Is FHA the Next Bear Stearns?


Will the Federal Housing Administration be the next "too big to fail" colossus to need a taxpayer-funded federal bailout?

That's the question asked in today's Wall Street Journal, noting that the FHA currently has capital ratios that are more out of whack than investment bank Bear Stearns did before it went under last fall. Bear Stearns' capital ratios were 33 to 1, while FHAs are currently 50 to 1.

The Journal argues that taxpayers could be facing losses of $100 billion or more if home prices continue to fall in states like Florida, Nevada or Arizona.

According to Guy Cecala, CEO of Inside Mortgage Finance, 90 percent of FHA borrowers are just making the minimum down payment, currently 3.5 percent

"Virtually all of the loans made last year under this program are most likely under water," says Cecala, as home prices have dropped in most areas across the country by 5 percent or more.

Originally published