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Cleveland Fed Claims FHA Is Not The Next Subprime, Parallel Study Finds Ice Is Not Really Cold
More taxpayer money well spent. Then again, the Federal Reserve discovering that the nation's balance sheet is the next repository of worthless and unmanageable residential mortgages (gasp) courtesy of the Fed's own actions would have been worth the price of admission.
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Glad to know its OK and that there is a Cleveland Fed.
At least the FED is thoroughly consistent in its forecasting accuracy.
the subprime crisis is contained
I get the distinct impression that the Cleveland Fed doesn't truly appreciate of factor in that credit scores are, indeed, a moving target. In fact, they tend to deteriorate in periods of high unemployment and falling asset values. Continuing to allow new loans to be issued at government assisted 0% down-- no matter what the credit score-- is a recipe for MAJOR FAIL.
So... the FHA may not be the next subprime... but their number will come up.
agree assetman and as previously stated, your comments are always enjoyed by yours truly.
as to: "the FHA may not be the next subprime", my question is "who else but the FHA is left? I'm not trying to be a smart alec but who else is taking on new mortgage risk? Fannie and Freddie are already nationalized. thanks.
I bet if republicans were in charge he would say fha is subprime. What a bunch of f'ing morons
Man, these guys really need to get their message aligned (or, better yet, we need to get rid of the army of economists on the Fed staff) - just last month, the SF Fed pointed out that subprime lending was back to 2006 levels, thanks to the FHA.
http://www.frbsf.org/publications/economics/letter/2009/el2009-33.html
"In the fourth quarter of 2006, approximately 10% of originations in our sample were labeled by originators as "subprime." For the entire universe of mortgages, subprime loans are estimated to have made up about 20% of originations in 2006. By the first quarter of 2008, the subprime share was effectively zero. Since then, increased FHA lending—identified here by Ginnie Mae's share—has revived this segment of the market. After plummeting in early 2008, the share of borrowers with FICO credit scores lower than 660 has returned to just higher than 20%, the same share as when subprime securitization peaked in 2006."
Perhaps the objective of such conflicting reports is to confuse the masses. The Fed seems to be good at that.
Is LeBron James on the Cleveland Fed?
Can't tell the truth in a house of lies
can't see tomorrow with yesterday's eyes
#146803 thats a very fitting descrhymition ..
Well uh, now that the mortgage industry has locked up solid, the FHA is the only way the gov has to sell homes so they can spruce up the paperwork to make it look marginally okie dokie for the short term till it all blows sky high in 2010 with massive runs on banks, 10's of millions of homeless unemployed americans wandering the streets at night with clubs, guns and tire irons in search of edible greens growing roadside perhaps under a most lovely Azure sky of purple mountains majesty.
Mr Kunstler ?
This is about as harmless an ex-post study as anyone in the Cleveland Fed could have come up with. They stick to a very limited set of facts to produce their conclusion. But the real concern about FHA portfolio quality needs to be evaluated in an ex-ante manner, and this study avoids that approach completely.
Tell me Cleveland Fedders, what will a 2.5% increase in unemployment do to these models? How about a 5% decline in housing values, or a 20% increase in property taxes? How about a 20% increase in food costs with a 11% decline in purchasing power?
The whole FHA portfolio is highly succeptible to economic shocks, and this economy is throwing sparks -- you've underpriced your risk.
To the author: you could have added some validity to your work by concluding the paper with the following: "And because of the confidence and throroughness of my analysis, the FHA will never need, accept or require taxpayer subsidies (aka "a bailout"). We hereby relinquish any claim on future external capital injections."
But you didn't, and therefore I'm calling this paper for what it is: a parrot cage liner.
"They stick to a very limited set of facts "
u said it economessed. the 2005-2008 study range is the issue: the FHA became 'subprime' in 2008 and it's the 2H 2008 and 2009 loans that deserve the "new sub-prime" title (ie the 95% and up LTV loans). they are hardly represented here. though if you look close at the 2008 preformance in the charts... we can see trouble ahead.
Correct. Here is the pattern:
2006: Subprime
2007: Fannie/Freddie Expanded Approval
2008+: FHA
With some overlap between the three, but subprime borrowers are clearly using FHA financing today. Any idiot (like me) in the mortgage business knows this.
These jackasses might want to save the money they spent on this bs study and put it in their piggy bank. All they had to do was talk to anyone in the mortgage business in Ohio and they'd quickly find out everyone's a "Govie" man now. 620 credit score + 3.5% down + the tax credit (to fund said down payment) + high state unemployment = a subprime loan. They can slap as much lipstick on that pig as they want but it won't change the facts...
The Cleveland Fed has done a fine job of once again ruining Cleveland's reputation and to think all that progress made since the river fire.
To walk on water you would sink in the ice.
these people are phucking insane.
that is all.
Tyler, Can you give me a link to that Ice Study?
"Ice that is Really Not Cold" set to appear on the next GS Conviction Buy list.
I don't know where GS got the data, I understood that IPCC dumped the data some years ago...
"FHA-insured loans are performing considerably better than subprime loans."
Are they sure about that? As adjusted for WALA, they are performing better? I think that statement is untrue.
