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FHA – “We are Officially Broke”
An interesting item in the Federal Register. This notice: (Link to FHA/FR)
SUMMARY: A recently issued independent actuarial study shows that the Mutual Mortgage Insurance Fund (MMIF) capital ratio has fallen below its statutorily mandated threshold.
We can pretend that that the FHA does not need a bailout, but it does.
Unlike its bad siblings, Fan and Fred, there has never been a question
whether Uncle Sam is on the hook with FHA. We don’t need a fancy
conservatorship this time. Tim Geithner over at Treasury will just write
the checks to cover the shortfalls. The good news is that those debts
will not show up on the Federal balance sheet. They don’t count because
there are “assets” behind these loans.
The Notice would appear to be a requirement of some sort to solicit
public opinions on policy changes at FHA. The proposed changes would
(supposedly) address the high default rates that the FHA is
experiencing. What have they proposed to achieve this? Surprise
surprise, they are going to instill some sanity into their lending
program.
This kills me. I, and a hundred others, have been writing and screaming that FHA was just a ‘bailout to be’
for a few years now. This was an easy call. FHA was making 96 ½% LTV
loans to borrowers with low FICO scores. They did this in a period where
RE values fell by 25%. Their business plan was, “How To Take a Bath on the Tax-payer Dime”.
Don’t look for these changes to come anytime soon. I suspect that this
will not evolve to a point where actual adjustments are made until after
the next election. But these changes are coming. Real equity of 10%
will be required for borrowers with low credit scores. There will be
restrictions on seller equity, or “concessions”.
My read on the proposals is that the FHA is getting out of what I call
“Silly Lending”. If they actually do take these steps it will mitigate
future losses. It will also sharply restrict the availability of
mortgage credit. Similar steps are being taken by F/F. The
implementation will be felt this fall. By spring time mortgage land
could look quite different. The D.C. lenders are 95% of the mortgage
market today. There are no willing private sector lenders. If Washington
steps back RE will get illiquid.
Central to our problems is the fact that for many years a social agenda
and lending standards were mixed. The goal was admirable. Make mortgage
credit available to all so that everyone could enjoy a leveraged bet on
home appreciation. What a terrible bet the feds have financed. There are
very few winners in this story. I read the following as a mea culpa. I
think FHA accepts that bad lending standards have ended up hurting those
they intended to aid. And along the way it hurt all of America’s
homeowners.
Given
FHA’s mission, allowing the continuation of practices that result in
such a high proportion of families losing their homes represents a disservice to American families and communities. It is FHA’s intent to eliminate this portion of its business, and utilize other established methods to reach and support these families.
In the end the mortgage mess will cost us nearly a trillion. A very big
price. For that tab we should learn a lesson. Soft lending to achieve
broad social goals is a mistake. Tell that to Barney Frank. This was his
dream.
»
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"Soft lending to achieve broad social goals is a mistake. Tell that to Barney Frank. This was his dream."
While this may have been his dream, he did not institute it, Bill Clintons Whitehouse did, and Fwank, and Dodd were only TOOOO happy to take it and run with it.(and made WHO knows how off the deal).When this deal WENT down, the head of FM was fired, But he (unlike any other major players & CEO's), did not, was not made to give back the 50 Million dollar BONUS he left with.............Strange huh?.
The Soft $ deals for new home, or existing homes, for 1st time Unqulaified buyers is still alive and well.(it will still allow minorities, and the working poor to buy homes,they have no way of affording)..........
MORE SOCIAL JUSTICE................( Redistribution)
As is the Kickback on BUYING a new home, for 1st time buyers, it's in the NEW & improved Banking Finance Reform Bill,( time said to be limited offer)....yeah, we'll see...........
Ron Paul, and George Bush, BOTH said, told Frank,( Several Times) that the Loaning practices, and FM/FM were a path to a disaster..........
This is good news and a positive step, hopefully we'll eventually get to 20% down just being the standard, period (for any loan, including credit cards). Unsecured debt is conceptually silly.
Bruce-
would be great to hear whats the latest buzz on the SSTF. MSM obviously does not talk about it but my guess we are firmly in the red on that one too.
SS is late in releasing key data. Should be out soon.
bk
Bruce love your work but, how many eggs must one crack till the unborn fetus is present.
