Something's Not Adding Up Here… Housing Is Back, But FHA Needs a Bailout?

Housing is back! So says the media and Lawrence Yun of NAR.

872,000 new housing starts in September. Prices are up some 11.7% in September. And Lawrence Yun is projecting 15% increase in home values over the next three years.

So… what the hell is going on over at the FHA?

The Federal Housing Agency, which has played a critical role in stabilizing the housing market, said it ended September with $16.3 billion in projected losses — a possible prelude to a taxpayer bailout.

The precarious financial situation could force the FHA, which has been self-funded through mortgage insurance premiums since it was created during the Great Depression, to tap the U.S. Treasury to stay afloat.

The agency said a determination on whether it needs a bailout won’t come until next year.

The FHA is required to maintain enough cash reserves to cover losses on the mortgages it insures. But in its annual actuarial report to Congress, the FHA said a slower-than-anticipated housing market recovery has led its reserves to fall $16.3 billion below anticipated losses.

The FHA’s cash reserves aren’t supposed to drop below 2% of projected losses. They ended the 2012 fiscal year at -1.44%, down from the seriously low level of 0.24% at the end of 2011.

It appears that the FHA, which guarantees mortgages, has a delinquency problem: 11.14% in September. (Although, that’s an improvement from the 11.89% in June, and 12.09% in 2011.) However, the seriously delinquent category (more than 90 days past due) is up year-over-year from 8.39% in 2011 to 8.54% in 2012. After the “housing is back!” market of 2012. Huh?

Since FHA insures some 16% of home purchases (in 2010, that was 19.1%), a crisis at the FHA is gonna be a pretty big problem for real estate brokers.

I’ve pledged to be more positive and upbeat, but there’s an unsettling feeling at the pit of my stomach.

So what do you make of this divergence in narrative? On the one hand, housing is back! And on the other hand, FHA needs a bailout. Right in the middle of a “fiscal cliff” negotiation, after 2012 saw strong gains in housing market. What the…

Paging economists! Dr. Yun, please call the front desk.



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Rob Hahn

Managing Partner of 7DS Associates, and the grand poobah of this here blog. Once called "a revolutionary in a really nice suit", people often wonder what I do for a living because I have the temerity to not talk about my clients and my work for clients. Suffice to say that I do strategy work for some of the largest organizations and companies in real estate, as well as some of the smallest startups and agent teams, but usually only on projects that interest me with big implications for reforming this wonderful, crazy, lovable yet frustrating real estate industry of ours.

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