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You could be on the hook for yet another bailout.
Federal Housing Administration posting a massive sixteen billion dollar deficit.
Prompting fear of the agency may require -- taxpayer bailout for the first time in its 78 year history.
For more Ed Pinto resident scholar at the American enterprise institute and former Fannie Mae vice president.
-- welcome back to the show it's always great to have you here.
I -- -- over the fact now that we saw this coming it was like it like a freight train that was on the tracks for a long time we're finally here.
And I just can't believe we're gonna have to -- agency out.
Were there any other options.
Absolutely this could have been avoided.
Just keeps digging the hole deeper expanding and expanding and while it yet to try to grow its way out of this and that's.
Usually a recipe for disaster in the financial services industry we seen it time and time again when it's a government agency it's easy to do because its other people's money taxpayers.
Yeah and now one in six FHA loans are delinquent which is not good news.
Is it possible for us to get back to a private marketplace should the government be in the business of trying to encourage people to own homes.
Basically we need to get back to.
You know sound lending.
And FHA likes to make it people think that what they're doing today is what they did literally forty -- fifty years ago.
They talk about how in the mid 1950s.
They came up with this way to do low down payment lending and -- successfully.
Well they were doing it successfully except the down payment was 20%.
The long term was 21 years and -- housing debt ratio get this was 15%.
Today FHA has a 4% down payment.
Thirty year term and their average housing debt ratio is 35%.
And interest rates are half what they war in nineteen fit well.
For -- -- have been very that's the problem and let me let me interrupt you there because I think you make it very good point that goes to the politics of the issue.
How can -- flip the switch on FHA Fannie Mae and Freddie Mac when there.
Essentially one of the few entities out there that actually are underwriting the loans.
With low down payment requirement you know house -- -- the banks are being is there any way to develop political will put an end of it.
-- I've been saying for three years that the private sector doesn't like to.
Deed itself against a wall it has to go through openings and the government with 90% of the market.
And all the regulation that it's put in place has basically not provided any openings for the first step is FHA should shrink.
Improve its underwriting standards those doing responsible lending.
To its targeted group low and moderate income homeowners who should do that responsibly once it does that.
Then some of the changes going on in Fannie and Freddie raising their guarantee fees and other changes that FHFA -- regulators doing would take hold.
And the private sector would come back this isn't gonna happen overnight if you have to have an environment that allows it to happen.
I think congress has to do something to -- FHA in.
Are -- you know in some markets along limits are 729000.
Dollar wants to that I.
I would ask you quickly about what is really.
-- PR effort going on to make.
To make people want to keep FHA -- Shaun Donovan Hud secretary saying FHA has weathered the storm.
Of the recent economic and housing crisis by taking the most aggressive and sweeping actions in its history reform they returned make the point today.
-- we got more money coming everything's going to be okay Americans go back to sleep keep sending us your taxpayer dollars -- that that there argument.
Here are there.
Actually not what their.
Not mentioning and they did this a year ago when they came out with a report they knew.
The projected house price numbers were completely wrong.
They basically ignored that and then they made a correction this time to the tune of ten billion dollars to the negative well this time they're using interest rates from July.
And they're basically saying it -- that mortgage rates are gonna double by the third quarter 2014.
Well there was a little event that happened in September with the Fed.
And that's not gonna happen.
And so that's gonna cost them another.
Fifteen or twenty billion dollar so instead of being a sixteen billion dollar hole.
This is a 35 billion dollar a barrel today so when they talk about eleven million dollars that they're gonna get the next year it's always the next don't worry the next year is gonna bail us out the next year never bails them out hasn't happened for four years.
Wow that are lying about the number -- OK Ed thanks for your help if there were private company the SEC would be all over.
Thanks for coming on -- appreciate your time you have to come back okay hours of pleasure Gerri thank you thank you.
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