Yet another reason to own high-quality bonds — there is a very good chance that in the near future we will see the FHA insurance fund go negative
FHA … THE NEXT SHOE TO DROP?
We have a contact in the mortgage business who took a good hard look at the delinquency data from the FHA, along with loss severities. There is a very good chance that in the near future we will see the FHA insurance fund go negative. The implication is that the FHA will inevitably have to go to Congress for funding. When that happens Congress will have to tighten lending standards and increase down-payment requirements. Bear in mind that the FHA now represents about 40% of the mortgage market — with prospective of stricter FHA, home prices are going back down and fast. Just another reason to own high-quality bonds.
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