The FHA Time Bomb

Well, this certainly is embarrassing. The Federal Housing Administration – the very agency the Bush Administration and Congress trumpet as the solution to the mortgage crisis – has announced that it suffered a $4.6 billion loss last year. This is one of the worst financial performances ever for the government's multibillion-dollar mortgage insurer.

We'd hope this news might cause Congress to reconsider its plans to turn over some $300 billion of troubled loans to an agency already in financial distress. No such luck. A bill passed by the House and now being debated on the Senate floor would expand the FHA portfolio to about 1.5 million mostly high-risk subprime mortgages. So at the very time private lenders and investors are fleeing subprime markets, Congress wants taxpayers to dive in.

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One reason the FHA lost so much money was financial mismanagement. In 2000 in the final days of the Clinton Administration, HUD Secretary Andrew Cuomo tried to expand FHA's share of the mortgage insurance market by lowering its premiums by one-third, to 1.5% from 2.25%. The Bush Administration never reinstated the more prudent premiums. If it had, FHA's losses would have been zero or close to it.

The biggest reason the FHA lost so much money was a scam called the "downpayment assistance program." Under this program, builders or mortgage originators make a loan to low-income homebuyers, and then arrange for a third party to pay the downpayment, so the loan qualifies for FHA insurance. This means borrowers have no skin in the game, and in many cases have negative equity because the value of the homes are often inflated.

WSJ

U.S. cities cut services, raid reserves on fuel cost

NEW YORK (Reuters) - Surging fuel prices are forcing cities across the United States to cut back on services and dip into cash reserves to keep their fleets on the road, according to a survey released on Friday.

Ninety percent of the 132 mayors surveyed by the U.S. Conference of Mayors reported that climbing fuel prices have had a significant impact on city budgets and operations.

Yahoo


Mayors urge Congress to help fix US infrastructure

(06-12) 11:52 PDT WASHINGTON (AP) --Big-city mayors told Congress on Thursday that they are overwhelmed by the infrastructure needs of their regions and cannot maintain well-functioning water systems, roads and rail networks without more federal help.

SF Gate