Yikes: The Federal Housing Administration isn’t looking too good, is it?

posted at 2:01 pm on November 19, 2012 by Erika Johnsen

Of President Obama and the Democrats’ many refrains that irk me to no end, the incessant iterations of “we need to further regulate big finance and kill the Bush tax cuts in order to avoid the policies that got us here in the first place” are among the worst. That type of blather conveniently ignores the federal government’s massive role in bringing about the financial crisis and paves the way with excuses for even more government intrusion. As much as President Obama wants us to believe the financial crisis was caused by rich fat cats taking advantage of the poor and Wall Street playing fast and loose with everybody’s money, he meticulously avoids mentioning that federal policy created many of the incentives and market distortions that preempted it all, and doubles down on the actual big-government policies that got us here in the first place.

The housing market does seem to be very slowly and laboriously picking itself back up again, but we’re nowhere near out of the woods, and yet another taxpayer bailout to the tune of billions of dollars may very shortly be in the works. Explains Edward Pinto at The Atlantic:

[F]igures released today from the Federal Housing Administration (FHA) throw a sobering splash of cold water. FHA’s FY 2012 Actuarial Study for its main single family program shows that its capital position has turned negative, by $13.5 billion. That’s a shift of $23 billion in economic value in a single year, and it puts the 78-year-old agency $34.5 billion short of its legal capital requirement.

If it were a private company, it would be shut down. …

The implosion of the government-sponsored enterprises Fannie Mae and Freddie Mac in 2008 did not end the government’s massive — and distorting — role in the housing market. Instead, in the wake of their bailouts (taxpayers have forked over $180 billion and counting), much of the risk was simply shifted to the FHA. Indeed, FHA’s insurance portfolio quadrupled in the past 5 years to $1.1 trillion today. The result is that FHA now guarantees 16 percent of all US mortgages, and 30 percent of all new home purchase mortgages. This is not an accidental trend: the FHA deliberately tried to “grow” its way out trouble, essentially betting the house on housing’s recovery. Friday’s numbers confirm that like Fannie and Freddie, it’s easy to gamble when the taxpayer covers your losses.

The problem with what is essentially a government monopoly trying to “grow” their way out of trouble and taking risks with money that isn’t theirs? More from WaPo:

Right now the critics are starting to look pretty prescient. By law, the FHA is supposed to hold reserves equal to 2 percent of its portfolio. But an independent, actuarial study released Friday showed that expected losses are so high that the FHA’s reserves will be the equivalent of negative 1.44 percent, or $16.3 billion, for fiscal 2013.

Indeed, the FHA’s predicament is worse than the $16.3 billion figure suggests. If interest rates remain low, more high-quality loans will be refinanced out of the FHA’s portfolio, leaving the agency with the dregs. No one can predict these flows with precision, since the FHA also has a program to retain good-quality, refinanced loans. But the actuarial report suggests that protracted low interest rates could drive the FHA’s capital reserve shortfall above $30 billion. …

Yet even a healing economy is a mixed blessing for the FHA. As household finances improve, more borrowers can qualify for loans without the FHA’s help, which deprives the agency of the market share it needs to bolster its portfolio.

Might the federal government have learned a little humility and backed away from their social-engineering and disastrous fiscal policies in the calamitous aftermath of the financial crisis? Dream on. The feds are still targeting l0w-income borrowers and trying to apply various bureaucratic band-aids to gaping wounds; as Pinto points out, more than 1 in 6 FHA loans are delinquent for thirty days or more, and these delinquencies coming home to their foreclosure-roosts could spell big trouble for the meager housing recovery. With the Obama administration at the helm, continuing on in the reliable Democratic fashion of attacking the symptoms instead of the disease, I’m optimistic for neither our national deficit nor our economic growth. The bailouts will continue until morale improves, or something.


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Can’t the government just re-distribute wealth from these rich investors and speculators that are beating down the middle class with these mortgages?

What if the federal government just took 91% of all private property and then split it out fairly so that the poor could have a “fair shake”?

