Government weighed down by bad mortgages

November 12, 2009

The Federal Housing Administration – the U.S. agency that actually enjoys full faith and credit of the government – is in quite a pickle. Reuters reporting that its capital reserves stand at a scant 0.53 percent, below the 2 percent regulatory minimum and without spitting distance of the “help me” threshold.

The deterioration has been fast and furious. Last year the ratio stood at 3% and the year before than 6.4%, according to The Wall Street Journal.

New York Times also has a nice data point:

The F.H.A., which insures loans made by private lenders, guaranteed more than $360 billion in mortgages in the last year, four times the amount in 2007.

The FHA has largely stepped in to fill the vacuum left behind by the banks that had been lending to subprime borrowers. Together with Fannie and Freddie, these housing agencies have kept the housing market from completely seizing up, but there’s a big downside: taxpayers are likely to foot the bill.

The FHA is putting on a brave face, saying reserves should remain above zero, but the still sick state of housing and high unemployment makes such promises sound hollow.

Fannie and Freddie are also feeling the heat. The delinquency rate on Freddie’s single-family mortgages have climbed to 3.33 percent, up from 1.22 percent a year ago. Fannie’s latest tally stood at 4.45 percent, up from 1.57 percent. Though they don’t have the explicit backing of the government – unbelievable but true – they still have a good chunk of the $400 billion equity line they can turn to if the losses accelerate.

UPDATE: To put the delinquencies in dollars and cents. From Freddie’s footnotes:

The unpaid principal balance of our single-family Structured Transactions at September 30, 2009 was $24.9 billion.

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