Tuesday, May 5, 2009

More Bailouts from Taxpayers

I was reading this article in The Wall Street Journal, Online Edition today titled The Next Housing Bust and had to put down an "I told you so." Here is a quote from the article:

The FHA is almost certainly going to need a taxpayer bailout in the months ahead. The only debate is how much it will cost. By law FHA must carry a 2% reserve (or a 50 to 1 leverage rate), and it is now 3% and falling. Some experts see bailout costs from $50 billion to $100 billion or more, depending on how long the recession lasts.

How did this happen? The FHA was created during the Depression to help moderate-income and first time homebuyers obtain a mortgage. However, as subprime lending took off, banks fled from the FHA and its business fell by almost 80%. Under the Bush Administration, the FHA then began a bizarre initiative to "regain its market share." And beginning in 2007, the Bush FHA, Congress, the homebuilders and Realtors teamed up to expand the agency's role.

This should come as no surprise to anyone who has been following this issue. I wrote about this in December of 2007. Keep listening because there may be more surprises, especially from the Federal Home Loan Banks.

Thanks to Val Ivanson for the link!

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Anonymous said...

Great call Palermo. I can vouch for you making this same call in the Spring of 2008 as well.

Palermo's Blog said...