Economics, U.S. Economy

3 reasons the FHA is a bigger threat to our economy than you realize

The Federal Housing Administration is supposed to support low-income housing without costing taxpayers a dime. Today, with congressional blessing, the FHA is subsidizing middle and upper-middle income homes—and setting itself up for a huge taxpayer bailout.

These trends raise basic questions about FHA’s solvency and the damage being done by its loose lending standards.

Despite assurances from FHA officials that all’s well, a close look at the agency’s operations reveals three big problems:

1.    Its actual capital position using private-industry standards shows FHA to be deeply insolvent;

2.    Private regulators would shut it down rather than continuing to allow it to “grow” its way out of its insolvency;

3.    The continuation of underwriting practices that result in a high proportion of families losing their homes will cause significant damage to American families and communities.

AEI’s new “Denial Dial,” shown below, illustrates the depth of problem.

The Denial Dial is part of FHA Watch, a new monthly publication focused on the government’s 100 percent taxpayer backed FHA mortgage guarantee program.

Each month, FHA Watch will shine a spotlight on FHA’s financial condition and delinquency levels, and call attention to the impact of unsustainable lending practices on families and neighborhoods.

FHA Watch will also highlight much-needed FHA reform and will lay out specific suggestions designed to protect taxpayers, families, and neighborhoods.

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