The Next Big Bailout? Look No Further Than The New FHA
CNBC Video: Larry Kudlow & John Carney on the FHA and Government's Housing Bias
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One year after rescuing Fannie and Freddie (to the tune of $200 billion, and still growing), what has the government learned about irresponsible mortgage lending.
Absolutely nothing.
Ultimately this is politics and bubble re-blowing. The FHA was pressured to fill the void in the mortgage origination market last year when private players were exiting. Rather than allow market forces to determine housing prices which might extend the pain, Washington in its own re-electable self-interest, has decided to to re-inflate the bubble, debt and deficits be damned.
It's free money for everyone. The IRS isn't asking for proof. Even 4-year-olds are getting in on the $8,000 homebuyers tax credit. What could possibly go wrong?
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- In the past two years, the number of loans insured by the FHA has soared and its market share reached 23% in the second quarter, up from 2.7% in 2006, according to Inside Mortgage Finance. FHA-backed loans outstanding totaled $429 billion in fiscal 2008, a number projected to hit $627 billion this year.
- Rising defaults have eaten through the FHA’s cushion. Some 7.8% of FHA loans at the end of the second quarter were 90 days late or more, or in foreclosure, according to the Mortgage Bankers Association, a figure roughly equal to the national average for all loans. That is up from 5.4% a year ago.
- Resulting FHA losses are offset by premiums paid by borrowers. Federal law says the FHA must maintain, after expected losses, reserves equal to at least 2% of the loans insured by the agency. The ratio last year was around 3%, down from 6.4% in 2007.
- If its reserves fall short, the agency is obliged to notify Congress, which could spark a commotion over the extent to which the government is funding losses in the housing market.
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- The FHA has expanded from guaranteeing just 2% of mortgages to over 25% in just a couple of years, dramatically raising its exposure to the still declining US housing market.
- The FHA still backs toxic, almost-no-money down mortgages. It will currently guarantee mortgages with as low as 3.5% downpayments.
- The FHA's mission is political: it is still trying to "expand home ownership."
- The discredited ideology of home ownership is the most toxic ideology since communism.
- The number of mortgage companies whose loans are backed from the FHA has grown from around 1,000 to over 3,300 but the FHA hasn't grown its ability to analyze these companies.
- A recent audit of FHA applications found only 5% included all the necessary documents.
- The leadership of the FHA is completely oblivious to its coming ruin.
- The FHA is in even worse shape than Fannie Mae and Freddie Mac.
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From the New York Times
- “It appears destined for a taxpayer bailout in the next 24 to 36 months,” Edward Pinto, a former Fannie Mae executive, said in testimony prepared for the hearing. Mr. Pinto, who was the chief credit officer from 1987 to 1989 for Fannie Mae, went further than most housing analysts and predicted that F.H.A. losses would more than wipe out the agency’s $30 billion of cash reserves.
- The issue has polarized Congress. Republicans, who led efforts to rein in Fannie Mae and Freddie Mac before those companies ran into trouble, are now seeking to bridle the F.H.A. Many Democrats insist the F.H.A. is playing a vital role in the housing market, which is only just starting to stabilize.
- “F.H.A. has stepped into the void left by the private market,” Representative Maxine Waters, Democrat from California, said at the hearing. “Let’s be clear; without F.H.A., there would be no mortgage market right now.”
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Oct 23, 2009 at 2:09 PM
Reader Comments (22)
http://blogs.ajc.com/political-insider-jim-galloway/2009/10/22/john-lewis-4-year-olds-are-getting-federal-tax-credits-for-buying-homes/
Let me repeat that. The IRS isn’t requiring people to prove they bought a house, let alone a “first” home. More from NPR:
http://www.publicradio.org/columns/marketplace/scratchpad/2009/10/home_buyer_tax_credit_fraud.html
http://www.bloomberg.com/apps/news?pid=20601087&sid=afIJc.I4vpbs
This one is important.
http://www.washingtontimes.com/news/2009/oct/19/feds-help-feed-new-market-for-easy-mortgages/?feat=home_cube_position1
SO TRUE !!!
Come on...this is funny!
I'll bite. What's so true? That Frank Gaffney needs an ass whoopin', or that my 7-year old could probably take him? What a punk.
Just to be clear, I meant Gaffney is a punk.
November 2008… Can Obama Catch Osama bin Laden?
President-Elect Plans to Renew U.S. Commitment to Finding Al-Qaeda Leader
By JENNIFER PARKER and LUIS MARTINEZ
Nov. 18, 2008
It is perhaps one of President George W. Bush's more frustrating failures, and one of the most difficult tasks he'll hand over to his successor. More than seven years after the attacks of Sept. 11, 2001, Osama bin Laden, the man Bush once said he wanted captured "dead or alive," has not been found. President-elect Barack Obama has said that he plans to renew the U.S. commitment to tracking down the al Qaeda leader. "I think it is a top priority for us to stamp out al Qaeda once and for all, Obama told CBS's "60 Minutes" Sunday. "And I think capturing or killing bin Laden is a critical aspect of stamping out al Qaeda. He is not just a symbol, he's also the operational leader of an organization that is planning attacks against U.S. targets." As soon as Obama takes office in January, he has said he will begin work on a plan to draw down U.S. troops in Iraq and beef up U.S. troop numbers in Afghanistan. "Particularly in light of the problems that we're having in Afghanistan, which has continued to worsen. We've got to shore up those efforts," Obama told "60 Minutes."
OCTOBER 2009…
Well, we all know what is happening. I think Cheney said it best. Obama is a fraud and he is dangerous. God bless and help our troops.
Have you been banned from Free Republic[sic]? This crap belongs over there.
October 8, 2009
First Daughters Not Vaccinated Against H1N1
President Obama's school age daughters have not been vaccinated against the H1N1 flu virus. White House Press Secretary Robert Gibbs says the vaccine is not available to them based on their risk.
DO AS I SAY, NOT AS I DO.
Anyone believe Gibbs?
Daily, do you consider Obama not giving his own daughters the vaccine “unprecedented steps”?
In an interview on NBC's Today show, Sebelius said children are especially vulnerable to infection from the H1N1 virus. "This flu is a younger person's flu," she said. "Kids have no immunity to the flu ... children are great carriers of bugs and viruses." Because of the danger of easy transmission, especially in school and day-care settings, Sebelius said, "We strongly urge parents to take precautionary steps. Flu kills every year ... and we've got a great vaccine to deal with it."
Daily, what do you make of this message?
White House Press Secretary Robert Gibbs says the vaccine is not available to them based on their risk.
So, who is right? Gibbs or Sebelius? Come on DB, you are disappointing me. Use your keep powers of perception.
http://www.associatedcontent.com/article/2313979/obama_needs_first_family_to_publicly.html?cat=9
If you just made your point without making it a personal challenge, you'd probably get away with it. It would also be a lot less annoying. So, DO you have a tatoo that says "Mama didn't love me"?
Question: If an FHA insured loan defaults, who gets paid? Is this just another back-door bank bailout? (I haven't thought this through, but it just occurred to me that this might be deliberate: Hey banks, go make some crappy loans -- we'll pay you for them. Or maybe it's just politics and stupidity.)
It's both...the FHA has been pushed by the gov't. to increase mortgage origination...helps the banks, helps everyone...
If an FHA loan defaults, the loss goes to the FHA not the bank who wrote it...they are FHA-backed loans...i'll do a bit of research...
Good one James, I had not thought of that neither, there is a method to the madness, they have to feed the creature one way or the other.