Bruce love your work but, how many eggs must one crack till the unborn fetus is present.
The enemy is us, not Frank. From Kennedy to Reagan to Perot to Gingrich, politicians have sought to limit the mortgage interest deduction and other subsidies for housing, including the DPA programs through HUD. Each time the real estate lobby succeeded in defeating reform, whether the reform was suggested by Democrats or Republicans. If Frank died tomorrow it would make no difference whatsoever because whoever was the next Chairman would find the same lobby committed to defeating him/her in the next election if he/she dares tough their industry.
The only solution is for each of us intelligent voters to abandon their party bias and commit to reform candidates who are economically conservative and socially liberal, just like the majority of Americans. And the only way to get there is a non-advertising supported campaign through the internet, thereby avoiding the need for fund-raising in the first place. Campaign finance reform is dead after Citizens United.
Hmm... Use a sort of lottery as a primary reduction. Interesting, good idea.
This not a war. It is a managed class conflict and one class has always been manipulated at the will of the other. ( I will leave you you to figure out the teams). Voting has been used to vent worker anger and channel it into a more manageable facade of choice between two "different" parties.
There are not enough interested people to affect a change. There is not enough will to maintain the necessary sacrifice. People need to eat and have a place to live. The elite know this and are willing to do what we are not- kill us, silence us and out work and organize us.
Every government program, law and regulation are unnecessary. Government is unnecessary. People have, historically, developed cultures that are capable of self rule. They have provided personal and group self defense. Heck, we might even be capable of producing icrap in a free market.
Government always seems like a good idea. Careful analysis shows this to never be true. Government is an excuse to create a favorable trading environment for a select few based on rewards given to willing sycophants.
Look down your towns boulevards and tell me, honestly, how necessary is the crap on either side of the street? We have built and designed a commercial environment that trades our wealth for trinkets. We laugh at the native americans, but we have been paid in glass beads for one hundred years. Everything you see is they necessary illusion of wealth we have been willing to accept in trade for supporting and enriching the elite.
America is not a flag, a star spangled banner or four jets over a football game. It is my home and the government is my sworn enemy. The Constitution was born in deceit. It was molded and manipulated through jurisprudence to favor one group over another.
On the fourth of July, we traded one aristocracy for another, paid for with the blood of Americans as the elites paid their way out of commitment, just as they did in every war since.
Is it better anywhere else? Unfortunately not.
Gee, when I look down the street, I see fire hydrants, street lamps, sidewalks, pavement, telephone lines and power lines. I know there is potable water going into each house and a functioning sewer system that is not a health hazzard.
I guess when you look down the street, you see ideology.
Getting back to when it was just bad.
Look at local government and then the federal government. The services that most people rely on to exist end up in some sort of Government organization. Even if we believed all government stinks and it was all removed, we would still end up with government after a period of time as the ideologues started to find out that hitting targets at a range was far different than a cascade of bullets that can penetrate anything coming into the fortified home at night. They wouldn't like the stench of the dead from disease, natural cause or an argument over who owned the curb.
In the old wild west government eventually crept in as people decided they needed some organization and defense against other people who could handle weapons much better and enjoyed the thrill of the kill. First it's for organized and dependable protection ( you mean the sheriff just left last night? as a gang sits at the end of town arguing over who gets what). Then it evolves from there. As any organization is want to do , it seems to grow until the funding runs out . Witness Wall street who is constantly after growth stories in the private sector. The idea that governments won’t do the same is ludicrous.
I personally grow weary of the ideologues who preach the way things ought to be which is always their viewpoint, left or right. I prefer the pragmatist who understands we have to deal with the way things are.
For those who keep wishing for blood , I would give odds they have never seen war, smelled death or walked a fresh battlefield. They seem to be an anonymous caricature of a caricature like a modern Dirty Harry or an old Wild West star like John Wayne who strangely enough always seemed to be on the side of law enforcement, a government function. That or they are avid war re-enactors.