We need more fairness. Housing is a right.

Viva Free houses!!!

https://www.youtube.com/watch?v=Bg98BvqUvCc

http://www.nytimes.com/2012/11/19/opinion/krugman-the-twinkie-manifesto.html?ref=opinion&_r=0

PappyD61 on November 19, 2012 at 2:05 PM

The bailout is just 5.7 days of money printing for the federal reserve. Bernanke has our back. /s

Oil Can on November 19, 2012 at 2:08 PM

Of President Obama and the Democrats’ many refrains that irk me to no end, the incessant iterations of

“we need to further regulate big finance and kill the Bush tax cuts in order to avoid the policies that got us here in the first place” are among the worst.

Point of order counselor – Shouldn’t all those brandy spanking new regulations and taxes put to rest that tired canard?

Chip on November 19, 2012 at 2:10 PM

he meticulously avoids mentioning that federal policy created many of the incentives and market distortions that preempted it all, and doubles down on the actual big-government policies that got us here in the first place.

^The Progressive ideology in a nutshell.

When ObamaCare implodes, do you think the Leftists will advocate actual market reforms, or double-down on failed authoritarian command & control?

Another example is the perpetual Progressive annihilation of the public school system. Lower income kids and families hardest hit. It didn’t used to be this way.

visions on November 19, 2012 at 2:11 PM

Might the federal government have learned a little humility and backed away from their social-engineering and disastrous fiscal policies in the calamitous aftermath of the financial crisis?

Stop Erika! You’re killin’ me …

ShainS on November 19, 2012 at 2:12 PM

Just so everyone understands this, the FHA has been in existence for 78 years, and it has been self-sustaining through premiums paid by homeowners for all those years. In most years it has run a healthy surplus, which has been used to offset other spending in the HUD budget for decades. The only times it came close to a break-even were during the oil bust of the early 1990s and the boom of 2002-2007 when it lost most of its market share to subprime loans and private mortgage insurance.

It takes serious incompetence to screw this up.

rockmom on November 19, 2012 at 2:20 PM

Hey if we can have Obama phones, why can’t we have Obama houses? Isn’t he like modern day George Bailey or something?

gsherin on November 19, 2012 at 2:20 PM

Why is the government interested in providing debt-financed assets to low income individuals anyway? Owning a home and having a home are two different things, but the whole distinction is blurred by liberal demagoguery.

blammm on November 19, 2012 at 2:25 PM

The FHA is primarily a mortgage insurance business. My mother had a house with a reverse mortgage. With the drop in home prices the FHA wound up on the hook for $95k. Of course FHA insurance premiums covered some of that. But I expect a lot of reverse mortgages did not turn out well for FHA or for HUD. The same goes for conventional FHA mortgages that defaulted.

Dasher on November 19, 2012 at 2:25 PM

Another example is the perpetual Progressive annihilation of the public school system. Lower income kids and families hardest hit. It didn’t used to be this way.

visions on November 19, 2012 at 2:11 PM

The last **ck I gave about lower income families sailed out of port on November 7, 2012. They voted for a president of a banana republic, they’ll learn to eat a banana. As I always tell my kids, the penalty for thinking with one’s arse is inevitable, if sometimes delayed.

Archivarix on November 19, 2012 at 2:26 PM

It takes serious incompetence to screw this up.

rockmom on November 19, 2012 at 2:20 PM

Well C’mon – we’ve got the regime and Obama voters on the case – socialism is thy name, incompetence and lying is thy game.

Chip on November 19, 2012 at 2:29 PM

Show me a government agency that does look good. I’d be happy to find one that occasionally tells the truth – trouble is, how does one tell?

iamsaved on November 19, 2012 at 2:32 PM

Liquidate everyone’s 401K’s and IRA’s. Use the money to pay off the loans and some of the debt and put everyone on the OBAMA-K plan. See? problem solved.

Mr. Arrogant on November 19, 2012 at 2:36 PM

Show me a government agency that does look good.

iamsaved on November 19, 2012 at 2:32 PM

FBI. While they generally suck, they do it within budget frame, are relatively scandal free recently, and occasionally even serve their intended purpose.

