Hey American taxpayers, get your wallets ready…a group of economists from the NY Federal Reserve and NYU say the FHA is understating how much risk it’s taken on, which may make it a candidate for a taxpayer bailout.

The FHA currently backs more than 25% of all home loans – up from less than 2% just three years ago.

According to a recent article in the Wall Street Journal:

The economists warn that the Federal Housing Administration—which has jumped to fill the void left by the collapse of the private mortgage market—is overlooking factors that signal higher losses, according to a working paper released Thursday.

The agency has traditionally turned a profit for the U.S. government. But the economists warn that by underestimating the risks it faces, the FHA has increased the likelihood that it will have to ask Congress for money for the first time in its 75-year history.

The study doesn’t say how likely that now is, but “it’s hard to imagine that they won’t be returning to Congress several times,” said Andrew Caplin, one of the authors and an economics professor at NYU. “It’s just inconceivable that the loans … will not cause very large losses.”

The FHA says it would need taxpayer money only in a worst-case housing-market scenario.

Hmmm….and what would that “worst-case housing market scenario” look like? Something like what we’re in right now??

Read the entire article here.


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