Posted on 11/22/2009 5:55:52 PM PST by FromLori
The San Francisco Chronicle's Kenneth Harney is speculating on what the Federal Housing Authority may have to do to shore up its balance sheet. A few things should be kept in mind about such a move:
1. The FHA has been a main spigot through which the government has been propping up the real estate market (See: Real Time Madness: Watching the FHA Prop Up the Housing Market)
2. The FHA is in real bad shape. John Carney points out:
The FHA has expanded from guaranteeing just 2% of mortgages to over 20% 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 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
3. It should be remembered that the first real estate crash started when the Federal Home Loan Mortgage Corporation (Freddie Mac) after it announced in February 2007 that it would no longer buy the most risky subprime mortgages and mortgage-related securities. It just takes a little less buying at the margin to start things tumbling. It should also be kept in mind that Bernanke is not, I repeat, not expanding the money supply at the present time.
So what's up with the FHA when it is now guaranteeing over 20% of home mortgages with limited down payments? It is in serious trouble and will have pull tighten its credit standards somehow ala Freddie Mac in 2007. It will also try to generate additional revenue by, say, increasing insurance premiums.
What are likely possible ways in which FHA will try to do these things to shore up its balance sheet. Here's Harney's take:
1. Higher down payments. FHA's current minimum cash down payment is 3.5 percent. On a $200,000 house, a buyer can bring just $7,000 to the table, aside from closing costs. A purchase of a $500,000 house in a high-cost area requires only $17,500 in cash
2. Higher mortgage insurance premiums. Currently, FHA charges an "up-front" mortgage insurance premium of 1.75 percent of the loan amount. Most borrowers roll that into their loan and finance it. FHA also charges an annual premium, paid in monthly installments, of either 0.5 percent or 0.55 percent, depending on the down payment. To rebuild reserves, FHA could tweak one or both premiums to yield higher revenues. It could, for example, raise the up-front premium to 2 percent or as high as the current statutory maximum of 2.25 percent. It could also raise the annual fee, but the total premium could not exceed 3 percent under current congressional limits
3. Cutting home-seller "concessions" to borrowers' loan costs. One of the big attractions of FHA financing has been the agency's liberal allowance for seller contributions to borrowers to offset settlement and loan-related fees. The current FHA limit is 6 percent of the house price, which critics believe to be excessive. They say the policy effectively allows financially marginal borrowers to buy houses they shouldn't, thereby raising FHA's exposure to losses. Pinto calls the 6 percent allowance "insane on a loan with a 3.5 percent down payment." He wants Congress to order FHA to reduce maximum concessions to 2 percent.
4.Toughening credit standards. In the mortgage market, FHA is by far the most lenient and flexible player when it comes to evaluating applicants' creditworthiness. It does not have a minimum credit score, though it permits lenders to impose their own FICO score minimums. FHA also traditionally has been far more tolerant of credit history peccadilloes than Fannie Mae or Freddie Mac. When there are extenuating circumstances associated with credit problems - medical, marital or employment - FHA seeks to give applicants the benefit of the doubt.
What's all this mean? Harney puts it this way: ...wildly popular FHA-insured mortgages could be on the verge of becoming more expensive and tougher to obtain. Are you ready for real estate crash II?
ping and related
While homeowners save money, the arrangement shifts nearly all the risk for the loans to the federal government — and, ultimately, taxpayers — at a time when Americans are falling behind on their mortgage payments in record numbers.
http://www.nytimes.com/2009/11/22/business/22loans.html?_r=2&hp=&pagewanted=all
All the Kings Horses etc etc.
All the Kings Horses etc etc.
Those who acted responsibly (now known as “chumps”) are bailing out those who didn’t. It’s the new American way!
What I have done is bought a nice house on 13 acres in rural central Kentucky. I’m 56 and I’ve lived in Seattle my entire adult life and even my later school years. I’ve had it. I make a good six figures and will be moving to this self sufficient property and earn as little taxable income as possible - and spend as little as possible. I cannot bail anyone other than those I choose to with my own silver and gold. Well, there is the Social security I will be eligible for in six years, except they will probably increase that. :)
Starve the beast. Go Galt.
