d have been called alarmist. But the Wall Street Journal reported on Tuesday that this year 80% of all mortgages were purchased in the secondary market by the FHA, versus 20% in 2006. What the chart above says to me is that some day down the road we may find a large segment of our banking industry has been nationalized much as we have for all intents and purposes nationalized the mortgage banking industry.

Think about what the virtual nationalization of mortgage debt means. It means that 80% of home sales that are occurring today would not occur except for the government’s guarantee of mortgage credit. We have for all intents and purposes a nationalized housing market here in the U.S. And who is backing the mortgage debt? Not investors in mortgage-backed securities in Europe and Asia. In fact, the Treasury is busy buying back Agency debt from them, the bonds issued by the GSEs, with Treasury bonds. You can see the net decline in purchases in agency debt and the corresponding rise in net purchases of Treasury bonds in the data.

Tags: eric janszen, mortgage mess