Big FHA loans are easy

It's a good thing that the folks at the FHA (Federal Housing Administration) know what they're doing. Otherwise, their tiny capital reserves as compared to the nearly $700 billion in home loans they guarantee might be cause for concern, especially after reading a story like this one that, if you were to change some of the names and dates, sounds a lot like the stories you heard a few years ago when the housing bubble was fully inflated.

With F.H.A. Help, Easy Loans in Expensive Areas
By DAVID STREITFELD

SAN FRANCISCO — In January, Mike Rowland was so broke that he had to raid his retirement savings to move here from Boston.

A week ago, he and a couple of buddies bought a two-unit apartment building for nearly a million dollars. They had only a little cash to bring to the table but, with the federal government insuring the transaction, a large down payment was not necessary.

“It was kind of crazy we could get this big a loan,” said Mr. Rowland, 27. “If a government official came out here, I would slap him a high-five.”

In its efforts to prop up a shattered housing market, the government is greatly extending its traditional support of real estate, including guaranteeing the mortgages of middle-class and even upper-class buyers against default.

Surely, the FHA knows what they're doing, don't they? Just because one in six FHA borrowers is now behind on their payments shouldn't be cause for concern after the agency quadrupled the number of loans it guarantees and now has capital reserves below the minimum level mandated by Congress.