The Post Is STILL Missing the Housing Bubble II: The FHA Will Need More Money

The Washington Post, which relied on David Lereah, the chief economist of the National Association of Realtors and the author of Why the Housing Boom Will Not Bust and How You Can Profit from It, as its main source on the housing market during the bubble, has still not recognized the housing bubble, even as its collapse is throwing the economy into the worst downturn since the Great Depression. An article on growing loan losses at the Federal Housing Administration (FHA), which will soon push it below its minimal reserve requirements, never noted its continuing practice of insuring mortgages on homes that are purchased at bubble-inflated prices. This will cause the FHA to continue to lose money in the foreseeable future as the default rate on these loans will be much higher than normal. The FHA would be able to avoid such losses if it issued mortgages based on appraisals of rental values (which were not affected by the bubble), however it has opted not to do so. The Post should try to talk to some experts who are familiar with the dynamics of the housing market for its articles on the topic. --Dean Baker