Home Builder Calls FHA Lending a Train Wreck

November 18, 2009 No Comments »

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I guess it’s official now; FHA lending is bad, bad news.

I mean, we’ve known for a while that FHA lending replaced subprime lending, with its low or no down payment and minimum credit score requirements.

And last week we saw the FHA’s capital ratio fall to just 0.53 percent, well below the Congressionally mandated two-percent minimum, thanks to its increased role in the home lending space and steadily rising defaults.

But when one of the nation’s largest home builders comes out and says something is crap, that’s when you know it’s bad, really, really bad.

Robert Toll, CEO of Toll Brothers, said today at a New York home builders conference that FHA lending could create another huge crisis in the mortgage industry, referring to it as “yesterday’s subprime.”

He also went as far as calling it a “definite train wreck,” noting that a “flag will go up in the next couple of months” for bail out money.

Of course, FHA boss Shaun Donovan said last week that the FHA has $31 billion in reserves to protect itself, representing 4.5 percent of total insurance in force.

And they’re working on policy changes to make it more difficult for unscrupulous lenders to originate bad loans.

But with 456,000 FHA loans in default, or 8.2 percent as of September, you have to wonder if we’ve got another huge bailout on our hands.

Especially when an interested party that likely relied on FHA lending to support its business is saying it’s all coming crashing down.

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