- The Washington Times - Thursday, April 2, 2009

WASHINGTON (AP) - The number of troubled loans backed by the government’s mortgage insurance program is rising as economic problems mount, and lawmakers are worried taxpayers will be stuck with the final bill.

Sen. Kit Bond, R-Mo., warned Thursday that the Federal Housing Administration is a “powder keg” waiting to explode, and said Congress and the Obama administration shouldn’t place a greater financial burden on the already strapped agency.

“The taxpayer credit card is maxed out,” Bond said at a Senate subcommittee hearing.

“My constituents have been clear that they don’t want to wake up to learn that Congress has taken steps that leave the taxpayer holding the bag,” said Sen. Patty Murray, D-Wash. “That is exactly what could happen if the FHA is pushed to buy loans that could go bad soon or down the line.”

President Barack Obama’s housing secretary, Shaun Donovan, told senators that the FHA is “unlikely to face the catastrophic losses borne in the subprime sector.” That’s partly because the agency didn’t back loans for more expensive properties that have plummeted in value, particularly in places like California, he said.

As of February, 7.2 percent of loans backed by the FHA were either 90 days overdue or in foreclosure, up from 5.8 percent in August.

If losses surge too high, the agency would be forced to raise money _ either by increasing insurance premiums on new borrowers or seeking a subsidy from taxpayers.

It’s too early to determine whether such a decision is imminent, officials said, but the current financial outlook is troubling.

“Based on the numbers we’re seeing, I think it’s going in the wrong direction,” said Kenneth M. Donohue, inspector general for the Department of Housing and Urban Development.

The FHA became the main source of home loans to borrowers with poor credit and low down payments after the subprime lending market’s collapse. It allows borrowers to take out home loans with down payments as low as 3.5 percent, compared with 20 percent for a typical loan that doesn’t require mortgage insurance.

FHA loans are made through by banks, insured by the government and sold as mortgage-backed securities by Ginnie Mae, the government’s mortgage finance agency. The FHA currently backs around a third of new home loans, up from about 3 percent in 2006.

Obama last month nominated real estate industry veteran David Stevens to head the FHA. Stevens is currently president and chief operating officer of Long and Foster Cos., a Chantilly, Va.-based real estate brokerage. The position requires Senate confirmation.

Copyright © 2018 The Washington Times, LLC. Click here for reprint permission.

The Washington Times Comment Policy

The Washington Times welcomes your comments on Spot.im, our third-party provider. Please read our Comment Policy before commenting.


Click to Read More and View Comments

Click to Hide