Wednesday, October 14, 2009

NYT: FHA Problems Raising Concern of Policy Makers

I absolutely love this story for the quotes inside of it. It really displays for all what the subsidized US economy is all about, specifically to housing. We are now, as a nation of taxpayers, willing to subsidize the front end of the house buying process with handouts, and then subsidize the back end with losses. In the old days, the banks took the losses but as we learned in 2008 when the weight gets too much the liabilities will be transferred directly to the taxpayer. In the new days, we skip the middleman (at least for the risk, they do get the benefits i.e. fees!), and with about 80% of loans now going through FHA we simply are putting the risk directly on the taxpayer and bypassing the banks. Our financial oligarchs simply approve the loans and than stash it on the books of the taxpayer. [Sep 18, 2009: 3 Oligarchs Now Dominate Mortgage Market - All Backstopped by You] We all win here.

So I am building my epic lists of posts so we can all laugh together when the farce that is FHA gets "Fannie Mae'd" down the road

Previous episodes of me waving my arms in the air - we'll add this one to the next entry

  1. Warning: [May 6, 2009: FHA - The Next Housing Bust]
  2. Warning: [May 8, 2009: Minyanville - Subprime Lending is Back with a Vengeance]
  3. Warning: [May 13, 2009: Tax Credit as Mortgage Down Payment Now Official Federal Government Policy]
  4. Warning: [Jul 6, 2009: WSJ - No Money Down or Negative Equity Top Source of Foreclosures]
  5. Warning: [Aug 12, 2009: WSJ - The Next Fannie Mae - FHA/Ginnie Mae]
  6. Warning: [Aug 14, 2009: Ginnie Mae CEO Resigns After 1 Year on the Job]
  7. Warning [Sep 18, 2009: Washington Post - FHA's Cash Reserves Will Drop Below Requirement]
Now, if you have come to this blog and it was not in error you probably are a somewhat responsible individual who cares at least a little about the future of the country. I have some sad words to share with you - you are in the minority. Most everyone is simply out for themselves, and any thoughts of collective benefit (stability, sensibility) is not how the country works anymore. It's all about me... I am getting mine, and I deserve this. I expect this to increase even further in the months and quarters to come as more stimulus is thrown out by government while the public outcry against the massive gains by our banks is heard ("you bailed them out! Why not us!") If we're lucky, we'll move from a "not seen since the 1920s" level of government paying us to spend [Jun 5, 2009: 1 in 6 Dollars of Income Now Via Government; Highest Since 1929] , to "never seen before levels" [Jul 30, 2009: Cash for Clunkers a Bit Hit, Government Asks "What Can we Buy You Next?"]

I say this because I want you to read the quotes at the bottom of this story VERY closely. You can believe, if you wish, that the New York Times sought out 2 people who are completely ATYPICAL of the consensus. I believe they no longer are - this is "the typical" now. I am not preaching, I am just bringing reality to MYSELF and anyone who has hope that this tiny sliver of blogosphere who speaks about rational actions as a country, as if we matter. We do not - we are the minority. I am done preaching ... I am just going to report and laugh at ourselves as we spread our wings as a full fledged Ponzi scheme Banana Republic.

Enjoy the read... and get your wallets out. You are paying for these people to buy homes today, and in 2-5 years you will be paying for the 2007, 2008-2009 (and 2010) vintage homeowner to be bailed out. I want to introduce you to whom you are sending your money to as we prepare for the next iteration of the housing bust.

Err did I say bust? I meant housing "recovery"... here is the bedrock of said (ahem) recovery.

Via New York Times
  • A year after Fannie Mae and Freddie Mac teetered, industry executives and Washington policy makers are worrying that another government mortgage giant could be the next housing domino. Problems at the Federal Housing Administration, which guarantees mortgages with low down payments, are becoming so acute that some experts warn the agency might need a federal bailout.
  • But he acknowledged that some 20 percent of F.H.A. loans insured last year — and as many as 24 percent of those from 2007 — faced serious problems including foreclosure, offering a preview of a forthcoming audit of the agency’s finances.
Let's stop right there. 1 in 5 loans made in 2008 via FHA are ALREADY IN TROUBLE. 1 in 4 loans made in 2007 via FHA are ALREADY IN TROUBLE. We are not even 3 years into these mortgages. This is EXACTLY the same data we were presenting in 2007 about subprime loans! And Alt A's! And Option ARMs!

Remember those? Probably not - because they are stashed as "AAA" securities on the Federal Reserve balance sheet. Not to worry - all these 2007, 2008, 2009, 2010 failures from FHA will soon be joining them.

Now keep in mind, each of those loans that are already defaulting passed through the hands of our oligarchs ... and they collected a fee, a big one, as they orignated each one. Just as in 2003-2007 they DO NOT CARE if the mortgage will be good. Why? Because in 2003-2007 they could sell those mortgages to suckers the world over via securitization. Now? There is one sucker who buys these... who? Look in the mirror. It's you. Common thread? There is STILL no reason for our oligarchs to make good mortgage loans... they win. Again. We've fixed nothing.

