Since the 2007 mortgage collapse the FHA has become single guarantor of mortgages in the States. Her capital reserves has sunk from 20bn to 3.6bn in the last few years as mortgage defaults have triggered pay outs. The FHA’s defaults are high as they accept low deposits. As low as 3% in fact. This with government programs to assist home purchases (Inc Federal housing tax credits and many incentives from HUD or the Housing and Urban Development unit of government) has resulted in positive incentives to purchase housing. Ie you are paid to buy. HUD has been working directly with the FHA to offer houses for $100 down payment.
http://portal.hud.gov/hudportal/HUD?src=/program_offices/housing/salesincentives
The FHA is now guaranteeing more than $1trn of highly leveraged mortgages, replacing Freddie and Fannie in this high risk role with tax payer once again on the hook when the house of cards tumbles again. Here Bloomberg on the issue.
From April the FHA increased premiums raising around 3bn a year however this will barely dent the sort of capital she needs and is likely to need looking ahead. Default issues are highly unlikely as she is a department of government. I.e. it is hard to see how the FHA can wriggle out of her guarantees to the mortgage REIT providers. Another bailout is needed then but to quote Chairman Ben on the matter:
“The U.S. government has a technology, called a printing press that allows it to produce as many U.S. dollars as it wishes at no cost.” 2002 B.Bernake
More, much more monetization of debts will come forth from the fed in the coming years as the various issues come home. This is extremely bullish for asset prices but particularly precious metals.
Rich
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