The latest report on the Federal Housing Administration produced by the School’s Center for Real Estate and Urban Analysis has found that the agency is increasingly serving higher-income borrowers in order to cover its losses.
“The FHA didn’t create the housing bubble and crash, and it has been a useful part of the recovery,” said Robert Van Order, the Oliver T. Carr Professor of Real Estate in the GWSB Finance Department and the Center’s chairman. Van Order wrote the report with Anthony Yezer, a GW professor of economics.
“However, partly in an effort to redeem its mounting and highly publicized delinquencies, it has expanded to a market – higher income borrowers – that it has not traditionally served,” Van Order said.
The report found that, nationally, more than 30 percent of the 2010 mortgages guaranteed by the FHA – which has historically focused on first-time, low-income and minority borrowers – were made to families making more than 115 percent of area median income (AMI). Of the 30 percent, more than half went to those with incomes greater than 150 percent of AMI.
Also, it found that FHA loans have often financed homes priced well above average for their neighborhoods.
The authors concluded that the problem with the FHA’s strategy of covering losses by taking on higher premiums is misguided because it means the agency is essentially gambling in order to redeem itself while penalizing current borrowers.
It suggested that a better approach for the FHA would be to acknowledge losses, seek an infusion of cash from the U.S. Treasury, and return to its smaller, more traditional function.
The latest report is the fourth in the Center’s “FHA Assessment Report” series. Data and financial support for the project has been provided by Genworth Financial, a publicly traded global financial security company with more than $100 billion in assets and a presence in more than 25 countries.
Posted by gwsb on June 19, 2012 | Filed under: GWSB News.