As if New York City's rent control (which regulates rents in about half of all units in the five boroughs) hadn't done enough damage to the city's housing stock and renters' wallets, the Federal Housing Administration is currently doing its part to ensure that no luxury Manhattan condo goes unsold:
At least nine Manhattan condo developments south of 96th Street have sought approval for FHA backing since the agency loosened its financing rules in December, according to a database of applications maintained by the U.S. Department of Housing and Urban Development. The change allows the FHA to insure loans in new projects where only 30 percent of units are in contract, down from at least 50 percent. About 1,900 apartments in New York’s most expensive neighborhoods would be covered by the applications.
This is precisely the sort of mission creep that led Fannie Mae and Freddie Mac to move outside their core mission of offering home loans to the needy, and which eventually brought down the two companies, and likely played a key role in bringing down the world's economy. One economist's assessment of the risk the FHA is taking on sounds pretty familiar:
Caplin testified before Congress in March, arguing that FHA may need a taxpayer bailout because the agency relies on overly optimistic assumptions on unemployment, home prices and loan performance to predict losses.
This trend is not necessarily new – I noticed it first two years ago – but the fact that the FHA is still growing its housing portfolio suggests that whatever meager recovery the US housing sector has managed may not be sustainable. History is full of people repeating mistakes, but America's housing czars seem downright amnesiac.