President Obama is allowing what happened to Fannie and Freddie during the mortgage meltdown to happen again with the FHA. The President has said he wouldn’t return to the same old failed policies that got us into the current housing depression. He even made a point of it in his State of Union address,“But I intend to fight obstruction with action, and I will oppose any effort to return to the very same policies that brought on this economic crisis in the first place.”
But he’s making it worse. The Federal Housing Administration continues to operate as if the financial crisis had never occurred. A prior piece on this blog (here) disclosed FHA’s policy of requiring only 5% down payment on new loans. Given this pre-crisis mentality, the mass media is increasingly asking “Is FHA the next Fannie Freddie?’ See here, and here.
“But the FHA is in trouble as well because of the surging defaults. The capital ratio of the agency’s mutual mortgage insurance fund slipped to 0.24% last year, well below the 2% mandated by Congress.”
FHA’s liquid assets last year were $33.7 billion. Outstanding mortgage guarantee obligations totaled $1 T in insured mortgages resulting in a leverage ratio of 30 To 1 by HUD’s own numbers. The AEI incorporating FHA’s $1.2B economic net worth computed a 1000 to 1 leverage ratio. 
This is far above that experienced by FannieMae at the height of the financial crisis when its leverage ratio was 20 to 1.
Low FHA down payment requirements coupled with housing prices which remain in a historic decline(Core Logic 4.7%, YOY Dec 2011) spawn the likelihood that increasing future FHA default rates which will place greater pressure on depleted FHA’s reserves. “Figures compiled by HUD confirm that delinquencies on FHA’s book of business are worsening. At year end 716,786 loans (9.73%) were deemed “seriously delinquent” (90-days or more pass due) compared to 636,778 (8.77%) at Sept. 30.” And Zillow projects another 3.9% drop in 2012. 
Even the $1 Billion received by FHA under the Administration’s proposed bank settlement which the press dubbed as an alleged panacea to the Agencies ills is insignificant when compared to the FHA liquid reserve and massive outstanding loan guarantee numbers cited above.
Where is the president’s promise to oppose past policies which created the very financial crisis he now blames on the prior Administration? Where is the Obama Administration’s commitment to policies that insure the return to a fiscally sound housing financial system??? Why aren’t borrowers fees for loan guarantees being used to fortify the capital reserves of those financial institutions that provide those borrowers with the highly leveraged loans in order to compensate for the higher risk of default?