The Government’s Next Housing Bubble

Photo by flickr user Kevglobal via a Creative Commons license

Fight disinformation: Sign up for the free Mother Jones Daily newsletter and follow the news that matters.


Is the next housing bubble already on the horizon? And is the federal government the one inflating it?

That’s what lawmakers in Washington fear, the Los Angeles Times reports. As private mortgage insurers fall by the wayside in this dismal, bottomed-out housing market, the Federal Housing Administration—the government’s mortgage insurance company—has stepped in to maintain lending to homeowners. Reports the Times, the FHA insured 21.5 percent of all new mortgages in 2008, (up from less than 6 percent in 2007), including nearly 2 million mortgages worth at least $328 billion. This year, the agency essentially backstopped the housing market.

But is the FHA doing too much to prop up the market by lending to people who could be at risk for default and foreclosure? The catch with FHA loans is that little payment is required up front to get the loan—which means borrowers who face hardship, job losses, or a plunge in home values, are more likely to walk away from their homes. Then the FHA is stuck with worthless mortgages, eating millions in losses. (Sound familiar?)

The Times goes on to report:

Some lawmakers…worry that the FHA may be doing its job too well—enabling too many people with shaky finances to get loans, and in effect setting up a potential repeat of the housing bubble fueled in part by no-questions-asked subprime loans.

Recent numbers appear to underscore those concerns. The percentage of FHA loans that are delinquent or in foreclosure climbed to nearly 8% at the end of June, from about 5.5% in early 2006, according to the Mortgage Bankers Assn. And in the weeks ahead, its reserves for loan losses are projected to slip below federally mandated limits.

Indeed, the FHA might need its own bailout if its reserves continue to plummet due to losses. Meanwhile, lawmakers are looking at ways to tighten up the agency’s standards and shore up its reserves. Hopefully the federal government’s institutional memory is not so short as to forget how the last housing meltdown happened.

FOLLOW THE MONEY

Corporations and billionaires don’t fund journalism like ours that exists to shake things up. Instead, support from readers allows Mother Jones to call it like it is without fear, favor, or false equivalence.

And right now, a longtime friend of Mother Jones has pledged an incredibly generous gift to inspire—and double—giving from online readers. That's huge! Because you can see that our fall fundraising drive is well behind the $325,000 we need to raise. So if you agree that in-depth, fiercely independent journalism matters right now, please support our work and help us raise the money it takes to keep Mother Jones charging hard. Your gift, and all online donations up to $94,000 total, will be matched and go twice as far—but only until the November 9 deadline.

$400,000 to go: Please help us pick up the pace!

payment methods

FOLLOW THE MONEY

Corporations and billionaires don’t fund journalism like ours that exists to shake things up. Instead, support from readers allows Mother Jones to call it like it is without fear, favor, or false equivalence.

And right now, a longtime friend of Mother Jones has pledged an incredibly generous gift to inspire—and double—giving from online readers. That's huge! Because you can see that our fall fundraising drive is well behind the $325,000 we need to raise. So if you agree that in-depth, fiercely independent journalism matters right now, please support our work and help us raise the money it takes to keep Mother Jones charging hard. Your gift, and all online donations up $94,000 total, will be matched and go twice as far—but only until the November 9 deadline.

$400,000 to go: Please help us pick up the pace!

payment methods

We Recommend

Latest

Sign up for our free newsletter

Subscribe to the Mother Jones Daily to have our top stories delivered directly to your inbox.

Get our award-winning magazine

Save big on a full year of investigations, ideas, and insights.

Subscribe

Support our journalism

Help Mother Jones' reporters dig deep with a tax-deductible donation.

Donate