The Real Estate Bloggers

FHA Expecting Higher Home Prices in 2015 To Dig Itself Out of It’s Financial Hole

Posted: 16 Nov 2010 06:55 AM PST

Fhalogo When you see the news later today everyone will be talking about how the FHA’s position has solidified and is now fairly stable. What you probably will not hear about is that the government agency is still well below the financial standards that they are expected to achieve.

What really caught my attention was this paragraph in their press release:

Like last year’s report to Congress, this accounting shows that FHA is sustaining significant losses from loans insured prior to 2009 and its capital reserve ratio remains below the congressionally mandated threshold of two percent of all insurance-in-force. However, the report concludes that under conservative assumptions of future growth of home prices, and without any new policy actions, FHA’s capital ratio is expected to approach two percent in 2014 and exceed the statutory requirement in 2015. via FHA (emphasis added)

So the FHA is banking their financial future on home prices rising. You hear from other sources that if the country heads into a double dip recessesion we may see another decline in prices. Gary Shilling is predicting another decline of 20 percent in the housing sector.

Now I hope that housing prices increase like the FHA hopes to, I really do. But imagine if a private company or bank failed to keep adequate reserves to meet a government mandate? And then they went to regulators and told them it was okay, the market will rise by 2015 and we will be okay?

My guess is that we would see a new name on the bank on Monday as the regulators shut it down. But the FHA being the loan engine for the housing market means that everyone will be looking the other way as another government program goes off it’s rails.

But why worry, it is only tax money being spent. Right?

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FHA Expecting Higher Home Prices in 2015 To Dig Itself Out of It’s Financial Hole