I hate to post articles that are too technical, but this one is revealing. FHA/VA bonds are failing, which means FHA and VA mortgages are defaulting. All of these defaults cost these programs losses, since they insure loans for lenders. If these defaults continue to grow, then these program might not be able to insure any additional loans.
Moody's admits FHA/VA loan delinquency levels have been relatively stable, but analysts believe that could change with home prices still falling and unemployment consistently high.
"FHA/VA borrowers are typically low-income borrowers with poor credit histories who have been affected by the weak economy and housing market," Moody's said. "Securitized FHA/VA pools typically have high delinquency levels at inception, with the majority of loans being 90-days late or more. Because of the insurance coverage loss severities and overall losses have been fairly low. Loss severities, which have been rising, are now currently around 12% on average."
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