The FHA, Federal Housing Administration, just issued a performance report that could indicate the need for a taxpayer bailout in the next three to five years. A spike from 8.4% to 9.3 percent this month for mortgages delinquent three months or more has generated concern.
The FHA is mandated to maintain a reserve fund of at least 2%, which is a measurement of funds in reserve in relation to total insured loan value. The November report shows that the reserve fund is now down to only 0.24% of outstanding loans. While the FHA states that loans since 2009 are of a higher quality than those before and should help to bring up the value of the reserve fund, there are those who disagree.
Since many loans after 2009 went to those taking advantage of the first time homebuyer tax credit, there is a concern that they are going to become a problem. Many of those borrowers are said to have been cash poor, needing the tax credit to make their down payment. They are also as a group mostly underwater on their mortgages since they had such a low equity in the first place. There is a concern that they will become a problem and default in the future.
While the FHA seems to think that things are going to get better, many analysts expect just the opposite and a bailout from taxpayers in the neighborhood of $30 billion to $50 billion. I love reading this kind of stuff right when I'm doing my tax stuff!