The fact is if we are in a modern era or could travel back in time 5000 years or 200 , the same problem is going to hit us. Money leads to power and absolute power corrupts. It is a story that has followed the rise and fall of regimes, businesses and individuals time and time again. I’m a firm believer that people’s individual and collective ego play a large part in first the growth and ultimately the failure of a multi generation business or style of government. It isn’t the method of government or the message that government is evil or what economic system is best. It comes down to people. It always has and always will. Even tiny groups who live outside the established law and governance fade after a generation or two. Government isn’t bad until people make it bad. A Business isn’t bad until people make it bad. There is very little anyone can do about the natural rising set of expectations for a better life that has driven every technological advance , every medical advance and other positive achievement. Just as there is no system that will ever survive the people who never have enough money or never have enough power and will do anything to get it, even if the ultimate result is the failure of the system that enriched the person in the first place. That’s where we are at now and there is really no turning back because they are in control which has always been the goal.
There are exceptions to this in groups and people, as there are to everything, but even then, exceptions are sought out and ultimately destroyed if the groups or individual possess something that is coveted by the people in power.
So we’ll just have to do what billions have done before this system. Ride it out and see what the new system brings. If history repeats , mirrors or has strong similarities, it usually is something that makes the current circumstances look like a minor problem compared to what the new system brings.
All of which could have been installed at less expense and paid for by the people who actually wanted it. By the way- all sewer systems are health hazards. They waste fresh water of which we and the rest of the world are in desperate need. They encourage the disposal of toxic wastes by their anonymity. Rather than encourage the disposal by natural process- they treat with chemicals or place below the level of microbial action in the soil.
This isn't about ideology, it is about blatant propaganda inculcated into the minds of every person for the sole benefit of making us more compliant and less willing to resist.
That's probably taking the idea to an extreme, but I'm 80% behind what you just said. There's nothing inherently evil about government, it's the runaway incrementalism that is now killing us, not that we are governed in some way.
"The Constitution was born in deceit."
That is very true. Unfortunately, you are going to have a hard time selling such a message to the ignorant masses. The White House had to put out a fucking cartoon to explain the recent bank non-reform bill. They know their audience, it's a 5th grade reading level and not much better in intellectual capacity. Anti-intellectualism is a race ot the bottom.
Well put. The only question is: Since the world community must unite in factions, what is the best of the worst models?
Second!
Teaser: are you kidding that Reagan was a "pale imitation" of Truman, who tried to socialize both medicine and steel?
Truman, who served well in WW One, who served as President with about the same level of biz experience as Obama or Clinton, had the good fortune and genuine modesty to recognize the genius of General of the Army George C. Marshall to rewire the State Department after the War and before the Soviet shutdown of Berlin, and had the onions to sit General of the Army Macarthur down during the Korean "UN Action". Domestically, he set in motion what we are now paying for today with the well-intentioned GI Bill and the FHA and VA home loan programs. Mix in a few Congressional Ag programs to benefit the midwest farmers, and you now have a pretty sizeable chunk of today's deficits.
In fact it was Truman's financial plight in the late 50's that shamed Congress into providing a pension for former Presidents that has since grown wildly out of control.
Wartime is an inherently socialist activity, with all means of production under the government's control, so if he almost took over the steel industry, it was in part to stop the wildcat strikes going on after WW Two. Fortunately, people on both sides of the steel business knew Truman kept his word and did what he said he would do (perhaps that is what the earlier writer was referring to in regards to Reagan), and the threat to take over the steel industry under national emergency order was averted. Same for the railroads. Truman's and Marshall's biographies are incredibly interesting reads and worth anyone's time.
As to medicine, if anything, Truman wanted to have BASIC care available to all, a reaction to his personal experience with the depression in Western Missouri and Eastern Kansas, but Reagan was right to call it the linchpin to establishing socialism in his radio commentaries in the early 60's. And so it became in Johnson's Great Society programs.
I think few understand or appreciate how quickly things will go downhill once liquidity in the real estate market inevitably goes WAAAAY downhill as the Fed eases out of the game. There is no substitute or lender-in-waiting. This is well known in the homebuilder circles. Valuations of all homes are headed for a fall if only to reflect the illiquid nature of the asset. Banks are stuck with illiquid loans. Are you ready for the Fed to be the lender of last resort? It will come to pass.
Sit back and imagine: you cannot sell your house. Multiply by millions of people. It's the Anti-ATM. It sucks money out of you relentlessly.
