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Federal Housing Administration: The Next Bailout Request?

It will be, if FHA's increased loan limits are not allowed to expire in October.

by
Peter Roff

Bio

September 13, 2011 - 10:27 am
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We will probably never know how much the housing bubble burst cost the American people and the U.S. economy. The impact was too deep and too wide and spread too far throughout the entire economy for anyone to figure out how much money was lost, how much was paid out in bailouts, and how much economic activity disappeared.

Suffice it to say, it was a lot. And the U.S. economy is still feeling the effects like a bad hangover. Unemployment is stuck somewhere north of 9 percent, we may be headed into a double-dip recession, and the housing market still hasn’t recovered. Plus, far too many homeowners are still finding that they are underwater, living in houses that are worth less than what is owed on them.

You’d think this would be a cautionary tale, one that demonstrates what happens when the government gets too deeply involved in the private marketplace. Unfortunately, some policymakers have not learned the lessons of the bubble burst. They are still trying to micro-manage federal assistance to home buyers, leaving everyone exposed to risks that are too high.

Back when everything was falling apart, Congress took steps to temporarily raise the upper limit for Federal Housing Administration-insured loans (as well as the limit on government-sponsored enterprise conforming loans) by just over $100,000, taking it from $629,000 to $729,750 in certain parts of the country where homes are particularly expensive.

Some members of Congress want the limit to stay where it is, as CQ reported Friday:

In a letter Thursday to House Appropriations leaders, Rep. Gary L. Ackerman, D-N.Y., and three dozen other lawmakers urged a one-year extension of the current “conforming loan” limits that are set to expire at the end of the month.

This is a bad idea. The limits should be allowed to revert to where they were before they was raised, as is scheduled to happen on October 1, 2011 — a position the U.S. Department of Housing and Urban Development seems to support, or did as recently as the middle of August.

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