  • Since the bottom fell out of the mortgage market, the F.H.A. has assumed a crucial role in the nation’s housing market. Created in 1934 to help lower-income and first-time buyers purchase homes, the agency now insures roughly 5.4 million single-family home mortgages, with a combined value of $675 billion.
Give it 18 more months - they will control $1 Trillion or so of mortgages. But what's a trillion among friends?
  • In addition, these loans are bundled into mortgage-backed securities and guaranteed through the Government National Mortgage Association, known as Ginnie Mae. That means the taxpayer is responsible for paying investors who own Ginnie Mae bonds when F.H.A.-backed mortgages hit trouble.
  • 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.
If you've been around the past few months, you know I've been collecting quotes from insiders at FHA who INSIST there will be no bailout. I have their names ready to parade when it happens. But it will be an empty victory because it will still mean countless more debt laid on future generations.
  • As the number of loans has soared, random quality control checks have decreased sharply, F.H.A. staff members say. Mr. Donohue, the inspector general, cited numerous examples of organized fraud in testimony to Congress earlier this year.
  • The government is giving as many people as it possibly can the chance to buy a house or, if they are in financial difficulty, refinance it. The F.H.A. is insuring about 6,000 loans a day, four times the amount in 2006. Its portfolio is growing so fast that even F.H.A. backers express amazement.
  • Real estate agents in some hard-hit areas say every single one of their clients is using the F.H.A.
Again, if you are new to this story FHA was supposed to be a relatively small sliver of our mortgage pie... not 70, 80%+ of it.
  • The number of F.H.A. mortgage holders in default is 410,916, up 76 percent from a year ago, when 232,864 were in default, according to agency data.
410,000.... multiply x ehh, average $160,000 mortgage = $65 Billion in losses. Again, who can be troubled with $65 billion anymore. Let's check back in 12 months.

Let's hear from our feckless... err, fearless leaders. I want you to read this to understand the thinking... free market prices (i.e. correct prices) are WRONG. When prices go WAY over where they should be, it is GOOD. When they go to where they should be, it is BAD. I am speaking in politician lingo i.e. 2nd grade level.
  • Barney Frank, the Massachusetts Democrat who is chairman of the House Financial Services Committee, said in an interview that the defaults were, in essence, worth it.
  • “I don’t think it’s a bad thing that the bad loans occurred,” he said. “It was an effort to keep prices from falling too fast. That’s a policy.”
Meanwhile a person of sense chimes in...
  • Kenneth Donohue, the inspector general of the Housing and Urban Development Department, noted that if private lenders had raised their down payment requirements in the last two years, it raised the question, “what does the F.H.A. think it is doing by asking only 3.5 percent?”
Mr. Donohue, meet Mr. Frank. Your question is answered above. It's policy.

Now, let's introduce to you who we are transferring our national wealth to, 1 household at a time... no offense to these people. I just seem to have forgotten the point when renting became a national crime and we were all given rights to home "owning". I use the word OWNING loosely.
  • Like many Americans, Bernandine Shimon has recently been through some rough times. She lost a house to foreclosure, declared bankruptcy, got divorced and is now a single mother, teaching high school English in a Denver suburb.
  • She wanted a house but no lender would touch her. The Federal Housing Administration was more obliging. With the F.H.A. insuring her mortgage, Ms. Shimon was able to buy a $134,000 fixer-upper in August. “The government gave me another chance,” she said.
Foreclosure? No problem. Bankruptcy? No problem. Sounds like a late night ad? Perhaps the government should buy those 3 AM time slots up. I would love to know how old that bankruptcy and foreclosure was. If it was 10 years ago that is one thing but something tells me those happened in the past 24 months.
  • She did not have enough to spare for closing costs, so her mortgage broker arranged a deal where the charges were wrapped into the loan at the cost of a higher interest rate.
No money for closing costs? Again as we've posted in many articles - NO PROBLEM. It is easier to BUY a home in America than RENT. Those darn landlords actually require a deposit. How outrageous a requirement!
  • Is Ms. Shimon a good bet? Even she has no easy answer. Her mortgage payment, $1,100, is half of what she takes home every month. It is not easy to make ends meet. Teachers can get laid off like everyone else.
See this is what happens Mr Frank ... when we do not allow home prices to go where they SHOULD. Where natural buyers meet natural sellers. People across America are forcing themselves (for reasons not clear to me) to spend 40, 45, 50% of their income to buy a home. And you know how that works out. [Sep 26, 2008 : 15% of Americans Spend 50%+ of Income for House Payments] I'm sorry ... I forgot, it's POLICY.
  • The government,” she said, “is doing what it needed to do — taking a risk on people.”
Yes, that's what "government" needs to do. I don't think most people in the country realize "government" = "all of us". Our money is the "government"....

Next case...
  • Chaz Fullenkamp, an automotive technician in Columbus, Ohio, got an F.H.A. loan even though he was living on the financial edge.
  • If I got unemployed, I’d be wiped out in a month or two,” he says. Thanks to the F.H.A., however, he is better off than he used to be.
Again... no financial cushion? No problem. Fire up the 4 AM infomercial.
  • Mr. Fullenkamp used F.H.A. insurance to buy a house this spring for $179,000. The eager seller paid the closing costs and also gave Mr. Fullenkamp $2,500 in cash. He immediately applied for the $8,000 tax rebate. Even taking his down payment into account, he came out ahead.
That's right! Better than renting! Money is free in America... I don't know where it comes from, but I just know the government hands it to me as if it burns a hole in their pocket.

So what are your final thoughts Mr. Fullenkamp?
  • I knew in my heart I could not really afford the house, but they gave it to me anyway,” said Mr. Fullenkamp, 22.
  • I thought, ‘Wow, I’m surprised I pulled that off.’ ”
I really can't add anything of value past those quotes.

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