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ADAM SHARP
The FHA continues to guarantee risky loans on behalf of the American public. And they’re now backing loans of almost $1m. Clearly, the FHA no longer serves the purpose it was created for – providing responsible loans to low-income and minority borrowers.
The current system simply transfers risk from private lenders to taxpayers. What a deal for lenders – government takes all the risk, and lenders only have to do paperwork and service the loan. With this kind of sweetheart deal, it’s no surprise that banks are reaping huge profits.
Part of recent profits are due to banks setting aside smaller cash reserves to cover losses. But why should they? Taxpayers will mop up the red ink, while banks reap all the gains. See Freddie Mac, Fannie Mae, AIG, and GMAC for more examples. Quite the recurring theme these days.
Add accounting gimmicks and low interest rates, and voila! Banks look great again. The overall economy, not so much. But banks are cleaning-up.
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