Will the FHA require a bailout? – 12,000,000 underwater mortgages 3,000,000 are FHA insured loans

drhousingbubble's picture

FHA insured loans have been a big booster for the current market.  Historically FHA insured loans made up roughly 8 to 12 percent of all mortgage originations but in 2009 they hit 30 percent.  For first time home buyers it was a stunning 50 percent showing that most people can only purchase a home today with a very small down payment.  Yet small down payments create instant negative equity positions if the market moves sideways or pops lower (aka our current market).  For example, the 3.5 percent standard FHA down payment is wiped away by the 5 to 6 percent selling costs.  What is interesting with this is that the FHA insured loan market is fully backed by the government (i.e., you) so any losses will be completely shouldered by the public.  The move to increase premiums recently was no fluke.  One piece of data that stood out to me was of the number of homes in negative equity, how large the FHA numbers grew.

FHA insured loans 1 out of 4 underwater mortgages

A very troubling point showing a morphing of the current market is the number of underwater mortgages backed by FHA insured loans.  As stated before, many of these loans were originated after the bubble popped in 2006 and 1 million originated only in the last two years:

negative equity us 2012

Source:  Federal Reserve, 2012 report to Congress

This data is coming straight from a Federal Reserve report given to Congress this year.  The issues arise from the overall weak economy and the fact that employment growth has been weak across the nation.  Take a look at this example:

“(Business Financial Post) Opalka was refinancing another FHA-backed loan he had obtained in 2008, for $196,000, then at an interest rate of over 6%.

Under the refinancing, he borrowed $192,278 at an interest rate of 4.5%. Opalka, looking at the paperwork, is still surprised at the down payment he had to make in 2010, for a property valued at the time for little more than the loan was worth and in which he had almost no equity.

His down payment was just $3,000 – or about 1.5% of the total loan.

Less than two years later, local real estate estimates now value Opalka’s home at no more than $110,000.”

In this case, this borrower only had to go in with $3,000 to refinance his loan (1.5%).  The home took on a new $192,278 loan but now two years later is valued at $80,000 less.  Just one of the 3,000,000 FHA insured loans underwater.  Do you think this borrower is in good shape?  How motivated will they be to saddle up and keep making payments on a home that is underwater by $80,000?  No wonder why default rates on FHA insured loans are soaring:


An expert that closely follows this market is Edward Pinto and he has a monthly “FHA Watch”:

fha watch

Some key lending standards are provided:

“1. Step back from markets that can be served by the private sector by taking steps to return to a traditional 10 percent home purchase market share.

2. Stop knowingly lending to people who cannot afford to repay their loans. 9

3. Help homeowners establish meaningful equity in their homes.

4. Concentrate on homebuyers who truly need help purchasing their first home.”

There is so much nonsense with FHA insured loans.  First, most are using these as low down payment entry points.  The median down payment is 4 percent contrary to the deception that was being preached years ago that most people were coming in with large money.  Next, by rolling in the large insurance premiums you are basically financing the debt into the loan making it more expensive to supposedly “lower income” buyers who need more help.  Any doubt why 3,000,000 FHA insured loans now are underwater?  This has a little taste of the Alt-A and option ARM variety.

Finally, the average FHA borrower accumulates 7 percent in equity in their home during their first four years of owning the home.  In other words they barely break even when they sell and this is assuming the market doesn’t shift even slightly lower which it has over the last few years.  Ironically the FHA would be in full bailout mode right now if it weren’t for them squeezing the vice on new borrowers going in with bigger premiums.

The deception is strong in this market.  I love the news that one of the GSEs turned a profit although the bailout costs are still in the hundreds of billions!  Give me $200 billion and I’ll turn you a $2.7 billion profit tomorrow.  With this kind of math, no wonder why we are going to face another bailout with FHA insured loans.

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Nussi34's picture

Does this means that we will soon see a lot of really nice homes formerly owned by doctors on the market that we can buy cheaply?

Snakeeyes's picture

Ed Pinto from AEI makes the case that FHA is insolvent. I agree. BUT, the Federal government has promised to back stop them. So, it doesn't really matter other than political Kabuki theatre.

