patrick.net

Welcome to the USSA, comrade. Here, house owns YOU!

This is another fiscal cliff just below the one we already fell off of.

bmwman91 says

Welcome to the USSA, comrade. Here, house owns YOU!

Haha..very funny...and most people think they own the damn house.

Truly amazing how screwed up all this is. What is so difficult? The car industry managed to figure it out. People buy cars with financing. In some cases they put down a decent down payment, but in others they don't. This person is approved based on his/her ability to meet the monthly obligation. If they fail to meet the monthly obligation, the company reposesses the car and it is immediately sold to someone else who (hopefully) can meet the monthly obligation. Interestingly enough, there is no car bubble. Most people make their car payments as agreed. There is no expectation of profit. A car is worth what a car is worth.

This system of financing major purchases can and does work. Except for the housing market. The collateral doesn't come close to covering the existing financing held against it. But hey... let's just keep repeating the error and wait for a different result. We are so certain that we will eventually get a different result that we will bail them out in the meantime. Then, I suppose, we can spread out the losses across several generations in the hopes that each is just screwed over a little bit?????

turtledove says

Then, I suppose, we can spread out the losses across several generations in the hopes that each is just screwed over a little bit?????

How dare you? We are the USA,we never fail. We know how to run the system and system does work.

[blockquote] “If FHA alone simply stopped doing business, we would have been propelled down into another double-dip recession,” said John Griffith, an analyst at the Center for American Progress, a research organization aligned with Democrats. …

Nonsensical straw-man argument. Nobody suggested we completely shut down the FHA. The FHA could have operated and maintained high underwriting standards. The result would have been fewer bad loans and less losses shifted from banks to taxpayers.

[/blockquote]

I think the point was that if the FHA had stopped backing dodgy loans (read as loans that the private industry wouldn't write), then we would have gone into a double dip recession. That may or may not be correct, but it is not a straw man argument. The FHA pretty much by definition is there to write non-conforming loans.

A lot more people thought that extraordinary measures were necessary in 2009 than think these were necessary in the rear view mirror.

Thanks for the article. It is interesting that 17% are delinquent. How does that compare to the mortgage market in general? Do you expect FHA to make drastic changes, and how will that affect the low end market?

FHA shouldn't be backing $729,000 non-conforming loans. Anyone who needs FHA shouldn't be buying a $700,000 or $600,000 home. The upper limit for FHA should be $350,000 tops. Anymore is simply ridiculous.

Well the mortgage securities market relied on a national average of 2% delinquent home loans to write insurance. Worst case scenario they could see was 5% in a major recession. Then 2009 came along and we had 8% immediately. That was big news. They required a bailout and suspension of mark to market rules to survive.
17% is beyond unmanageable. It's practically apocalyptic. Since FHA has been the major force behind the housing market "recovery" it's exposure is massive. We could be taking potential losses up to a trillion.
All foreseen by policy makers. Just another example of can kicking.

turdledove,

There is a big, obvious difference between cars and houses. Anyone that buys a car knows and accepts that it loses 25% of its value the second it is driven off of the lot. With houses, everyone has bought the kool-aid that prices ALWAYS go up. That is just part of the larger picture where our society worships the god called Growth. EVERY aspect of the American lifestyle requires Growth. Not steady-state conditions where things are holding at one level. No, they must be Growing. In fact, things start going down the crapper if things are Growing, but not fast enough. Our dependence on the perpetuation of an exponential function in a finite world is ludicrous, at best, and we may well be hitting The Wall of Reality. All of the boom-and-bust cycles that we are having might just be us pushing for Growth against the reinforced concrete barrier of reality. Our leadership should be planning for the future, but people don't want to hear the truth that the gravy train needs to get dialed back, so they keep acting like the things that we did in the past are all we need to keep doing.

Housing is all screwed up, and it is sort of a microcosm for the fundamental problems in our society related to how our economy will continue. Steady Growth is an exponential function, not a straight line. People need to be aware of this and understand that the system needs some adjustments. Credit growth is no different, and the more debt that gets issued, the more that needs to be paid back one way or another.

robertoaribas says

the loans today that the FHA is issuing are safe, prices are stable to rising, defaults are quite low... And FHA is charging a hell of a lot more these days...Shutting them down today would simply cause them to make less money to offset prior losses...

carry on. don't let economic facts interfere with any grand communism conspiracies or whatever other lunacy now ensues.

You can't be that daft Roberto. FHA is about to get a bailout. It doesn't work, and hasn't in a long time. It's insolvent.

robertoaribas says

Even the article you guys quote, states that the last several years of FHA loans are quite profitable... The losses are from 2006 to 2008 loans.

The "guy from the article" doesn't say this, it's from a person of anonymity who claims to have seen the congressional non-finalized report on FHA. He also claims the majority of the losses are from 2005 to 2008 but doesn't preclude that there are losses from 2009-2011 in the pipeline.

When it comes down to it, FHA still has the same flaws sub-prime lenders had back in 2006:
1) Low credit standards
2) Low down payment amounts
3) Not enough reserves to cover liabilities

Mortgage insurance means nothing in this day of moral hazard. Sure, you collect an upfront fee, and a monthly premium for 20 months. Then the underwater homeowner decides to dump the $729,000 home back on FHA. Did mortgage insurance really do anything?

Mortgage insurance is just saving band aids for when the home debtor ends up shooting themselves in the foot. The real answer to the problem is to not even give them the gun in the first place.

Not everyone should be a homeowner, not everyone should get a loan. FHA is a dinosaur institution that has long outlived its purpose (lending during the great depression when private lenders were wiped out) and has now been twisted to give people the ability to take sub-prime loans that the private lending cartels consider suicidal.

The only people who want FHA to stick around are desperate potential home debtors ripe with moral hazard, and dreams of a BMW, or people who own scorpion shacks in the desert praying that the disappearance of FHA doesn't crash the value of their most valuable "assets".

I know which route is better for the country, because I'm not some selfish cunt.

Clearly, you've never tried to get a loan recently @Goran_K. They aren't easy to get, and require a huge amount of paper work, because those loans with bad paper work that default get kicked back when they go bad as "Bank, you screwed up, this one is YOURS!".

Just because a loan goes bad doesn't mean they lose $729,000. The person put a downpayment down. Paid for a couple of years, and paid PMI for a couple of years. Put that together, and the losses would be miniscule on anything loaned today.

Yes you're right, I'm not interested in financing for a home, but I do know that 3.5% of $729,000 isn't a downpayment for a house, it's a cheap ticket to leverage tons of debt with a built in moral hazard escape clause built right in.

That's been my whole point Robert. There's no reason for $729,000 starter homes. I think $250k to $350k (max) would be somewhat palatable. Anything more is just an excuse for someone to eventually default at tax payer cost.

This is truly painful especially for first time home buyers. Is this also the reason why FHA is lowering their credit score (down to 560) to generate home sales and loans? Way back in 2012, we we’re required a FICO score of 580 and up. But actually you should not be concerned about how bad your credit score is when applying for FHA home renovation loan. Some lenders like Prospect Mortgage apply what are called “credit overlays” to the loans they make.