FHA Watch, November 2013 (Vol. 2, No. 11)

Article Highlights

  • Today, the FHA program is all about cross-subsidies; the average low-risk borrower with a $150,000 mortgage is overcharged about $9,000.

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  • In FY 2013 alone, nearly 200,000 home purchasers with FHA-insured loans could have saved an estimated $710 million over the life of their loans.

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  • In October, 14.70 percent of all FHA loans were delinquent, down from 14.97 percent in September 2013 and down from 16.57 percent in October 2012.

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This Issue’s Highlight

FHA’s Predatory Insurance Practices

The Federal Housing Administration’s (FHA’s) mortgage insurance practices qualify as predatory under the definition set out by the Federal Deposit Insurance Corporation (FDIC’s) inspector general. First, FHA mortgage insurance pricing grossly overcharges hundreds of thousands of lower-risk borrowers. Second, the FHA relies on a borrower’s lack of understanding of the complicated nature of FHA insurance as well as a borrower’s expectation that the FHA would not intentionally permit borrowers to be steered into financially disadvantageous transactions. Third, cross-subsidies allow the FHA to offer abusive loan insurance terms to hundreds of thousands of high-risk borrowers.

This Month’s Features

Spotlight on FHA’s Predatory Insurance Practices
FHA’s Mortgage Insurance Practices Qualify as Predatory under the FDIC Definition

Spotlight on Best Price Execution
Minor Changes over Last Month

Spotlight on Insolvency
FHA’s Private GAAP-Estimated Net Worth Declined to Lowest Level in Seven Months

Spotlight on Delinquency
Various Rates Experience Moderate Drop from September to October

 

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About the Author

 

Edward J.
Pinto
  • American Enterprise Institute (AEI) resident fellow Edward J. Pinto is the codirector of AEI’s International Center on Housing Risk. He is currently researching policy options for rebuilding the US housing finance sector and specializes in the effect of government housing policies on mortgages, foreclosures, and on the availability of affordable housing for working-class families. Pinto writes AEI’s monthly Housing Risk Watch, which has replaced AEI’s FHA Watch. Along with AEI resident scholar Stephen Oliner, Pinto is the creator and developer of the AEI Pinto-Oliner Mortgage Risk, Collateral Risk, and Capital Adequacy Indexes.


    An executive vice president and chief credit officer for Fannie Mae until the late 1980s, Pinto has done groundbreaking research on the role of federal housing policy in the 2008 mortgage and financial crisis. Pinto’s work on the Government Mortgage Complex includes seminal research papers submitted to the Financial Crisis Inquiry Commission: “Government Housing Policies in the Lead-up to the Financial Crisis” and “Triggers of the Financial Crisis.” In December 2012, he completed a study of 2.4 million Federal Housing Administration (FHA)–insured loans and found that FHA policies have resulted in a high proportion of working-class families losing their homes.

    Pinto has a J.D. from Indiana University Maurer School of Law and a B.A. from the University of Illinois at Urbana-Champaign.

  • Phone: 240-423-2848
    Email: edward.pinto@aei.org
  • Assistant Info

    Name: Emily Rapp
    Phone: 202-419-5212
    Email: emily.rapp@aei.org

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