Here is my House of Representatives testimony on the FHA guaranteeing reverse mortgages for the elderly.


No one, Democrats OR Republicans, cared. The FHA is a vote getter just like any other entitlement. Ed Pinto can rage all he wants, but not politician will take away the cookie jar.

The US continues to subsidize housing and they WON'T STOP! Just look at the legislation Clinton put in place that no one bothers to repeal.


The Heart's picture

Of all the groups on the internet, this one has the ability to privately support Ron Paul all the way to the Highest Office.



Vendetta's picture

if someone is looking for a solution within the framework of the current system that still exists, good luck.  A home I bought  in 2001 was $169k, sold in 2005 for $253k.    In 1991 it was purchased for around $80k, on zillow today it is at $443k, so apparently it is 'worth' 500% more in 20 years with stagnant or declining average wages over the time frame.  One anecdotal example of the insanity that passes for the "housing market".

Revert_Back_to_1792_Act's picture

You are saying that the home changed value.  Why not say that the underlying currency that you are valuing the home in has changed value?

In 1964 a 90 percent silver quater would purchase about a gallon of gas.

In 2012 the same 90 percent silver quarter woud still purchase a gallon *or more* of gas if you cash it in at the jewlery store for it's silver content.

What has changed value?  The gas? the quarter? the USD that you are valuing both items in?

What if you would have saved $1000 in coin AND $1000 in paper currency in your sock drawer 1964.  What would each of those two stashes be worth in terms of USD value now?

Go to www.coinflation.com and find out.  The answer for the $1000 in coin will surprise you.  The answer for the $1000 in paper money is obvious.  Consider that you could have placed this 90 percent silver coin in your sock drawer with no counterparty risk (except burglars).  It would have never went below it's face value or lost value!

Was the USD originally set up to be variable in value or was it set to be some standard of value?

Our coinage laws were changed in 1965. 


Notice what he says the Treasury will do to protect the existing silver coinage in circulation.  Did that work?

There was a reason the coinage laws were set up a certain way in 1792.  It was done with wisdom.  Read this book.


This speech is also of interest.


Also Thomas Jefferson and Andrew Jackson.



There is so much mis-information out there.  It is possible to cut through that and discern the truth.

Why did Washington say this?  "Paper money has had the effect in your state that it will ever have, to ruin commerce, oppress the honest, and open the door to every species of fraud and injustice."

more here;



Element's picture

Coinflation website = very well done!  +++

Element's picture

Obama said in Sept 2009 that there would be no more bailouts coming, and he said it several times since;

No more bailouts, Obama warns Wall Street
Last Updated: Tuesday, September 15, 2009 | 1:03 PM ET
CBC News
"I certainly did not run for president to bail out banks or intervene in the capital markets," Obama told an audience of bankers at the Federal Hall in New York City.
"While there continues to be a need for government involvement to stabilize the financial system, that necessity is waning," Obama said.
"Those on Wall Street cannot resume taking risks without regard for consequences, and expect that next time, American taxpayers will be there to break their fall," he said.
"The growing stability resulting from these interventions means we are beginning to return to normalcy. But … normalcy cannot lead to complacency," he warned.


There were an awful lot of liars around that week, and just the next day Bernanke claimed the, "recession is very likely over."  ... which was a bit of a stretch for the 99%, and the 99-week zombies.



Obama: Read My Lips, No More Bailouts
(But Let’s Keep $50 Billion Around Just in Case)
James Gattuso
April 14, 2010 at 3:40 pm
President Obama met today with members of Congress to jawbone them on the pending financial reform bill. A key part of his message: “we must end taxpayer bailouts.” Few statements are less controversial than that. Nobody wants to see more bailouts.


Boofhead himself:



Obama Rails Against Bailouts in Speech Defending Auto Bailout
Peter Suderman | January 25, 2012
In last night’s State of the Union address, President Obama declared that the United States “we will not go back to an economy weakened by outsourcing, bad debt, and phony financial profits.” He railed against a system that isn’t fair to the “millions of Americans who work hard and play by the rules every day,” positioning himself against special treatment for a favored few: “No bailouts, no handouts, and no copouts,” he said.


So yeah, there's going to be a shitstorm of bailouts still to come.

