Manhattan Condos Embracing FHA

Here is a pretty crazy article from Bloomberg ("Manhattan Luxury Condos Embrace FHA in 'Game Changer') on how developers in Manhattan are trying to get the FHA to back mortgages in their properties. Amazing how an institution created during the height of the Great Depression to make homeownership affordable for low income families is now supporting the NYC luxury real estate market.

Nationwide, the FHA insured 21 percent of all mortgages made in the second quarter, or $71.4 billion worth of loans, according to Geremy Bass, publisher of the Inside FHA Lending newsletter. That’s close to the $79.5 billion total value of all FHA-backed loans in 2007.

The agency’s backing of luxury condos “doesn’t look good,” said Andrew Caplin, a professor of economics at New York University who co-wrote a paper titled “Reassessing FHA Risk.”


“Manhattan wealthy people -- is this really who the FHA was set up to support?” he said in an interview.

Caplin testified before Congress in March, arguing that FHA may need a taxpayer bailout because the agency relies on overly optimistic assumptions on unemployment, home prices and loan performance to predict losses.

Nine percent of all FHA-insured loans were 90 days or more past due or in the process of foreclosure in the first quarter, compared with 7.4 percent a year earlier, data from the Washington-based Mortgage Bankers Association show.