The FHA failed a recent audit

Reckless lending practices are part of what got us into the current financial crisis, and the government's response has been...

The Federal Housing Administration may be under-equipped to manage its exploding market share, according to an internal audit released last week. The report gave the FHA poor marks for its steps to screen lenders that are allowed to sell loans backed by the federal agency.

The FHA’s market share has grown sharply as the private mortgage market collapsed over the past two years, and the FHA now insures around one-quarter of all U.S. mortgages, up from around 2% in 2006. ...

The audit, by the inspector general for the Department of Housing and Urban Development, found that the agency was under-equipped to manage a big inflow in applications by lenders to make FHA-backed loans. ...

The agency’s management of its affiliated lenders remains a top concern because the FHA’s financial reserves have dropped below mandatory levels for the first time in its 75-year history. Critics warn that rising defaults on FHA-backed loans could require a taxpayer bailout, but agency officials insist taxpayer money won’t be needed. Fraud remains a top concern as defaults rise on loans backed by the agency. ...

Some in Congress want the agency to do more by increasing minimum down payments to 5%, up from the current 3.5%. The agency says that such a move would kill any nascent housing recovery.

Things are really messed up when 5% down payments would "kill any nascent housing recovery." 20% down payments used to be the norm. Is America really that addicted to debt?