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Is this the Next Bailout?

Written By Brian Hicks

Posted September 21, 2009

Here we go again…

Be prepared to fork over more of your hard earned dollars to Uncle Sam, who continues to guarantee and insure loans to just about any one who wanted a house. The financial decay continues… and this time, it isn’t Fannie or Freddie on the chop block, it’s the Federal Housing Administration.

The Federal Housing Administration has said its cash cushion will dip below mandated levels for the first time… but insists that it won’t need a taxpayer rescue (where have I heard this before?).

The agency, a source of income for first-time home buyers is facing mounting concerns that it will need a taxpayer bailout, despite what it’s telling the public. As of this summer, 17% of FHA borrowers were at least a month behind or in foreclosure, as compared with 13% for all loans.

Those rising defaults mean FHA reserves could sink below the 2% mark required by federal law. And a study being sent to Congress this November is expected to show that percentage dipping below required levels for the first time.

According to the Wall Street Journal:

It isn’t clear how the rising losses may affect home buyers. Options for the agency could include politically unpalatable choices, such as asking for taxpayer funds to boost reserves or increasing the premiums borrowers pay for the insurance offered by the agency. Agency officials say if there is a shortfall, they don’t have to do anything except report it to lawmakers. But some mortgage and housing analysts see trouble ahead. “They’re probably going to need a bailout at some point because they’re making loans in a riskier environment,” says Edward Pinto, a mortgage-industry consultant and former chief credit officer at Fannie Mae. “…I’ve never seen an entity successfully outrun a situation like this.”
But hey, it’s only money, right?
When you have trillions in debt, what’s a few billion dollars more?