Skip to comments.FHA's Capital, Personal Income, Spending and Savings: All Aboard the Debt Train!
Posted on 03/30/2012 7:36:53 AM PDT by whitedog57
The Bureau of Economic Analysis (BEA) released the Personal Income and Outlays report for February.
The Good: Personal income increased $28.2 billion, or 0.2 percent in February and Personal consumption expenditures (PCE) increased $86.0 billion, or 0.8 percent (mostly consumer durables like autos and computers). Real Personal Consumption Expenditures (PCE) increased 0.5 percent in February, compared with an increase of 0.2 percent in January. Personal income rose 0.2% in February.
The Bad: REAL personal income fell 0.1% in February. So, personal spending increased 0.5% while personal income FELL 0.1%. That means that households are boarding the Debt Train again!
The Ugly: The personal savings rate fell to 3.7%. Notice that the savings trend is negative, similar to last decades consumption-fueled growth through debt and not saving.
The Fed seems to be encouraging another round of debt-fueled consumption growth with consumers saving less through their low interest rate policy. After a;l, super low money market and deposit rates discourage saving while low interest loans to consumer encourage more debt (and spending).
The Government Accounting Office (GAO) released a report showing that the FHAs minimum capital ratio has been below 2% since 2008. Given the decline in house prices during 2008-today this is not surprising, especially given the FHAs role as a low down payment insurance company.
The Presidents budget for 2013 contains a $9.3 billion upward reestimate in FHAs credit subsidy costs for the Fund. And the Attorney Generals Settlement gave the FHA an additional $1 billion to prevent the FHAs problems from getting worse (although someone had to pay that $1 billion).
What do the FHAs fiscal problems have to do with personal savings rate? The FHA encourages households not to save since they will insure low down payment loans (buy that Ford F-150 King Ranch Edition and only put 3% down on a home!). And The Fed is incentivizing households to borrow and consume (through low interest rate policies). But the FHA (along with Fannie Mae amd Freddie Mac) are suffering from the aftermath of debt-fueled growth from the last decade.
Does it make sense to try and repeat the last decade? I admit, having that Ford F-150 King Ranch Edition AND a home sounds better than a bigger down payment and driving an old Chevy Monte Carlo. But does it make sense in the long run?
The Federal government will likely to increase funding to the FHA again so that they can accommodate low down payment borrowing.
I remember testifying in the House and recommending that the FHA raise the minimum down payment to at least 10%. And I mentioned that Germans often wait until they have accumulated large down payments before they purchase a home. Needless to say, the affordable housing advocates were aghast. One said: People shouldnt have to wait to buy their dream home! Hmmm.
Underwater dream home, that is. The FHA should rename their low down payment program The Instant Atlantis Program: Be Underwater on Your Home From The Start!
Yep the only way to hide what’s really going on, is to start the con all over again.
Millions are resisting.
That’s why it’s a ponzi scheme, con.
Same as the DOW.
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