Wednesday, October 14, 2009

The Next Big Bailout? FHA Facing "Cataclysmic" Default Rates

Logo of the Federal Housing Administration.

Image via Wikipedia

by Aaron Task

Given the choice between "complete collapse" and increased government involvement in the housing market, Whitney Tilson, manager of T2 Partners, is glad policymakers opted for the latter in 2008.

But there is going to be a heavy price to pay for the U.S. government becoming the nation's mortgage broker, says Tilson, co-author of More Mortgage Meltdown.

Specifically, Tilson is worried about the potential need for a bailout of the Federal Housing Administration (FHA), which has guaranteed about 25% of all new U.S. mortgages written in 2009, up from just 2% in 2005.

Created in 1934 to help low-income and first-time homeowners, the FHA has historically played a minor role in the U.S. housing market. But the agency has become the government's vehicle of choice for mortgage financing in the past year.

The Next Big Bailout? FHA Facing "Cataclysmic" Default Rates

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