The FHA Dilemma: Just Another Brick In The Window?

The FHA Dilemma: Just Another Brick In The Window? BLOG VIEW: Friday's news that the Federal Housing Administration's (FHA) Mutual Mortgage Insurance Fund (MMIF) dropped below zero into the realm of negative percentage came as no surprise. What is surprising, at least to me, is the continued silence over the blatant reality that federal housing finance policy has degenerated into a complete and total shambles.

In the four years since the 2008 economic crash, the FHA has been pushed beyond the fraying point to handle a depth and scope of responsibility that far exceeds what the agency was designed to accommodate. This has been unfair to the FHA staff – they have done an extraordinary job under atrocious circumstances – and it has been unfair to the American public, which has been footing the bill for this mess.

But, then again, this kind of foolishness has become the new normal in Washington. For the past four years, federal housing policy has stagnated to the point that it often seems the government is doing everything it can to prevent the recovery of the housing market.

Consider what has not been addressed in the past four years. There has been no serious effort to resolve the conservatorship status of Fannie Mae and Freddie Mac, there has been no serious effort to lay the groundwork to restore the non-agency secondary market, there has been no serious effort to create a framework for a covered bond market, and there has been no successful attempt to mitigate the foreclosure crisis – the latter fact was acknowledged by no less a person than the president himself.

And then, consider what has been done since September 2008. There has been a ridiculous 2,300-page piece of legislation that places a ton of regulatory burdens on financial institutions that played no role whatsoever in the circumstances leading up to the crash. Housing policy is now dictated by two regulatory agencies run by White House-appointed bureaucrats that operate completely outside of the checks-and-balances system of government and that have the power to make up whatever rules they want to enact. Furthermore, the central bank has been churning out waves of increasingly worthless dollars and buying up armfuls of mortgage-backed securities in a vain attempt to prop up a deflated economy.

And even worse, next year promises to deliver a wave of new regulations and guidelines that will stifle the ability of consumers to obtain a mortgage while weighing down lenders with excessive compliance requirements. We are already seeing the results of this madness, with several major lenders exiting from important sectors, and a rash of new mergers and acquisitions that will ultimately shrink the size of the industry and limit the ability of Americans to access credit. Combine that with a stagnant employment picture and a lethargic economy, and 2013 ain't gonna be pretty!

Which leads to another question: Why are we suffering in silence? The industry needs to find its voice and state, in clear and unequivocal terms, that the federal government must present a viable plan to cease its domination of the housing finance market. The depletion of the FHA MMIF, which has been a long time coming, is painful evidence that big government is not the answer to the problems in housing finance. And the Fed's QE-Forever machinations, along with the president's idiotic notion that increased taxes on successful Americans will pay for these strategies, cannot keep this phony endeavor afloat.

As for the MMIF, I have no doubt that the administration – either with the blessing of an unhelpful Congress or by its own accord – will kick around the ledgers and find the cash so the FHA can keep on trucking. But that is a stupid way to run a government. The American people deserve better than a smoke-and-mirrors accounting sham.

Let's stop being quiet about this mess and start demanding better from our elected officials. The housing market will never be able to get on the road to genuine recovery as long as these shenanigans remain in place.

– Phil Hall, editor, MortgageOrb

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