The Democrats' $1 Trillion FHA Gamble

The Democrats, led by Barney Frank, Nancy Pelosi and Obama, are forcing taxpayers to go "all in" on the housing market via the FHA, which now guarantees 80% of all U.S. mortgages.. With down payment requirements of only 3.5%, these loans are going to hurt the taxpayers badly if housing prices decrease even slightly. From the WSJ:

The agency acknowledged this month that a new but still undisclosed HUD audit has found that FHA's cash reserve fund is rapidly depleting and may drop below its Congressionally mandated 2% of insurance liabilities by the end of the year.

At a 50 to 1 leverage ratio, the FHA will soon have a smaller capital cushion than did investment bank Bear Stearns on the eve of its crash. Its loan delinquency rate (more than 30 days late in payments) is now above 14%, or from two to three times higher than on conventional mortgages. Its cash reserve ratio has fallen by more than two-thirds in three years.

We've seen this movie before and I think we all know how it's going to end.