Tuesday, November 10, 2009

How not to reassure the public, FHA style.

The FHA is looking to reassure taxpayers and politicians that it won't need a bailout from all the bad loans it has made and is still making.

From WAPO:
"It is absolutely a myth that they would have to go to Congress for money," said Marvin Phaup, a former budget analyst at the Congressional Budget Office and now a budget expert at Pew Charitable Trusts. "The FHA has permanent authority to get money from the Treasury because it is backed by the full faith and credit of the federal government."
. The agency is in effect tapping money it previously parked with Treasury. But if losses on FHA-backed loans continue, the agency could find itself overdrawn, yet payments from Treasury would not stop. They would automatically continue, rescuing the agency with taxpayer money

Great, well I am sure the politicians feel blessed that they won't have the political embarrassment of funding another bailout (and they WOULD). But the taxpayer still gets the shaft which is the whole point. So I am not sure why the FHA is going around tooting the horn on how they won't need a bailout.

"FHA could not compete as well for the best borrowers, and it was left with some of the riskier borrowers,"

Here is a radical idea.. Don't try to compete for bad borrowers. It turns out you lose a lot of money doing that.

FHA Commissioner David H. Stevens has said that the audit results will appear dire because they offer a snapshot of the agency's financial standing at the depths of a severe recession without taking into account new loans the FHA will insure or the fact that many of these loans have been made to more creditworthy borrowers than the FHA typically caters to.

Bernie Madoff could have had the same logic. That accounting for losses as the fund stands now doesn't account for all the people he is about to swindle in the future. If the only way the fund is solvent is to take in more business then it isn't a solvent insurance fund. But no politician will touch this with a ten foot pole, taking away any "support" from the housing market is verbotten. So the taxpayers will continue to pay. But nobody in politics can look further forward than today so they can have an excuse that nobody can possibly have seen it coming.

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