"But if people had any idea of the damage he's [Rep. Barney Frank] done [by promoting the ‘affordable housing at all costs' policies] he's be out of there." -Thomas Sowell
The Federal Housing Authority (FHA) was created in 1934 to increase home ownership and stabilize housing prices. The FHA provides mortgage insurance to protect private lenders from losses due to homeowners defaulting on their mortgage loans. The cost of the insurance is passed on to the homeowner in their monthly payments. To accomplish its mandate, the FHA requires substantially less cash for down payments (as little as 3.5 percent) compared to the 20 percent down payment required for a conventional mortgage without mortgage insurance. FHA loans are made through banks and other mortgage lenders and are sold as securities by Ginnie Mae. Like Fannie Mae and Freddie Mac, the federal government's housing policies required the FHA to guarantee subprime and nonconvential mortgages which are not performing and have caused the FHA's reserves to sink below the legal limit. For example, the FHA has increased its share of the single-family mortgage market from less than 5 percent to more than 30 percent. As a result, increased delinquencies and foreclosures have almost bankrupted the FHA insurance fund and the taxpayers are likely to be asked to come to the rescue if immediate reforms are not instituted.
On February 25, 2010, Fannie Mae requested an additional $15.3 billion from Treasury after posting its tenth consecutive quarterly loss. Granting Fannie's request brings the total taxpayers' support for the GSEs to $126.9 billion. Freddie Mac reported quarterly net losses for nine out of the past ten quarters. While the history of the Democrats' protection and encouragement of the GSEs to engage in unsound practices for the sake of "affordable housing" is undisputable, the Democrats have yet to attempt to redeem themselves with the taxpayers. In fact, rather than presenting a plan to address the status of the GSEs and protect the taxpayers, the Obama Administration, with support of Congressional Democrats, committed the taxpayers, through funding by the Treasury Department, to unlimited support to prop up the failed enterprises. The two housing GSEs have over $5 trillion in outstanding debt obligations and mortgage guarantees. While the GSEs' debt is not included in the federal budget, both firms are in federal conservatorship. Lastly, it was recently revealed that the GSEs' debt and U.S. debt securities held by foreign nations have been the subject of discussions to manipulate the U.S. economy, but Treasury and Democrats in Congress have remained silent.
ISSUES OF CONCERN:
Taxpayer Bailout for FHA: The FHA's capital reserve ratio has fallen to .53 percent, well below its statutory ratio of 2 percent. On February 2, 2010, The Washington Post, reporting on FHA's financial woes stated, "Although the FHA's default rate has been climbing for months and eating into the agency's cash, the latest figures show that the FHA's woes are getting worse...If the trend continues and the FHA's cash reserves are exhausted, the federal government would automatically use taxpayer money to cover the losses."
Lack of Meaningful Financial Reform: Fannie and Freddie were at the center of the mortgage market meltdown that caused the nation's financial turmoil. Therefore, financial regulatory reform legislation will not have any meaningful impact on ending taxpayer bailouts if the cost of operating the GSEs is allowed to continue to rise and the level of taxpayer support is allowed to grow.
Lack of Honest Accounting: Fannie and Freddie were placed in conservatorship on September 2008. With unlimited taxpayer support, the GSEs are functioning as federal government agencies. In fact, in its August 2009 baseline, Congressional Budget Office concluded "that Fannie and Freddie were federal agencies whose operations should be included in the federal budget." The Democrats have resisted this accounting, choosing again to be on the side of Fannie and Freddie by hiding the true cost of Fannie's and Freddie's operations from the taxpayers.
National Security Implications: On January 29, 2009, Bloomberg reported, "Russia urged China to dump its Fannie Mae and Freddie Mac bonds in 2008 in a bid to force a bailout of the largest U.S. mortgage-finance companies, former Treasury Secretary Henry Paulson said." Yet, the Democrats continue to ignore the nation's rising debt as a national security issue.