Taxpayers to walk further out on the mortgage plank

Sweta Singh and Tanya Agrawal, writing in Insurance Journal, forget to spell out whose money is going to be put at risk;

Private mortgage insurers in the United States may have to cut premiums to better compete with the Federal Housing Administration, which plans to reduce premiums in the government’s latest attempt to encourage first-time homebuyers.

This is where we came in; Housing Cause Denial. Back to Singh and Agrawal;

Companies such as MGIC Investment Corp. and Radian Group Inc. have been regaining market share over the last year after the FHA was forced to raise premiums to replenish its dwindling cash reserves. [our bold]

Now, with the White House announcing last week the agency will cut annual mortgage insurance premiums by 0.5 percentage points, the market share of these companies is under threat.

We suppose that a journal whose target readers are insurance professionals can be excused for worrying about market share for insurers, but that doesn't seem to us to be the most important feature of the announcement. How about, FHA had dwindling cash reserves, so they cut their rates?

Just to remind everyone, the insurers are on the hook to pay off the home loan if the buyer defaults.

With an FHA-backed loan, buyers can put down as little as 3.5 percent of the purchase price.

Which means that if the FHA takes on more of the risk of lending, leverage will increase. Already, the FHA has about half the market.

This might be a good time to name 2014's Book of the Year; Fragile By Design: The Political Origins of Banking Crises and Scarce Credit by Calomiris and Haber. Especially the chapters on the housing bubble in the United States.