Writing for US News & World Report, Jason Gold notes that the Federal Housing Administration is outperforming most analysts expectations.
Normally a small part of the mortgage landscape, the Federal Housing Administration dramatically expanded lending in 2008 when the housing bubble burst and private capital fled.
While progressives hail the FHA’s role as key in blunting steep home price declines and providing much needed liquidity to the market, critics argue that the agency’s intervention was just another bailout that put taxpayers on the hook, and is now discouraging private lenders from coming back.
To be sure, the FHA took serious losses as home values tanked through 2011, and many were quick to focus on an independent audit in 2012 that cited the possibility of a $16.3 billion shortfall if housing conditions deteriorated. But recent estimates suggest the agency’s balance sheet doesn’t look nearly as bad as many analysts expected. President Barack Obama’s new budget, for example, anticipates that FHA will need to borrow less than $1 billion from the Treasury to cover capital shortfalls next year. If home prices keep rising and defaults keep falling this year as expected, even that deficit could evaporate. An improving financial situation would allow FHA to start rebuilding its capital reserves, which have fallen below the congressionally-mandated 2 percent.
Read the piece here.
