As America heads into a deep recession, the $11 trillion residential-mortgage market is in crisis. Investors who buy home loans packaged into bonds are dumping even those with federal backing because of panic that millions might not make their payments, Bloomberg News reported. Yet one risky sector had started to show cracks long before the coronavirus pandemic sparked the worst financial meltdown in 12 years: the federal government’s largest affordable-housing program, whose lenient terms are geared toward marginal borrowers. As real estate prices soared in recent years, working-class adults everywhere have increasingly relied on mortgages backed by the Federal Housing Administration — and U.S. taxpayers. Since 2007, the FHA’s portfolio has tripled in value to more than $1.2 trillion, almost 11 percent of the market. While private lenders make these loans, they are packaged into Ginnie Mae bonds, common in mutual funds and pensions. FHA borrowers are likely to struggle even more than other homeowners. Before Covid-19 started roiling China, a November FHA report found that 27 percent of borrowers last year spent more than half their incomes on debt, a level it describes as “unprecedented.” The share of FHA loans souring in their first six months has doubled over the last three years to almost 1 percent.
