Pinto: The FHA Needs a $54 Billion Bailout Tales from the new sub prime

If there is one thing I have learned in this mess it is this: Don't trust any CEO who swears that everything is just fine.

That's because the current crisis has been full of these jokers and eventually everyone of them has needed a bail out.

So when I heard Commissioner David Stevens insist last month that "Under no circumstance will any taxpayer bailout be needed" for FHA, I took it with a 50 lb. bag of salt.

After all, sub prime borrowers hadn't gone away—not by a long shot. Instead, they had simply moved back into FHA loans.

Now their problems are your problems again.....

From Bloomberg by Jody Shenn entitled: FHA Shortfall Seen at $54 Billion May Lead to Bailout

"The Federal Housing Administration, which insures mortgages with low down payments, may require a U.S. bailout because of $54 billion more in losses than it can withstand, a former Fannie Mae executive said.

"It appears destined for a taxpayer bailout in the next 24 to 36 months," consultant Edward Pinto said in testimony prepared for a House committee hearing in Washington today. Pinto was the chief credit officer from 1987 to 1989 for Fannie Mae, the mortgage-finance company that is now government-run.

The FHA program's volumes have quadrupled since 2006 as private lenders and insurers pulled back amid the U.S. housing slump, Pinto said. The jump has left the agency backing risky loans and exposed to fraud in a "market where prices have yet to stabilize," he said.

Official figures on FHA's reserves as of Sept. 30 won't show a shortfall when released because "the assumptions used will be overly optimistic relative to loss mitigation resulting from both loan modifications and recent and expected underwriting changes," Pinto said.

Pinto's testimony says he based his FHA estimates on his performance projections for high loan-to-value ratio loans insured by Fannie Mae in 2006, about 20 percent of which he expects to default costing 50 percent of balances. (emphasis mine..since this is a virtual repeat of the sub prime numbers!!!)

About 14.4 percent of FHA loans were delinquent as of June 30 and 2.98 percent were already being foreclosed upon, according to the Mortgage Bankers Association."

Again, when this one blows up its not going to be pretty...

By the way, in this case, the collapse of Taylor, Bean & Whitaker is just the tip of the iceberg.

Related Articles:

Mortgage Delinquencies a Set New Record

The Brewing Trouble at the FHA

Elizabeth Warren warns on toxic assets

Catastrophe averted, personal bankruptcies skyrocket

Underwater Mortgages Drive the Next Foreclosure Wave

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