The Heart's picture

Good morning Sir Element,

Hopefully we can get a fukushima update here soon so you can give us your thoughts on the present situation there.

Big thanks and big appreaciation for your good works brother.


heresy101's picture

Wonder how many FHA loans are like us? We had a conventional with 20% at not a bad rate for a number of years ago. Thanks to that Ayn Rand freak Greenspan and his tulip mania turned housing mania, our down payment vaporized due to no fault of ours. We were still above water but not by 20%

When rates dropped a couple of years ago, all we could get was an FHA loan because there wasn't 20% equity. The payment was well below the 28% LTV ratio.

Recently, mortgage rates dropped again and we just finished refinancing again to 3.75%. We had paid extra principal over the years (you want to do that on the beginning of a 30 year loan) and were not far from 20% equity but FHA rates were better.

Contrary to the garbage they teach in economics, this house was not viewed as an investment but a very nice home at a great location. We do not intend to move and my wife wants her ashes buried in the front yard looking out at the Golden Gate Bridge. I am typing while I look at our redwoods and our stream.

Most of the FHA borrowers are not the same as us, but there are probably a substanial number who have found the FHA as the mess way to deal with the fiasco created by Bernanke, Greenspan, and all the TBTF banks and exotic and toxic CDO's and other weapons of mass destruction.

Peter Pan's picture

The devaluation of homes is not the central issue. The central issue is the devaluation of human beings by exporting their jobs, by giving them low paid jobs, by burdening them with education debt, by allowing them to become a nation of obese entertainment junkies and by then writing them off for good on some foreign battlefield where the profit and loss statements and balance sheets of certain multinationals are being fattened.

Buck Johnson's picture

Your so right, they have devalued us.  We are sitting in the US fat and happy with what we are given and many in the world see us as ignorant. 

MachoMan's picture

Did they devalue us or are we simply realizing that we were overvalued (not accurate, but in other words, a mean reversion)?  Does the right to life, liberty, and the pursuit of happiness come along with the right to a particular standard of living?

They didn't devalue us so much as progress us into the worship of false idols and failed paradigms.  We'll get scalded for our stupidity, rebuild, and do it again in a couple generations... 

Vendetta's picture

no, they found they valued 5 cent an hour labor somewhere else

youALREADYknow's picture

Touched on this a few years ago: http://homeecblog.wordpress.com/2009/10/08/house-hearing-on-fha-capital-...

The FHA is in a Catch-22. If they back away from the market to adjust their risk, then they will be the cause for the drop in housing prices and therefore force the drawdown of their own reserves to zero. If they keep on the current course, they just buy time (like everyone else in this ponzi global economy) in the hopes that the housing market stabilizes and some of their older and more risky insured loans fall off the books.

FHA will require a bailout and they will get it because their role in propping up the housing market is even more important than Fannie or Freddie.

dolph9's picture

I'm telling you, we are living in a completely corrupt, socialist nation.  Forget what any politician of the right or left tells you, it's all lies.

The bailouts of everybody will continue until the currency is destroyed.  None of us are entitled to the rewards of our labor anymore.

That's why it seems like you can't get anywhere anymore, no matter how hard you try.  The system is designed that way.

All you can do is go Galt and buy metal.

Vendetta's picture

agree completely with the semantic exception that it is fascism

oldman's picture


You are absolutely right!!!!


I met Galt when I was 16 and thought he was right, but 'doing-nothing' makes for a long life. There are many of us living abroad who read Galt's tale-------we are still waiting and doing nothing.

But living like this in good health is a pretty good trip---at least for this oldman

I still haven't bought the metal though                          om


Not Too Important's picture

And hug your kids and all those you love.

All the gold and silver won't cure what Japan is sending us. No matter what country, no matter which hemispere.

printmoremoney's picture

Fukushima is the end. It trumps fraud and socialism. It means sickness and premature death to millions in the USA. Obama will not warn you. This site will. www.enenews.com. And the radiation has already fallen on the continental USA. But the NRC somehow had half of the Rad detection network turned off last March as it landed.  Turning something on that you cannot turn off is what we have been sold by the Nukes. We have been sold out to Genocide.

kurt's picture

They upped the limit to what constitutes excessive radiation so we don't have to worry. Also, light is radiation and it thins out the bad kind. There, there now.

