Mortgages backed by the Federal Housing Administration are literally draining the agency of its cash reserves. The number of FHA foreclosures has increased 26 percent within the past year and at least 9.1 percent of FHA borrowers are at least 3 payments delinquent on their mortgage payments as of December.
The problems are rooted in FHA mortgages made in 2007 and 2008. Those loans are now maturing into their worst years because failures most often occur two to three years after a mortgage is made...If the trend continues and the FHA's cash reserves are exhausted, the federal government would automatically use taxpayer money to cover the losses -- a first for the agency, which has always used the fees it charges borrowers to pay for its losses.
The FHA was warned about rogue mortgage lenders who exploited the weaknesses of the FHA program by targeting low-income borrowers who were likely to face foreclosure in 2 to 3 years. The FHA (and other governmental agencies) failed to recognize that there was a foreclosure crisis that was on the horizon. Now taxpayers may need to bail out the FHA as its cash reserves are exhausted from the sheer number of foreclosures hitting FHA backed loans. Since the FHA insures mortgages, those rogue mortgage lenders will receive a payout with each foreclosure while homeowners lose their homes and receive little to no assistance. I wonder how many of these rogue mortgage lenders existed during the boom and fostered a mentality that it was easier to receive a foreclosure payout from the FHA than to earn money the more difficult way through the ongoing mortgage payments of borrowers? When are our legislators going to begin to do something about the mortgage lenders who have created and exploited the foreclosure crisis for their benefit? Maybe it is time for us to stop handling them with kid gloves and do what's necessary to make sure this foreclosure crisis does not continue.