The latest analysis by Edward J. Pinto, a Resident Fellow at the American Enterprise Institute, indicates that FHA continues to fall deeper and deeper into the “red” as a result of an increase in 30 day and 60 day delinquencies.
The total net worth of FHA, when estimated using Standard Accepted Accounting Principles, (GAAP) stands at -$23.23 billion dollars, with a capital shortfall that could go as high as $62 billion dollars. Dollars that would be paid to lenders by taxpayers as insurance on defaulting mortgages.
The total delinquency rate at present is 16.61 percent of all FHA insured loans, with 9.48 percent of loans classified as seriously delinquent. (90 days or more). This is very close to an all time record.
FHA was created during the great depression to help attract private investment to the mortgage market. Today, since the crisis of 2008, FHA has essentially become the primary facilitator of the U.S. mortgage market, insuring some 90% of all new mortgages that are being created in the residential sector.
This means that FHA has levels of risk never before seen, that could result in future losses to U.S. taxpayers in the tens of billions of dollars, if the economy were to continue to lose jobs or go into another recession. Many, like the AEI, who keep tabs on FHA are very concerned that FHA will require a bailout if the housing market continues to languish.
At present, with little private participation in the mortgage market, FHA is the “only game in town” for many typical first time buyers who do not have funds for a 10% down payment. FHA still only requires 3.5% down payments from the “most qualified” buyers, and with sufficient proof of income, a buyer could have a relatively low credit score.
A primary risk factor is the employment situation. As long as there is little to no growth in the job market, it is likely that more FHA borrowers could become delinquent on their mortgages. This certainly seems to be happening at present. According to FHA Watch, new delinquencies in the 30 to 60 day range are the primary reason for the increase in total delinquencies in this month’s report.