Xrated's picture

I'd be afraid of civil unrest in the urban areas more than radiation. Better invest in that mountian cottage , food and ammo, fuck the stock market and gold.

Green Leader's picture

It will be both: widespread radiation and Balkan-style civil war.


fnordfnordfnord's picture

If anyone thinks for half a second that I would risk MY cash on a real estate purchase when A, shit's still too expensive. B, money can be borrowed for almost nothing. If you think that, you're crazy.

Xrated's picture

Bet my waterfront house mortgage paymentin jacksonville FL is less than your rent payment.  Renter like you built my house.

hamurobby's picture

Lets see, in my neck of fla (treasure coast) house rents are around $1100 a month. You can buy a decent house for around 80K so if you put down 4k @5% 30yr, you have a piti of less than $600. In 10 months you will have saved back your down payment. Also, you would be sheilded from massive tax hikes (which are coming) by homesteading. 

 It amazes me the amount of people who thought nothing of buying a house for 250k in 05, now wouldnt buy the same house for 70k.

fourchan's picture



that sums it up.

AurorusBorealus's picture

I'm afraid that the problem is even worse than presented here.  As it turns out, the FHA has been guaranteeing loans to seniors-- home equity lines of credit for years-- quite often to people in their 80s or even 90s.  In a shocking development, most 80 year olds, who need to borrow, do not have the income necessary to pay back the loan.  The houses are not underwater, but the FHA is on the hook nonetheless.

oldman's picture


Tell me more, please----do they loan to 70 year-olds? Maybe, I can finally afford a house in the US of A!!!!

I can borrow the down from a friend who is dying of cancer and wants to 'do something for me'-----and then just hang out in the house until they throw me out

Oh, shit-----will they make that loan in a foreign country-----I don't really want to go back to where there is winter.

Thanks for the idea, anyway                   om

neidermeyer's picture

My mothers 83 and is at least 40K upside down in a condo loan where she started with 30% down... if she dies I'll just file a Quiet Title suit real quick to keep Morgan Stanley from stealing her other assetts  on the deficiency,, poor old lady lost all her gold coins and half her guns  hunting gators in the swamp last year..

lotsoffun's picture

that is a problem?  that's a piece of cake.  the fha takes the home. 

sgt_doom's picture

Huuuullllllooooooo - - - Earth to everyone, that's how JPMorgan Chase set up the model, doods! !

(Perhaps everyone's been napping lately? ? ?)

Excerpted from my usual rant below:

JPMorgan was responsible for structuring the securitized-mortgage-foreclosure profit cycle:

they profit from lending the mortgage, then profit from its securitization, then profit from its foreclosure (especially the FHA loans, where they automatically are reimbursed almost all of the original amount), then profit from its reselling, then profit when it's securitized again.



JPMorgan Chase (this applies to Goldman Sachs & Morgan Stanley, but more so to top rat JPM) was responsible for lobbying congress for the overturning of Glass-Steagall, while it created the credit default swap, and countless variants of CDOs. It has enjoyed the strongest derivatives position since that time.

JPMorgan was responsible for structuring the securitized-mortgage-foreclosure profit cycle:

they profit from lending the mortgage, then profit from its securitization, then profit from its foreclosure (especially the FHA loans, where they automatically are reimbursed almost all of the original amount), then profit from its reselling, then profit when it's securitized again.

And JPMorgan Chase has been involved, both directly and indirectly, in offshoring jobs and promoting massive offshoring of jobs -- when then leads to economic problems and unemployment, thus leading to default on mortgages, resulting in foreclosures, further profiting JPMorgan Chase.

And if those unfortunate souls then must put in for food stamps, JPMorgan Chase profits from that program, as it is routinely, nationally and locally, handled by them and their banks.

And it doesn't end there, as those jobs are offshored to countless foreign factories, and foreign production facilities, and state-of-the-art research & development laboratories and training centers of which normally are financed -- over the past three to four decades -- by US foreign aid (USAID, OPIC, various and sundry other programs, etc.). [And people thought all those executives doing stints at those former government agencies -- they've now all since been privatized -- were actually performing public serivice?]

