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To answer my own question it looks like the FHA is going to lose at least 500 billion dollars goosing the market.
http://www.forbes.com/2008/08/25/fha-housing-mortgages-biz-beltway-cx_jz_md_0826housing.html
On PAPER, the FHA costs the American taxpayer nothing
Even if this premise of no taxpayer loss is true in actuality, there is still an issue. Easy FHA credit will cause a number (unfortunately a large number) of Joe O'Howmchamonths to bid up house prices with the new abundance of "free" money. Bad news for those who truly aspire to own a home, as opposed to a 30 year triple net lease to eventually own from a bank.
From C-Span Archives:
Michael Enzi (R -Wyo)
"This bill contains a title called ``The HOPE for Homeowners Act.'' The program included in this title would create a $300 billion taxpayer loan guarantee program.
Let me repeat that. It would create a $300 billion taxpayer loan guarantee program--taxpayer guarantee program--doubling the size of the Federal Housing Administration. This expansion will be accomplished by taking the worst performing and the most risky loans made by banks, shifting 100 percent of the liability of foreclosure onto the American taxpayer. The loans I am talking about have made a lot of press in the past few months--adjustable rate, interest only, low documentation or no documentation;
loans that in many cases the lender made with no regard for the borrower's ability to repay.
The Congressional Budget Office estimates that 35 percent of these loans will default, placing a huge liability on the FHA and ultimately the taxpayer for guaranteeing these loans. Even FHA Commissioner Brian Montgomery believes this is a dangerous proposition. On June 9 he stated:
The FHA is not designed to become Federal lender of last resort, a mega-agency to subsidize bad loans. "
"http://www.hud.gov/offices/hsg/fhahistory.cfm
"Â FHA is the only government agency that operates entirely from its self-generated income and costs the taxpayers nothing. The proceeds from the mortgage insurance paid by the homeowners are captured in an account that is used to operate the program entirely. FHA provides a huge economic stimulation to the country in the form of home and community development, which trickles down to local communities in the form of jobs, building suppliers, tax bases, schools, and other forms of revenue."
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How can the FHA basically brag about insuring the loosest lending around and then not lose money?
#housing