Vindication is overrated, especially in a losing cause, so it brings no satisfaction to have predicted that the Federal Housing Administration would sooner or later threaten taxpayers. That day has arrived. Safely past the election, the feds announced Friday that the FHA's liabilities exceed its assets by at least $16.3 billion—and the gap could reach $93.7 billion in the worst case.
Yet it's worth recalling that when we warned about FHA's troubles in September 2009, we got an accounting lecture from HUD Secretary Shaun Donovan and a letter from FHA Commissioner at the time, David Stevens, that we were "just plain wrong." He added that, "I can say undoubtedly that the FHA fund is playing a key role in the housing recovery and poses no immediate risk to the American taxpayer."
Taxpayers will "undoubtedly" be pleased to know that the threat wasn't "immediate" but arrived a mere three years later. Can taxpayers claw back the salaries of Messrs. Donovan and Stevens the way Congress has tried to do with those of financial CEOs?
The Administration is trying to spin the FHA's troubles as one more result of the housing bust, which is true but disingenuous. Fannie Mae FNMA -0.37% and Freddie Mac FMCC -1.02% went belly up in 2008 because of the housing boom and bust. At the time, the FHA was in relatively good shape because it had played a minor role during the housing mania.
The FHA got into trouble because it deliberately expanded in 2007-2009 even as the market was crashing. As Mr. Donovan likes to say, the FHA was steered to play "an important countercyclical role in the housing market." The point was to ramp up FHA's loan-guarantee business to prop up housing prices as much as possible during the bust.
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