Watch CBSN Live

FHA Running Through Money?

More mortgage mess? A report by David Streitfeld and Louise Story in yesterday's New York Times raised the spectre that the Federal Housing Administration, which is helping to insure liquidity in the bottom end of the mortgage market, is facing a large number of troublesome defaults.

The article quoted Edward Pinto, a former official for another government-linked mortgage association, the Federal National Mortgage Association (Fannie Mae), as predicting that the FHA's $30 billion reserve fund would be wiped out by losses.

To be fair, FHA Commisioner David Stevens testified before Congress that his agency would not need bailout money -- unlike Fannie Mae and Freddie Mac, which according to the Times have taken $96 billion.

And an examination of default rates -- which, like default rates of mortgages in the broader market, look a lot worse for loans made in 2007 than for loans made in 2004 when the economy was better and credit standards were tighter -- shows that default rates for 2008 are below those for 2007.

FHA homeowners tend to be buyers of starter or foreclosure homes -- according to the Times, the agency insures $675 billion worth of mortgages for 5.4 million homeowners, which works out to be just $125,000 per home.

Clearly an economic recovery would help these homeowners, but Commissioner Stevens testified "absent any catastrophic price decline, FHA will not need to ask Congress and the American taxpayer for extraordinary assistance."

Whether you think we're going to recover soon or bump along the bottom for a couple years (my guess) the good news is, given the data we have, a "catastrophic price decline" seems unlikely. However, this is certainly one to watch for the future.

Read More:

View CBS News In
CBS News App Open
Chrome Safari Continue