Sit back and imagine: you cannot sell your house. Multiply by millions of people. It's the Anti-ATM. It sucks money out of you relentlessly.
No different than how houses have been viewed traditionally, ie: in the past few hundred years, until the recent lending bubble.
Anyone who actually "owns" a house and has to maintain it know what a lie the "investment" is. It's a house, if you don't constantly work to maintain it, it degrades--fast. Your so-called investment will fall apart if you let it. And even if you can keep up with yours, there is no guarantee that all your neighbors can.
I was going to start off by saying ... "a billion here, a billion there, and soon we're talking real money.
The problem is, the money is not real! It is ever increasing in supply towards infinity (in the hands of the mega wealthy) and decreasing in value towards zero.
I feel like smiley.
Gold bitches! n!n
have you noticed the lack of news attention to the weekend bank closings? they're still closing them, 6 last weekend. apparently, we can only stand so much bad news before we numb and don't want to hear it anymore.
Yeah, and we don't anymore get the daily "body count" as the casualties are continuing to mount (and even accelerate) in Afghanistan.
Funny, that.
FHA is broke. In other breaking news, Water is Wet and Fire is Hot.
Film at 11
Hey, Bruce...maybe I missed it but what about an update on "Wendy's Story"?
thanks in advance
Well she was on tv twice. NPR twice. But she has no job offers. I am hoing that the dust settles on this and she is able to do something with this. She is a very solid lady. I got to know her through all of this. I'm hoping
From the OCR website.
Rep. Barney Frank, D-Mass., probably the best-known gay politician in the U.S. and among Congress’s smartest and funniest, will be the keynote speaker at Orange County Democrats annual Harry S Truman Awards Dinner on Aug. 28...The event is the county party’s biggest annual fundraiser. There will be a 5 p.m. reception and a 6:30 p.m. dinner, to be held at U.F.C.W. Local 324 Banquet Hall, 8530 Stanton Avenue, Buena Park..."
Maybe a few taxpayers ought to show up at this event to let Barney and friends know we are not amused by his wit or public performance!
You do realize that Harry S. Truman would have kicked the living poop out of a flaming gas bag like Barney Frank, right? For fuck's sake, Bobby and John Kennedy would have kicked the living shit out of their little brother if they had lived long enough to see what he turned into.
How is it that we have gotten so far off the path? Even Ronald Reagan was a pale immitation of Truman, Eisenhower, Kennedy or Teddy.
This is merely an FHA retirement notice. FHA will be placed on life support and wheeled off to a country resort to live into eternity. New and improved FinReg will quickly fill the vacancy with an infant bureaucracy with an acronym prefix of "F" or "H".
Can,t be Officially broke this is the spend all Government.How about we are temporarily out of funds.
OVERDRAFT PROTECTION for the FEDERAL GOV'T!!! That is completely brilliant!
Problem solved. ;)
Great post Bruce, as always. Glad to see FHA is finally realizing the obvious....the term "day late and a dollar, I mean FRN, short" comes to mind.
Enough said.
au contrare, barney's dream was to be reelected (and continue with his neo-mandarin lifestyle in modern-day babylon) until his death. his biggest nightmare is that he will no longer live a life of privilege courtesy of his PAC & disinguenuously distinguished title.
he will do anything & everything to continue #1 and prevent #2. the man does not give a twit about anyone else that does not serve his dysfunctional lifestyle, despite his loquacious oratory to the contrary.
sorry Bruce, but morality does not enter the equation here. we're in Rome now. if we want to step off the time machine, we need to see where we are with clear vision.
when the balloon finally goes up on this disgusting floating crap game, there will be blood.
"I'm finished."
Not that I want them to keep going...but how can they stop without setting off the negative feedback loop (and I don't know a politician ready to promise his constituents short term pain for long term gain). ie, if they make credit standards tighter, increase min LTV and force people to save (gasp) before buying you knock out 1 to 3% of potential buyers. Without these buyers prices spiral knocking out the next 5% of vulnerable homeowners through strategic defaults...this knocks out the move up buyer, yada yada.
If they don't open up the credit spigots won't prices actually come back to earth (oh no)...and all the ramifications thereof (lower equity base, lower tax base, blah blah). As a financially conservative guy, hell, please let it happen that peoples poor decisions will be their problem and not mine but I don't see any way the gubmint will allow this to happen.
