re: One reason the market has been slow to correct - FHA bailing out delinquent mortgages

quote:

---

And where pray tell is the FHA getting this money they are giving away.

---

From their insurance fund that they currently use to insure mortgages.

The fund is typically used to pay back lenders that complete a successful repossession on a house that meets all conveyance standards. FHA/HUD takes the house back, reimburses the lender that made money off all the interest up to that point, then maintains and/or repairs the house until it sells. More often than not it is sold at a loss which is a taxpayer-funded burden. Banks lose nothing on the deal and keep the profits from the interest. Also, they typically use creative accounting to write it off still.

If a house doesn't meet conveyance standards (the standards are really low BTW) then the bank keeps and eats it. Banks are obviously motivated to ensure it meets standards at all costs especially since they get paid back for those costs.