Archivarix on November 19, 2012 at 2:37 PM

“No, seriously…..there’s no better way to waste taxpayer money than to lend it to people who can’t possibly pay it back..but they do vote!”

BobMbx on November 19, 2012 at 2:39 PM

Don’t worry! Obama has our back. It’s called sodomy.Thanks American voters.

MaiDee on November 19, 2012 at 2:40 PM

I’m optimistic about the housing recovery, very optimistic. And by that I mean MY housing recovery, not the economy’s. I’m saving every penny I can till I can scoop up an investment property or three for a song.

Just in the past month, I’ve seen these deals:

1.) A man I know scooped up a two-bedroom rooftop penthouse apartment with ocean view for $31,000 – an apartment that sold for $230,000 two years ago and was repossessed.

2.) A man offered me nine acres and a horse (no house on the property) for free if I would take it off his hands. It’s too far out of town to be worth it for me, but it bears thinking.

3.) A lot in my neighborhood was worth $8.7 million in 2006. The realtor offered it to me for $840,000.

4.) The house next to mine was put on the market in 2008 for $7.4 million. The cleaning lady told me last week the family will settle for $260,000.

5.) An apartment close to my house was sold for $4.2 million two years ago. I called the owner when he put up a For Sale sign two days ago and he told me his price is $302,000, “But we can talk about going lower.”

6.) I visited a gorgeous two-unit house up in the cool mountains with four-and-half acres of land and fruit trees like mangoes, orange and lemon, and even some coffee trees, six bedrooms, four bathrooms, and a huge garage. No liens or other messiness. No real maintenance to do except slap on a coat of paint. $31,000.

7.) A beautiful house on almost three acres of land, almost finished but needs a coat of finishing cement on some of the blocks and to pour a driveway. All utilities in before the bank repossessed. Gorgeous mountain view. $17,000.

8.) Ran into a man who got an absolutely fabulous apartment in the historic downtown district, gorgeous ocean view, for FREE – once he paid off the $29,000 lien. Just to put in perspective, the place was easily worth $5 million a few years ago.

Need I go on?

This Obama economy is flushing a lot of people out of their places, and the same people who would vote for him run their own lives on his funky economic theories. The result? Banks aren’t quite so forgiving with their own money as the government is with someone else’s. The place to be is in repossessed property and my jaws are aching with all the salivating I’ve been doing. Thanks to Obama winning again, I have at least four more years of dropping prices to take advantage of.

Yippeee!

JoseQuinones on November 19, 2012 at 2:40 PM

The last **ck I gave about lower income families sailed out of port on November 7, 2012. They voted for a president of a banana republic, they’ll learn to eat a banana.

Archivarix on November 19, 2012 at 2:26 PM

LOL! That is perfect!

I entirely quit caring about the vast majority of blacks and Hispanics who voted for Obama bin Lyin, and pretty much every liberal on that day.

They’ve brought everything from slavery to starvation on themselves. Whatever they get they richly deserve. If they’re actually being oppressed I won’t lift a finger unless the oppressor could start going after non-liberals. It is past time for reality to hit.

MelonCollie on November 19, 2012 at 2:43 PM

Another example is the perpetual Progressive annihilation of the public school system. Lower income kids and families hardest hit. It didn’t used to be this way.

visions on November 19, 2012 at 2:11 PM

.
Perhaps,
but our school district programs feed the school kids Breakfast, Lunch and after school snack meals.

