Another reminder that the 2008 financial meltdown is still nipping at our heels: the Federal Housing Agency needs – and will receive – $1.7 billion bailout.
It’s the first lifeline the FHA has received in its 79 year history, according to the Wall Street Journal, because private sector hucksters ran to the public institution to insure shoddy mortgages when the financial sector started collapsing on itself:
The FHA played an insignificant role during the housing bubble, as private lenders offered loans on much easier terms. But as lenders ratcheted up standards in 2007, the FHA’s terms were suddenly among the most favorable, and the volume of loans backed by the agency skyrocketed.
This will probably cause jitters in the housing market and beyond. The FHA, according to Reuters, “insures about $1.1 trillion in mortgages and now backs about one third of all new loans used to purchase homes, up from about 5 percent in 2006.”
The Wall Street Journal also reported that the public mortgage insurer (required to cover projected losses for three decades) “currently has more than $30 billion in reserves, but the administration’s budget projections show that those reserves are not sufficient.”
The FHA is able to draw on taxpayer funds during a nasty game of Tea Party Chicken because it was bestowed with (again, WSJ) “‘permanent and indefinite’ budget authority, allowing it to tap the Treasury.”
The emergency injection also highlights the potential consequences of playing political football with the debt ceiling — with financial markets still feeling the effects of 2008, one wonders how the economy’s immune system would react to a sudden shock to financial markets.