This is how a Ponzi scheme collapses: the scammers running the fraud run out of suckers (participants) who stop giving them money. When the cash dries up at the lower (intake) levels there’s no way to pay the people at the top of the investment pyramid. It’s been suggested by some that Social Security is a ponzi scheme because it’s based on a continual flow of money from current and new payors to those getting that cash at the bank-end (retirees.) We all know that FHA has just $2.5 billion in cash on a $1 trillion book of business, giving it a slim capital ratio off 0.24%. But is FHA broke, as some suggested today? Not really. As long as it can keep paying claims from current cash flow (fees originated by the production of new FHA loans) then no, it’s not broke. But will FHA’s cash flow turn negative at some point in the future? Only people who can accurately predict the future can answer that question. Tell me where home prices, and rates will be in 12 months and I can answer all your questions. Oh, and also tell me what the unemployment rate will be – and delinquencies. If FHA goes under, we’re all toast.