And its all free, and regardless of income.
So that’s a positive – right?
/

FlaMurph on November 19, 2012 at 2:43 PM

The national banks are using FHA as the backstop for all of these losses. Didn’t see that one comin’ did ya Libs? In my community, houses that have been foreclosed haven’t even been put on the market because the mortgages are FHA guaranteed. The banks just sit on the properties until they are worth $0, and then call in the guarantee on the outstanding balance of the mortgage. So, rather than working with borrowers to reduce the loss to the bank as much as possible (as you would expect in non-guaranteed loans), these banks are simply foreclosing and letting the taxpayers take the loss. I’d like to see a study comparing foreclosure rates of guaranteed v. non-guaranteed loans. That would be a story for the MSM to cover… Oh wait, nevermind.

conservablogger on November 19, 2012 at 2:50 PM

The bailout is just 5.7 days of money printing for the federal reserve. Bernanke has our back. /s

Oil Can on November 19, 2012 at 2:08 PM

L.I.B. First time I became one!

Heck, add a couple machine on and expand capacity. Why not just print for 30 days and “give” everyone a free & clear home? Why all this tip toeing round?

The last **ck I gave about lower income families sailed out of port on November 7, 2012. They voted for a president of a banana republic, they’ll learn to eat a banana. As I always tell my kids, the penalty for thinking with one’s arse is inevitable, if sometimes delayed.

Archivarix on November 19, 2012 at 2:26 PM

Exactly! I have to take and protect my own. All my extra time and money will be used to better my family. It’s too bad I cannot afford to donate or volunteer anymore.

I’m sure the Fed will step and help them now.///s

VikingGoneWild on November 19, 2012 at 2:56 PM

JoseQuinones on November 19, 2012 at 2:40 PM

Those are smokin deals. I’d like to know you find this info so I could repeat myself. I’m not above asking to learn!

VikingGoneWild on November 19, 2012 at 3:01 PM

JoseQuinones on November 19, 2012 at 2:40 PM

No kidding. Where are you? My area has not been hit nearly that hard, but there are some deals to be had, mainly houses in great areas that have been sitting empty for a long time due to older folks who have either died or moved away. My wife and I are planning to scoop up one of them soon.

UltimateBob on November 19, 2012 at 3:05 PM

Here’s why FHA is failing: FHA guarantees loans to people with previous foreclosures and bankruptcies.

But he has ObamaCars!

PattyJ on November 19, 2012 at 3:17 PM

JoseQuinones on November 19, 2012 at 2:40 PM

Those are smokin deals. I’d like to know you find this info so I could repeat myself. I’m not above asking to learn!

VikingGoneWild on November 19, 2012 at 3:01 PM

JoseQuinones on November 19, 2012 at 2:40 PM

No kidding. Where are you? My area has not been hit nearly that hard, but there are some deals to be had, mainly houses in great areas that have been sitting empty for a long time due to older folks who have either died or moved away. My wife and I are planning to scoop up one of them soon.

UltimateBob on November 19, 2012 at 3:05 PM

I live in San Juan, Puerto Rico. If you would like to do some investigating, a good place to start is http://www.clasificadosonline.com. All of the realtors I’ve called speak good English, and the site is bilingual. Check it out and once you adjust yourself to realizing how FAR DOWN the prices are from where they were a few years ago, be prepared to get excited and enthused.

JoseQuinones on November 19, 2012 at 3:31 PM

Thanks for the info! I will defintely check it out.

VikingGoneWild on November 19, 2012 at 3:55 PM

As much as President Obama wants us to believe the financial crisis was caused by rich fat cats taking advantage of the poor and Wall Street playing fast and loose with everybody’s money, he meticulously avoids mentioning that federal policy created many of the incentives and market distortions that preempted it all, and doubles down on the actual big-government policies that got us here in the first place.

You really don’t understand how Wall Street operated during the years of the financial crisis or how it continues to operate today. Practically no on on Wall Street actually blames the government for its near collapse- that’s a refrain invented out of thin air by the right wing (and one that’s amusing to actual Wall Street bankers). You cite Obama as misguided, but he’s only repeating the views of Alan Greenspan and others close to the crisis as it unfolded.

Freddie and Fannie were conduits leveraged by Wall Street to turn high risk loans into risk-free securities. But you shouldn’t assume that there was no other mechanism available to investment banks to acquire those loans for transformation into “risk-free” derivatives.

