Bernanke’s No Help For FHA

Ben Bernanke tried to reassure investors Monday that the United States is in better shape than it was during the Great Depression… and that interest rate cuts might not be enough to jumpstart the depressed stock and housing markets. If they do drop interest rates to zero, the Federal Reserve does have other tools to influence liquidity - it can purchase Treasury bonds to increase the money supply.

But even low interest rates aren’t helping home sales much.

Homebuilder Beazer (BZH) just reported a fourth quarter loss of almost $500 million. Beazer and its competitors - Pulte Homes (PHM), Toll Brothers (TOL) and D.R. Horton (DHI) - have been struggling to pare losses as they reduce inventory and property.

And low interest rates aren’t helping those homeowners already “upside down” in their loans. But they are helping to drive borrowers to the FHA. Because of the issues behind Fannie Mae (FNM) and Freddie Mac (FRE), new homeowners with the most risk and fewest dollars are going to the FHA for loans.

In 2007, they handled 3% of new loans. This year its 26%. But these additional higher-risk loans are stressing the FHA insurance system. It’s dropped the FHA insurance fund 39% since last year. It raises concerns of the FHA requiring its own bailout.

And that concern could be well founded. TransUnion, the credit-data warehouse, reported this morning that delinquent mortgages could double by next year.

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