Biden’s Mortgage ‘Relief’ Fuels Higher Housing Prices

It has created another subprime housing bubble and put taxpayers at risk. Trump should end it.

By Allysia Finley. Excerpts:

"The problems began when the Obama administration eased underwriting standards by enabling more home buyers whose debt payments exceed 43% of income to qualify for government-backed loans. Such borrowers are risky because they might not be able to make payments if their income drops or expenses rise.

As home prices climbed, the Federal Housing Administration insured more loans to financially stretched borrowers with as little 3.5% down. No skin off lenders’ backs if borrowers later defaulted, since the mortgages were backed by the government.

In 2007, 35% of new FHA borrowers had debt-to-income ratios above 43%. By 2020, 54% did. As housing prices and inflation surged, borrowers became more stretched. The FHA kept insuring mortgages to borrowers who were increasingly leveraged. About 64% of FHA borrowers last year exceeded the 43% threshold."

"The American Enterprise Institute’s Ed Pinto and Tobias Peter estimate that 79% of FHA first-time borrowers have a month or less in financial reserves"

"About 7.05% of FHA mortgages issued last year went seriously delinquent—90 or more days past when a payment is due—within 12 months. That’s more than at the 2008 peak of the subprime bubble (7.02%)."

"Of the 52,531 FHA loans last year that went seriously delinquent within their first year, only nine resulted in foreclosure."

"The FHA instituted a program that pays mortgage servicers to make borrowers’ missed payments for them."

"The FHA made 556,841 “incentive payments” to servicers over the past year to prevent foreclosures—nearly as many as the new mortgages it insured."

"Another result is that home prices keep increasing because borrowers who don’t pay their mortgages—and never should have qualified for loans—can’t get foreclosed on or be forced to sell their homes."

"Taxpayers are on the hook if the FHA insurance fund—financed by premiums on mortgages it backs—goes broke paying off borrowers and servicers to prevent foreclosures. The FHA annual report to Congress doesn’t disclose the cost of such payments, and the agency didn’t furnish them on my request."