Toll: FHA lending is a "trainwreck"

Bloomberg reports that the head of Toll Brothers doesn't think much of the quality of loans being guaranteed by the Federal Housing Administration.

The Federal Housing Administration, the agency that insures home purchases made with down payments as small as 3.5 percent, may create another lending crisis, Toll Brothers Inc. Chief Executive Officer Robert Toll said.

“Yesterday’s subprime is today’s FHA,” Toll said today at a New York conference for builders sponsored by UBS AG. “It’s a definite train wreck and the flag will go up in the next couple of months: Bail us out. Give us more money.” Toll Brothers is largest U.S. luxury homes builder.

The FHA’s insurance reserve ratio fell to 0.53 percent, the lowest level in history, and more steps are needed to shore up the agency that guarantees one of every five single family loans, Housing and Urban Development Secretary Shaun Donovan said Nov. 12.

While the insurance fund’s capital ratio is at an all-time low, Donovan said those who say FHA is the next subprime- mortgage crisis are “dead wrong.” The quality of the loans FHA insures is “actually very good,” Donovan said.

Perhaps a visual aid would be helpful here.

From this item a couple weeks ago last week:

In case you haven't seen the recent performance of the FHA's loan portfolio in chart form, well, here it is, compliments of T2 Partners fine (and lengthy) report on the U.S. housing market that you can download here, after a short registration.
Recall that the FHA went from about 2 percent of all loan originations a couple years ago to a whopping 25 percent this year. Obviously, they're going for quantity, not quality.