Housing is at the heart of the economy. The
Federal Housing Administration is at the heart of housing. And there's a danger that it will require a historic bailout next year. The FHA is $34.5 billion short of its legal
capital requirement.
Research published last fall by the American Enterprise Institute showed that the FHA had become over-leveraged. Barring a dramatic economic recovery, the report noted that the poor-quality of the loans the FHA absorbed to grow its portfolio would compel the agency to seek a multibillion dollar bailout. Since then, AEI's monthly
"FHA Watch" has chronicled the agency's slide into insolvency.
So, what must be done?
First, end the practice of knowingly lending to people who cannot afford to repay their loans. Second, return to the agency's historical roots: concentrate on those who truly need help purchasing their first home. Third, retreat from markets that can be better served by private lenders and insurers.
