Why didn’t we hear a peep about the massive housing bubble President Biden’s policies quietly inflated? The Federal Housing Administration (FHA) has been handing out guaranteed loans like candy, letting borrowers take on mortgages they can barely afford, often with debt-to-income ratios topping 43%, sometimes even 64% in recent years. It started with loosened underwriting standards under President Obama, but President Biden doubled down, backing risky loans with as little as 3.5% down and bailing out delinquent borrowers, which props up prices. Now, we’re sitting on a ticking time bomb that could make the 2008 crash look like a minor hiccup.
According to a jaw-dropping exposé in the Wall Street Journal, “Biden’s Mortgage Relief Fuels Higher Housing Prices,” the FHA’s loan portfolio is now riskier than it was before the Great Recession. In 2007, 35% of new FHA borrowers had debt-to-income ratios above 43%. Fast forward to 2024, and that number’s ballooned to 64%. These are people stretched thin, often with just a month or less of financial reserves. Any bump in expenses or dip in income could leave them unable to pay. Yet the FHA keeps insuring these mortgages, leaving taxpayers on the hook if things go south.
And here’s the most disgusting part. In order to prevent foreclosures, the Biden administration turned mortgage servicers into cash cows, paying them to cover missed payments and slash monthly bills for delinquent borrowers—without even adding interest to the growing debt pile. A borrower missing five $4,000 payments could see $56,000 tacked onto the end of their mortgage, trapping them in a home they can’t sell or afford. Only nine out of 52,531 seriously delinquent FHA loans last year ended in foreclosure. The lack of foreclosures keep prices artificially high and it’s a house of cards waiting to collapse.
This is worse than 2008. Back then, 7.02% of subprime mortgages went seriously delinquent within their first year. Last year, FHA loans hit 7.05%. But unlike 2008, the government’s doubling down on bailouts by masking the problem with Covid-era relief programs that socialize the cost to taxpayers and drive up rates for new homebuyers. If Trump’s team pulls the plug on these giveaways, foreclosures could spike, dragging down home prices, leaving taxpayers holding the bag for a busted FHA insurance fund. The WSJ article warns this could be a mess of epic proportions.
I’ve got a conspiracy theory for you. Could this be a backdoor for the government to create a universal housing subsidy? By insuring risky loans, bailing out borrowers who can’t pay, and funneling taxpayer money to servicers to keep people in homes they can’t afford, the FHA isn’t just propping up a bubble. It may be creating a new housing entitlement where anyone can stay in a home, no questions asked, while taxpayers foot the bill. The FHA’s made nearly as many “incentive payments” to servicers (556,841 last year) as it issued new mortgages, turning what should be a safety net into a sprawling, hidden welfare program for housing. Is this deliberate policy, or just reckless mismanagement? Either way, it’s a path that may lead to a new entitlement, if the bubble doesn’t burst first.