One place to start is the Federal Housing Administration, the nation’s insurer of nearly $750 billion in outstanding mortgages. The agency acknowledged this month that a new but still undisclosed HUD audit has found that FHA’s cash reserve fund is rapidly depleting and may drop below its Congressionally mandated 2% of insurance liabilities by the end of the year.
At a 50 to 1 leverage ratio, the FHA will soon have a smaller capital cushion than did investment bank Bear Stearns on the eve of its crash. Its loan delinquency rate (more than 30 days late in payments) is now above 14%, or from two to three times higher than on conventional mortgages. Its cash reserve ratio has fallen by more than two-thirds in three years.
– “Subprime Uncle Same”, The Wall Street Journal, September 29
These guys are definitely going to need a government bailout a la Fannie Mae and Freddie Mac. The Wall Street Journal editorial page is really hammering on the FHA and Ginnie Mae. For example, also see: “The Next Fannie Mae: Ginnie Mae and FHA Are Becoming $1 Trillion Subprime Guarantors”, The Wall Street Journal, August 11.