I'm not even sure how a 22.9% foreclosure/default rate would qualify as "considerably better." A greater than 1-in-5 chance that the loan the FHA insures is going to default would not exactly provide confidence.
That's what we call a lie...
When skating on thin ice your safety is in your speed.
In CA for the past several years you could not buy a home with FHA financing unless you were in a rural area. Now 38% of the homes are purchased with FHA. I think that it is possible that some of these new loans will default but it will be in the normal range of less than 3%. If they would change the rules and allow you to assume the FHA mortgage without qualifying that would be better. I also would like to have a rule change that there is no forgiveness of debt on a Government backed loan. You still owe the treasury dept after the foreclosure or shortsale. But that is me just dreaming again.
Further signs of the pending Apocalypse:
FHA condominiums
1-4 family
$500 down / $8,000 credit
$7,500 back - free money!
Actual sign in Chicago at the Costco exit in Lincoln Park.
please get a pic of that so it can be posted. please.
I have a picture. I apologize for my ignorance, but I'm not sure how to upload for viewing on ZH.
Astute Investor,,
As they say on the street,, "You gotta be shitting me" If this is true I'm in the middle of a nightmare.......I'm running but not going anywhere......
This country is Fail...............
From this Cleveland Fed paper:
"Using FICO scores provided in LPS data, we found that borrowers who obtained FHA loans in 2008 had a median credit score of 653, up from 631 in 2005."
From Edward Pinto's testimony to Congress earlier this year:
"Also troubling is the fact that the Fair Isaac Corporation (the producer of the FICO scores) reports that a 690 FICO score on a mortgage originated in October 2008 performs like a 645 FICO score on a mortgage originated in October 2007 and a 630 FICO on a mortgage originated in 2005-2007."
So while the Cleveland Fed's report suggests that FHA credit quality has improved based on higher FICO scores, the company that produces FICO scores would say on an adjusted basis it has declined. To remain equal risk, FHA's median FICO would have needed to go from the 631 of 2005 to 690 in 2008 versus the actual 653.
Surely the people at the Cleveland Fed are familiar with Pinto's testimony that blew a hole in one of the FHA's big lies, yet they continue to repeat it.
"FHA is not the next subprime."
This is such a disingenuous statement. To say that FHA loans aren't like subprime is like saying "9/11 was nothing like the Holocaust." Just because it wasn't as horrible as the Holocaust doesn't mean that it wasn't a tragedy as well.
Yes, sure it might not be as utterly catastrophic as the subprime disaster that we have experienced, but this subprime mess is something that has never occurred before and might not occur again in our lifetime. That doesn't mean that the FHA loans aren't a problem. Their delinquiencies are double the rate of prime loans which sounds pretty bad, although I'm not sure what the historical rate of delinquencies are for FHA.
The delinquency rates for 2008 FHA will approach those of 2006 subprime when they are appropriately seasoned.
The borrowers are the same, the only differences are the products and the FHA requires some documentation, besides that the underwriting criteria is not all that different in terms of DTIs and downpayments (or lack thereof).
And don't forget it's little brother -- the USDA loan program. Yes Virginia, you can still get a loan with no money down...I am sure it will be different this time. I mean how could it be worse, I mean unemployment is only TWICE what is was in 2007. Sometimes you really have to wonder how stupid everyone thinks people are.
dumb
The bailout was supposed to get credit flowing again, which was supposed to get small businesses back on their feet, which would then stimulate employment. It didn't work, because that's not what the banks chose to do with the money. Then there was the $787 billion stimulus; that was supposed to create jobs. It hasn't worked, either. Perhaps that shouldn't be surprising, as Obama's senior economic advisor seems to think that job-creation is a secondary concern to increasing GDP. "The primary objective of our policy," says Larry Summers, "is having more work done, more product produced and more people earning more income. It may be desirable to have a given amount of work shared among more people. But that's not as desirable as expanding the total amount of work." (Jared Bernstein, Vice President Biden's senior economic advisor, takes a different view.) Nonetheless, the administration claims that stimulus "created or saved" a million jobs. Even taking the administration's number at face value that clocks in at an average cost of $787,000 per job ... and almost no one takes the administration's number at face value, given its non-existent congressional districts and broad counterfactual assumptions.
http://www.huffingtonpost.com/howard-schweber/jobs-mortgages-food-stamp_...
DUH!!! EVERYONE knows that ice isn't cold, it's just water in transition... err, like frozen together, or something.
> Cleveland phucker claims FHA is not the next subprime.
He's not exactly wrong actually, 'cause FHA has never been anything but subprime. What's the definition of subprime? Borrowers that don't qualify for prime. And who needs to take out FHA loans?
FICO scores are phucking meaningless. It only measures past ability to obtain credit, not future ability to pay.
Hold on. Tell me these people didn't make multiple comparisons between how FHA loans are doing RIGHT NOW to how subprime loans are doing RIGHT NOW. Please tell me I misunderstood. Because to do that, instead of comparing how FHA loans are doing RIGHT NOW to how subprime loans were doing in late 2007, would be a level of dumb so extraordinary that I might pass out.