If the government had simply allowed the FBI to regulate the lenders, the liar loans that undermined the mortgage industry could have been prevented. Lack of regulation and market transparency was the problem.

http://www.ritholtz.com/blog/2011/12/fbi-estimates-80-of-mortgage-fraud-involved-industry-insiders/

http://www.ritholtz.com/blog/2011/04/the-destruction-of-economic-facts/

bayam on November 19, 2012 at 3:58 PM

Right now the critics are starting to look pretty prescient.

Yeah, no shit! But not to worry, “It’s all Obama’s Bush’s fault!”

GarandFan on November 19, 2012 at 4:24 PM

Freddie and Fannie were conduits leveraged by Wall Street to turn high risk loans into risk-free securities. But you shouldn’t assume that there was no other mechanism available to investment banks to acquire those loans for transformation into “risk-free” derivatives.

If the government had simply allowed the FBI to regulate the lenders, the liar loans that undermined the mortgage industry could have been prevented. Lack of regulation and market transparency was the problem.

This is totally WRONG! Freddie and Fannis set the rules for loan qualifications. When loans do not meet their qualifications they simply refuse to take them. The ‘bundling’ issues were stacked on top of the underlying GOVERNMENT decision to allow ‘liar’ loans.

Now, as this post points out, the FHA has jumped into the breach. Anyone that has been following the FHA has know that for the last couple of years they have re-instituted the ‘liar’ loan program. Needless to say, Dodd-Frank IGNORED the FHA and was structured to ALLOW this NEW FRAUD to be dumped onto the US taxpayer!

The point that EVERY REPUBLICAN needs to make is that the FHA is an EXCLUSIVE Obama PROBLEM! This simple FACT needs to be mentioned CONSTANTLY. The drumbeat of Obama’s FAILED FHA, and Dodd-Frank failures should be drummed every day for the next DECADE!

Freddy on November 19, 2012 at 4:25 PM

This is totally WRONG! Freddie and Fannis set the rules for loan qualifications. When loans do not meet their qualifications they simply refuse to take them. The ‘bundling’ issues were stacked on top of the underlying GOVERNMENT decision to allow ‘liar’ loans

Liar loans have NEVER been legal, you’re completely missing or intentionally ignoring the point. Reports by the FBI and other sources undermine this reality.

bayam on November 19, 2012 at 4:32 PM

Liar loans have NEVER been legal, you’re completely missing or intentionally ignoring the point. Reports by the FBI and other sources undermine this reality.

bayam on November 19, 2012 at 4:32 PM

Go read the CRA(circa 1980). Which was ‘adjusted’ to include ‘undocumented MINORITIES’. Look at Stockton California for a very clear picture of the ‘result on the ground’.

Freddy on November 19, 2012 at 4:35 PM

JoseQuinones on November 19, 2012 at 3:31 PM

Thank you, Jose! I will check it out.

UltimateBob on November 19, 2012 at 5:46 PM

Liar loans have NEVER been legal, you’re completely missing or intentionally ignoring the point. Reports by the FBI and other sources undermine this reality.

bayam on November 19, 2012 at 4:32 PM

You are full of sh*t…

Everything I sold during the hey-day (I’m a R/E broker) was financed by (primarily) FHA zero down loans…The interest rate was (artificially) lower by design than conventional loans (to steer people to the FHA), the credit criteria (no income documentation and no employment verification etc) was established by FHA, not the banks…banks wouldn’t make those loans with their own money, period…FHA set the rules and GUARANTEED the loan so the bank would be made whole if the customer defaulted..

Social engineering at it’s finest, your politicians (Barney & Chris) did this, NOT the banks…they played by the rules the feds gave them…

Tim Zank on November 19, 2012 at 6:44 PM

The last **ck I gave about lower income families sailed out of port on November 7, 2012. They voted for a president of a banana republic, they’ll learn to eat a banana. As I always tell my kids, the penalty for thinking with one’s arse is inevitable, if sometimes delayed.

Archivarix on November 19, 2012 at 2:26 PM

Amen. Blow it all up and let it burn. I no longer give a s—.

Django on November 19, 2012 at 6:57 PM