Wish I could. Sigh.
obambi will just print more mo mo money
Then the Chinese will stop playing, take their ball and go home
Then obambi will be eaten up alive.
I was able to because I rent. I rented during this entire thing. And it was tough. I firmly believed it was a bubble but from time to time wondered if the fed would just monetize debt allowing prices to go to the moon leaving me high and dry, a renter. But I let my intellect trump my feelings and it paid off. I just moved from a five bedroom on a third of an acre to a one bedroom rental condo in preparation for the move to kentucky. I sold a massive amount of stuff on Craigslist and paid off all debt and bought a bunch of silver (Just friday, actually). I will continue to sock away my “Seattle income” until we move. Then we are fully Galt late next spring.
To be clear, I firmly believe the Lord has been guiding this. The number of coincidences that have allowed this to fall into place are legion.
Indeed!
Not so sure about the Lords role in all of this, but people sure have screwed this country up and they reside in DC.
Wow...that says it all.
Thank you.
It’s not only real estate. Obozo is an incompetent two year old child.
It’s not only real estate. Obozo is an incompetent two year old child.
analysis is completely correct.
They reside in nearly every county in the USA, and the politicians do their bidding. They are the neighbors who watch their neighbors, to try to make sure that they won’t be allowed to produce or build anything. They are the NIMBYs, the HOA queens and all who push for more federal funding for local government offices, schools, feminist causes, etc. They want service: snow plowing, more police, more regulations, young women to bathe them, listen to them,... They are frightened by men who do auto repairs, furniture building and backyard smelting. They are frightened of firearms, wind turbines and children.
Thank goodness, the days of zero revenues are coming!
I suspect the crap will be hitting the fan soon. The "O" is likely to make a grievous error in judgment that will lite this candle that he has so carefully prepared with the aid of his sycophants.
When this candle lites, it will burn brightly and won't be put out without lighting another.
I know that statue or one like it. It was in downtown Mesa, Arizona.
I have something to say about that, and I will say it in a manner that will not endanger my situation.
In my line of work I deal with the financial statements of well to do to filthy rich people. A couple of months ago it got to the point that nearly every bureau I looked at, there was the unpaid mortgage. These people have assets in the 6 to seven digit range and are past due 4 months on their 4k mortgage. Ive seen situations where a business owner had 100% open on 6 figues of revolving debt. Past due on the mortgage.
All this does is cement my belief in laissez faire economics. When our elected rulers and associated czars put this out there to “help people” to cozy up the government teat, they encountered the law of unintended consequences. Surprise! If all you need is attention to detail and a good lawyer and some perseverance, you will get the taxpayers money to pay for your home. The people this was intended to help, the genuinely poor are not getting it. The wealthy and connected get it. Put a carrot out there and the guy sharp enough to see an opportunity and up early every day looking for success will be the one to get it. The people the left always think they are helping with Kenseyan economics are at home waiting for a government check in the mail.
Hey it is President Humpty.
Arrogant little fella, ain’t he!
I am ready! We paid off our house 20 years ago and we aren’t leaving till we are hauled out feet first.
I took the step of paying off my home this year. It wasn’t too bad since I had done well in anticipating the market. I did it for 3 reasons: 1) My wife will be ecstatic with the xmas present, 2) Peace of mind, 3) Fear that the bank that handled the mortgage would finally go under and create a huge entaglement of paperwork when we finally did pay it off. It’s amazing the peace of mind that comes over you once your 100% debt free. Times are tough, but life is good.
I am happy for you. It does bring a great deal of peace and that is worth a lot. That was my goal my entire adult life to have a paid for home and no debt some money to fall back on when we achieved that I was and still am thrilled, yes life is good.
I too agree with this. I believe that the President has made a series of grave errors, which we must unfortunately pay the price for, over and over again. I too think that the new policies that have been put in place are quite awful but are what we as a nation must deal with.
Also, I find this article to be quite informative:
http://www.bankapedia.com/mortgage-encyclopedia/faqs/662-what-is-the-minimum-fha-fico-score
Disclaimer: Opinions posted on Free Republic are those of the individual posters and do not necessarily represent the opinion of Free Republic or its management. All materials posted herein are protected by copyright law and the exemption for fair use of copyrighted works.