Fannie and Freddie have already gotten their bailouts, and now the third leg of the federal government's affordable home ownership fetish might need more money too: the Federal Housing Administration.
The FHA insures loans for first-time homebuyers, and its obligations could be staggering. The FHA insures loans with down payments as low 3.5%, but given the number of buyers who have wrapped closing costs into their mortgages in recent years, the true loan-to-value ratios may have been even higher.
Some 10.2% of people who took out FHA loans in first quarter of 2008 missed two consecutive monthly payments within the first ten months. And 12.3% of the loans made in 2007 were seriously delinquent.
Here's the worst part: As the housing market has tanked and default rates have soared, the FHA's market share has gone from 2% in 2006 to 30% in the fourth quarter of 2008. If the federal government doesn't pump more money into the FHA to keep it solvent and lending, the mortgage market will become even more illiquid and home prices will tank as the number of people who can get financing tumbles. There really is no alternative to keeping the FHA viable.
On the bright side, the Wall Street Journal reports that "Despite the rising defaults, the FHA sees some bright spots in its recent vintages. Rates of 30- and 60-day delinquencies for 2007 loans fell in January and February, which could indicate that serious delinquencies and foreclosures will peak this year. Officials also say the average credit score of borrowers has increased."
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