It was 4 years ago during the height of the financial crisis (exactly on November 12, 2008) that Mel and I were taking a continuing credit real estate course in which they were explaining the “new” FHA requirements that had been announced in the wake of the bank failure brought on by bad mortgages.
I will never forget Mel’s look as he heard that FHA was increasing the down-payment requirement from 3% down to a whopping 3.5% down on FHA mortgages! He turned to me and said “Are they crazy? How does 3.5% down protect against falling prices of a financial crisis?
To quote the Wall Street Journal of today: “Vindication is overrated, especially in a losing cause, so it brings no satisfaction to have predicted that the Federal Housing Administration would sooner or later threaten taxpayers. That day has arrived. Safely past the election, the feds announced Friday that the FHA’s liabilities exceed its assets by at least $16.3 billion and the gap could reach $93.7 billion in the worst case.
Yet it’s worth recalling that when we warned about FHA’s troubles in September 2009, we got an accounting lecture from HUD Secretary Shaun Donovan and a letter from FHA Commissioner at the time, David Stevens, that we were “just plain wrong.” He added that, “I can say undoubtedly that the FHA fund is playing a key role in the housing recovery and poses no immediate risk to the American taxpayer.”
Taxpayers will “undoubtedly” be pleased to know that the threat wasn’t “immediate” but arrived a mere three years later. Can taxpayers claw back the salaries of Messrs. Donovan and Stevens the way Congress has tried to do with those of financial CEOs? ..” Read on if you can:
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