Recommended reading:
The Next Big Bailout? Look No Further Than The New FHA
Two articles and a John Carney clip with Larry Kudlow discussing the FHA.
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There's a big head-scratcher hanging over the mortgage market.
Government-controlled Fannie Mae and Freddie Mac buy mortgages from banks and mortgage companies. Now, as they face the costs of huge defaults, both are scouring their books to identify loans they should never have been sold, often because borrower data weren't true. And mortgage makers are making big payments to Fannie and Freddie as reimbursement for these badly underwritten loans.
Oddly, one large government player in mortgages, the Federal Housing Administration, has disclosed next to nothing about its reimbursements. And without such information, it is impossible to judge whether the FHA has taken proper steps to force mortgage makers, and not taxpayers, to bear the costs of faulty loans.
Does the FHA stand to claim back large amounts? Traditionally, it has insured loans made to lower-income borrowers, often with poor credit histories. The FHA's business actually declined in the housing boom, because it required documentation that lenders were able to avoid on subprime and Alt-A mortgages, and because it stuck mainly to standard fixed-rate loans. And that higher level of documentation, and the fact that its business dipped during the boom, are possible reasons why the FHA mightn't have the right to collect large reimbursements.
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Continue reading at the WSJ >>
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Editor's note: Any time that I link to a WSJ article that offers only a preview without a subscription, it's simple to circumvent. When you arrive at the story on the WSJ, just paste the headline into a google search. Then when you click through to the story from google, you will be able to read the entire thing.
It's a 'quick fix' that takes about 5 seconds and works every time.
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