As if we needed more evidence that not all is well in the housing market: Bloomberg reports that the Federal Housing Administration “may be involved in more home-purchase transactions than borrowing financed by Fannie Mae and Freddie Mac.”
“This is a market purely on life support, sustained by the federal government,” [David Stevens, the head of the FHA] said at the Mortgage Bankers Association conference. “Having FHA do this much volume is a sign of a very sick system.”
The FHA, which backs loans with down payments as low as 3.5 percent, insured $52.5 billion of home-purchase mortgages in the first quarter, compared with $46 billion of purchases of the debt by Fannie Mae and Freddie Mac, according to data compiled by Washington-based Potomac Partners.
At this point, the government *is *the housing market, in that mortgage rates would climb precipitously and housing prices and turnover would fall dramatically without that support. The life support metaphor is apt. The problem is not the government support, problematic though it is. The problem is that the credit and housing markets have not yet stabilized. Thankfully, there are some signs that the foreclosure crisis has peaked and the market might start to improve from its very low trough.