Study Shows a Pattern of Risky Loans by F.H.A.
A new and extensive analysis of 2.4 million loans insured by the Federal Housing Administration in recent years shows a pattern of risky lending that could generate $20 billion in losses and harm thousands of the nation's most vulnerable borrowers. By ignoring risks in loans it insured in 2009 and 2010, the study concludes, the F.H.A. is imperiling both borrowers and taxpayers who stand behind the agency.
The analysis emerged less than a month after the F.H.A.'s auditor submitted a troubling report on the financial soundness of its insurance fund. In mid-November, the auditor estimated that the fund, which backs $1.1 trillion in mortgages, has a value of negative $13.5 billion. In other words, if it were to stop insuring loans today, the F.H.A. fund could not cover the losses anticipated on loans it has already insured.
The new study of the potential risks in recent F.H.A.-insured loans is illuminating because it provides a level of detail, including where government-backed loans are, that is usually missing from agency analyses. In addition, the report's loss estimates are somewhat surprising given that the loans it examined were made after the mortgage crisis became evident.
The loan analysis was conducted by Edward Pinto, a resident fellow at the American Enterprise Institute, a conservative organization. But its findings were based entirely on foreclosure estimates made by the F.H.A.'s auditor as well as detailed individual loan data like ZIP codes and borrower credit scores.