FHA Book

Problems with FHA Legislation

The more I learn about the Frank-Dodd plan, the less I like it. It focuses far too much on fixing past bad sub-prime loans and not enough on creating a plan to make FHA work for the future. Basically, they are forgiving those who made bad decisions and neglecting those who are trying to use the FHA program and practice in responsible lending and borrowing. An article by former House majority leader Dick Armey in today’s Wall Street Journal delves into these problems. There is strong opposition within FHA and some shocking facts that back up the sentiment:

On June 9, FHA Commissioner Brian Montgomery told reporters that he opposes the Dodd-Frank approach, saying that the FHA “is not designed to become the federal lender of last resort, a mega-agency to subsidize bad loans.” Last week the Congressional Budget Office (CBO) projected that banks will use the program to offload their “highest-risk loans” to the taxpayer, and that a stunning 35% of all of the loans refinanced through Dodd-Frank will eventually default on the FHA.

35%!! Wow, that could literally destroy the FHA. There has to be a better solution that does not reward irresponsible corporations and punish not only lenders, but potentially the FHA itself.