Yesterday’s subprime is today’s FHA.It’s a definite train wreck and the flag will go up in the next couple of months: Bail us out. Give us more money.

Robert Toll, CEO of Toll Brothers, stated yesterday at a conference in New York. A few years ago, the FHA was only guaranteeing about 2% of loan originations. This year, the FHA has guaranteed a colossal 25%. On top of that, the insurance reserve ratio, which Congress requires to be 2%, has dropped to 0.53%. This number has never been lower in the entire history of the FHA.

As it stands, 1 out of 6 FHA loans are late by at least one payment.

An FHA loan allows a borrower to purchase a home with only 3.5% down. Many analysts say we got into this mess because people who could not afford to buy homes purchased them anyway. So why is our government repeating the mistakes of the subprime lenders? Perhaps we need to brace ourselves for another round of foreclosures and the ripple it will send through the financial world. And of all the asset classes we look at, it appears that nothing is as “good as gold” right now.

The Mortgage Bankers Association released a study yesterday showing that 1 in 7 home loans were either in foreclosure or past due in the US. About a year ago the number was only 1 in 10. This is the highest level recorded in the 37 years that the group has been tracking the numbers.

The big news in this, though, is that prime loans have outpaced subprime loans in percentages of troubled mortgages. With unemployment rising as house values plummet, some homeowners feel they have no choice but to default.

The Association’s cheif economist, Jay Brinkmann, stated in the report that foreclosures generally rise for about 2 months after unemployment peaks before they return to normal. This time, he expects it take much longer for things to turn around because the decline in home prices has been so extreme.

Investing in real estate, despite the new tax credit, still looks risky to us. If the volume of foreclosures isn’t reduced, housing prices will plummet further and you could end up with an underwater mortgage and a lot of complicated paperwork. Gold bullion, however, is up 29% this year. The simplicity of investing in gold is one reason so many people are getting into the market. After the complicated financing of Wall Street, confusing tax laws, and the hassles of real estate, many people find the process of investing in gold to be refreshingly clear.

More expensive homes are now making up a larger percentage of foreclosures. Zillow.com, a real estate website, has released new data showing that 30% of June’s foreclosures were of homes valued in the top third of their local markets.

This means we are beginning to feel the bursting of the prime mortgage bubble. 58% of foreclosures in the second quarter were prime loans. Subprime loans only made up one third of the foreclosures (a year ago, half of the foreclosures were for subprime loans).

These homes have also lost market value as real estate prices have decreased, and the owners have little to no equity. Zillow estimates that 25% of homes with mortgages are worth less than they were in June. Their analysts don’t foresee a decrease in the volume of foreclosures until late 2010.

Those with available funds may feel that now is the time to snap up some cheap foreclosures. However, acting now may mean you are overpaying. If the housing market continues to go down, as this research suggests, it may be a better idea to diversify with gold until the housing market bottoms out.