Friday, September 4, 2009

Ready for the Mother Of All Bailouts?

The FHA is on the hook for lots of "underwater" loans, taken out by low-income homeowners who got special low down-payment deals and -- in case you didn't notice -- unemployment hit a 26-year high in August, with no prospect the 9.7% jobless rate will go down any time this year. Dave Hogberg of Investors Business Daily reports:
FHA-insured loans have more than tripled from 530,000 in fiscal year 2007 to 1.7 million thus far in 2009. The Government National Mortgage Association, which securitizes FHA loans, has boosted its mortgage-related issuance to $287 billion from $85 billion. Yet during that same period, the FHA's loan delinquency rate has climbed to 14.4% in Q2 from 12.6% two years earlier.
OK, so guess what the consequences are now?
As job losses continue to mount, why would someone facing economic difficulties try to keep a home that is worth less than the money owed on it?
More at the Hot Air Green Room.

UPDATE: Welcome, Instapundit readers! This story has now been front-paged at Hot Air -- thanks, Ed Morrisey!

UPDATE II: Proving that some bloggers know more about economics than Tim Geithner and Ben Bernanke, Jimmie Bise explains this predictable disaster in four sentences:
See, it turns out that the FHA, prompted of course by Congress, gave out a bazillion loans to people who were on the very edge of being able to pay them back. As long as our economy kept booming, they'd probably -- probably -- be okay. But if the economy wavered even a little bit, they'd be hosed and all those loans would come back to the FHA so fast you'd think they were attached by rubber bands. That's exactly what's happening now and the FHA is watching their cash reserves dry up like a shallow mudpuddle in the middle of Death Valley in July.
Or, in three simple words: IT WON'T WORK!


  1. Stacy - It doesn't take an economic genius to see that the FHA has clearly doubled down at a point when they should have been decreasing their balance sheet. It makes one wonder if this is just another step in the grand design that these fools are pushing for.....

  2. They should not be putting the repos and the "walk aways" back on the market unless the building is relatively new. If the building is older than 10 years old, they should demolish the building and put the property up for sale as a building lot.

    This reduces the supply of existing houses causing some support in the price of existing homes. The sale of these lots would not constitute home sales and so would not depress the "median sales price" of homes in the area. The median price would then more accurately reflect actual sales transactions rather than distress sales. This maintains tax values for towns and counties for existing homes. It also sets the stage for reconstruction boosting the economy as these lots are purchased and eventually built on.

    In some neighborhoods around me (desirable areas with very old but cheaply built houses from the 1950's and 1960's) an empty lot goes for a higher price than a lot with one of those old homes on it anyway.

    While this wouldn't work for neighborhoods that already have very high vacancy rates, it is perfect for nice areas with some older developments that are nearing the end of their useful life anyway.

  3. Those of us who work in the financial industry talk about musical chairs. The last one standing is the loser. You have four players in this game. The lender, the buyer, the government and the taxpayer. Guess who ends up standing. The problem is, the taxpayer doesn't make the rules, has nothing to gain and absorbs the entire loss. The game is rigged.

  4. Stupid me. Paid off my house and land before the government started rescuing the careless. If only I had stuck the taxpayer with it and saved that money, I could have bought a nicer pace and distress prices and stuck the taxpayer with this place. So here I am with this dump and can't even afford to hit the tip jar.

  5. They have been doing everything they can with the aim of keeping housing prices artificially inflated including going all in with the FHA. The market will eventually call their bluff and when values truly crash then it will take everyone down with it. Nice game but I don't remember being asked if I wanted to play.

  6. Part of the next Contract With America ought to be the dismantling of the FHA, Freddie Mac, and Fannie Mae. They're doing much to destabilize the economy and almost as much to prop up the greedy leeches of the Evil Party.

  7. You might find this of interest:

    "....nothing has been as jaw-dropping as the performance of the GNMA MJM (multi-jumbo mortgage) wrapped loans made starting about 1 year ago. These were the ‘mod’ loans made especially for ‘problem zip codes’ (read: high-priced, low equity and free-falling CA, AZ and FL) to support those markets."

    Insider Look at Ginne Mae MBS via Bruce Krasting

    The screen shots of GNMA pools are interesting. Essentially, these loans were deferred foreclosures. Had FHA not picked them up, its conceivable taxpayers would still be mopping them up one way or another.

  8. The rates on foreclosed houses have been uphill for the past months. Thus, many homeowners are seeking for ways to save
    their houses. FHA loans are the easiest type of real estate mortgage loan to qualify for nowadays. The FHA guidelines for loan qualification are the most flexible of all mortgage loans that require less than 5% down payment.