I fully expect some new acronym to pass money along to extend the ponzi.
We're going to take our medicine. It's only a matter of now or later and if later, it will be far worse than now.
That is exactly the problem. Now that the government loans or guarantees 95% of all mortgages, there would be no way to reduce this without starting that negative feedback loop.
But it will be stopped. Either on our collective terms or by an outside event/actor.
So true, and already in motion as sales are grinding to a halt in new homes. With record low mortgages, you can't sell a house. Think about that. As you drive past all of the real estate you see every day, think of the illiquidity discount which has yet to be be priced in, due to the "negative feedback loop," something we are teetering on the edge of.
It's only really worth something if there is a ready, willing and able buyer. Otherwise, it's worth zero.
That's bs. An illiquid market is not the same thing as saying the items are priced at $0. Outside of maybe urban Detroit and a few other places, I have no doubt that if a house won't sell for $200K, there is usually some price between that and $0 in which the house will sell. It's just that $40K or $50K is the same thing as saying $0 due to all paper and leverage involved. I'd buy a few rental properties if the price was right and if the taxman would get the fuck off my back (not going to happen).
All the cash buyers for heavily discounted homes are getting pretty full. Rentals are falling off because there just isn't anything in the $300 space unless a rooming house from the old days is available. Many investors are turning to HUD to get listed as a HUD approved landlord for section 8 housing. Now the wait on section 8 housing is 4 -6 months.
There isn't any financing available in the necessary volume to make a dent for investors. This is an all Cash world. Banks are reluctant to make a loan to an investor since flippers were a big part of the problem as values crashed.
This is why it is so critical that the banks are allowed to fail along with extend and pretend. We need to reach a universally agreed on floor for home values and once a slow appreciation starts from there we may get some private lenders interested. Not letting the market set fire to the TBTF 's that have 60-70% of the mortgage assets by stomping on FASB will be seen as the most critical mistake made. All of these TBTF banks would be in receivership now. All real-estate and stocks would plunge so there would be a balance sheet recession but if the homes were sold at real value, that would create liquidity , help the economy and generally give hosing a chance to grow as long as it doesn't stray to0 far from incomes.
Which means this relentless assault on wages and with minimal investment in R&D will continue to hold down prices. Wages have to increase as well as interest to give savers a chance to make money or at the minimum to have the excess cash to save or none of the above will matter a bit. It will be WW111 or nothing.
That's the point, the value is the price were willing and able buyer's show-up. Theoretically, if it is completely illiquid, you have to go to 0.
I guess everyone can get a FOO (friends of obama) loan now.
On a day when GM buys Americredit - while US still owns GMAC - all of this is simply disgusting. FHA is broke. FRE is broke. FNM is broke. FDIC is broke. Virtually every muni is broke. US is broke. Most households are broke.
When/how will the madness stop? TD's other story about government payday lending (whether or not it happens). Argh!
From the link provided in the story - so their suggested change is to raise credit scores to 580. You know easy it is to get a 580? And then reduce seller concessions to an allowable 3% for the 3.5% down payment program. So, all the buyer needs is .5% down? And I'm sure there's never any play with the purchase price in order to get the government to fund more...
.5% down, prices decreasing 1%/month and a 120-day close.... Gubbermint is underwater almost as fast as the ink drys and certainly before closing.
580??? I wuddn't rent to anyone with 580 credit score
QBall
what bs, after 3-4 months , you'd rent to anybody with some green in their pockets.
Don't worry my friends...AmeriGov will give you a mortgage loan and a auto loan for that shiny new car.... oh...and I almost forgot....you also get a free cell phone. Enjoy America! Enjoy!
Bruce-
would be great to hear whats the latest buzz on the SSTF. MSM obviously does not talk about it but my guess we are firmly in the red on that one too.
Barney and Acorn simply won't allow this. How the hell would they get votes if they can't give loans to people with little or no income? No, they'll just keep transferring this to the taxpayer till there ain't no more taxpayers. Or idiots stop buying zero interest bonds.
re: Barney and ACORN
They may have found a different channel to deliver the bucks.
http://www.zerohedge.com/article/will-governments-entry-small-dollar-len...