FHA - Taking Risks With Your Tax Dollars?

With the housing struggling, the FHA is looking to step in to fill the void.  The FHA provides insurance for loans and does not make the loans.

Over the past four months, Fannie and Freddie have imposed fees that lenders have to pay upfront so that loans can be guaranteed by the two companies. Those fees are passed on to borrowers and typically result in slightly higher interest rates. Fannie and Freddie also have increased down-payment requirements in areas where house prices are falling. The FHA hasn't changed its terms and allows down payments as small as about 3% nationwide.

More reckless than Fannie and Freddie?  The officials in Washington will do anything to prop up the market.  In the end, it's the tax payers taking the risk. 

The FHA's broader role exposes it to more risks, stirring fears that taxpayers ultimately may have to bail out the agency. The FHA is "underpricing for the risk that they are taking on," says Thomas Lawler, a housing economist in Leesburg, Va., who formerly worked for Fannie Mae.

FHA officials counter that the FHA requires borrowers to document their ability to repay loans and has never needed a bailout for its single-family mortgage program. "The FHA is playing exactly the role it's supposed to play," maintaining the flow of mortgage credit, says Meg Burns, a senior official at the agency. "We need to be there as a backstop."

I wonder if Meg would be saying the same thing if this was her money instead of FHA. 

Ashley Jones, a 23-year-old who works for an urban-redevelopment organization in Kansas City, Mo., was delighted with that backstop. On Monday, she locked in a fixed interest rate of 5.5% on a 30-year mortgage to be insured by the FHA. "It's just a fantastic deal," says Kerry Thomas of mortgage bank James B. Nutter & Co., who is arranging the loan. Ms. Jones would have paid about 5.75% for a conventional loan and would have needed to put down 5% of the home value, instead of the 3% she will need for the FHA loan, says Ms. Thomas.

I am glad Ashley Jones was able to finance her home.  But if you can not put down 20%, you should not be buying a house!  And if you can not put down 5%, you should not be allowed to even think about buying a house.

Yesterday, the Department of Housing and Urban Development, which runs the FHA, announced the new temporary loan ceilings in California. Details for the rest of the country are due to be announced this week, perhaps today. The California loan caps range from $271,050 in lower-cost areas such as Lassen and Trinity counties to $729,750 in high-cost counties in the Los Angeles and San Francisco areas.

Tax payer dollars to help someone buy a $700,000 house!