The federal government has been quick to offer bailout money to banks and car companies in an effort to save those businesses and to stimulate the economy. Opinions are very mixed as to whether these bailout efforts worked but what happens when a federal agency needs a bailout?
According to this article from CNN Money, the Federal Housing Administration is in dire straits with a severe spike last month in delinquencies of FHA-insured loans. Add to this their already depleted cash reserves and you have a disaster brewing.
Experts argue that the FHA needs somewhere between $20 billion and $50 billion to meet the capital requirements mandated by Congress…and that’s if the housing markets doesn’t get any worse.
The FHA doesn’t offer mortgage loans but insures the loans made from other banks and mortgage companies. With more and more people defaulting on their mortgage loans, these mortgage lenders are turning to the FHA to recover their lost funds.
Where will the money come from if the FHA needs a bailout? Either from the Treasury Department or from increased premiums it charges borrowers.
In typical government fashion, the FHA claims the situation isn’t as bad as it sounds and they have $400 million more in liquid assets than a year ago. But with predictions showing housing prices dropping another 3% to 4% in 2012 before stabilizing, it sure looks like a bailout will be necessary.
Share your thoughts below about the government’s attempts to help the housing market.