That's correct, you the taxpayer and your descendants, have paid for the multinationals' foreign enterprises -- while they pay almost no taxes, or usually none at all (over 70% of American-based multinationals and corporations at last count paid no federal taxes).

Just how rigged is it??? It's completely rigged.

Xrated's picture

I love FHA, I underwrite the Hamp shitty loans, and BOA gets $3500 from FHA for every approved trial payment plan.

First we got 2 points on every shiity Countrywide refi we converted to FHA, and now we get paid again. I blame Obama and all his Bankster friends for coming up with this brilliant Hamp idea, because the Bank is paying me a shitload of money to help clean up this cesspool.Every single loan originated afer 2009, tell you something?

The Orginators in the next building are making serious jack by refinancing all the Fannie/Freddie shit from Countrywide and Wells and all the other jackleg banks we call Service for Others,  into Harp, another loser Obama program. I'll see those loan in about 2 years too, meanwhile, life is good as a Hamp underwriter, I have a 5 year retirement plan if the economy holds out. See ya'll in Costa Rica in 5 years.

Seer's picture

No, JPM didn't lead us down this path.  They're only bit players in the bigger Ponzi of perpetual growth on a finite planet.  The very basis of "interest" REQUIRES a Ponzi scheme: I think "interest" has been around for a while.

sgt_doom's picture

Duped (somebody's running deep packet inspection on me again? ? ?

Not nice, scumbags....

Logans_Run's picture

Yeah, these reverse mortgages are FHA administered and guaranteed. We all know how that is going to work out!


Seasmoke's picture

no one sells their houses any more at a loss........they just walk away

Zero Govt's picture

Will the FHA require a bailout?

Is the Pope a virgin?



Vendetta's picture

Do bears shit in the woods?

4shzl's picture

Bless me, Father -- but DON'T TOUCH ME THERE!

Rainman's picture

Looks like .gov is running out of bad banks to stuff all the crap paper they've been backstopping. I count 6 including Citi, Ally and the Fed.


Will the FHA require a bail out ? Is Bob your uncle ? Does a bear shit in the woods ? Is the Pope Catholic ? Are citizens getting fucked ? This is a multiple choice question. Any one of them gets the same answer, so we know you can pass the test. Bullish on KY for the American Pople.

lotsoffun's picture

silvergeddon - you forgot a few.  does a chicken have lips? does the pope shit in the woods?  is a bear catholic? sometimes things aren't like the smiling bitches on cnbc told us it was.  not to forget cramer, who really must cook the devils socks every night.


neidermeyer's picture

Bullish on KY for the American People.


In that case docs were leaked showing the banks didn't have a clue who actually owned the note (real answer none of them do) but we'll fix it after we put on a sham trial.


MachoMan's picture

Even where the real owner of a note is unknown, the court can still make a determination as to the owner...

THis is what I don't get about the whole mess....  the real holder of every note can be determined by a simple declaratory action.  The fact that the banks won't do this is definitive proof they have ancillary sources of loss (e.g. from the securities side).  The fact that they won't move forward with an incredibly simle action (amongst the assignment chain) is evidence the whole thing is totally fucked.

neidermeyer's picture

There is no owner of the notes , notes no longer exist ,, per UCC must be destroyed when converted to certificates/fractional ownership .. we have approx $70Trillion of counterparty based on complete fraud ,, til now everyone has been pretending the fraud doesn't exist.. none of it is valid.

The biggest lie is pretending that the trusts were ever created or funded and that everything was done in compliance with REMIC ,, The fedGov IRS will not enforce the law and blow up the banks.

Seer's picture

I think that it's all show.  I think that this really benefits the banks in that they can draw out needing to write down a crap load of losses.  And, once you drop a loan doesn't that wipe out the (large) fractional chunk that was created when the loan was created?

MachoMan's picture

It's not a show per se, it's a life and death struggle.  The saddest thing about it is that they've managed to cash in on derivative bets, but are still insolvent.  How in the fuck does that happen?  Can that happen in any other industry?  Clearly proof the principal actors in the fraud are simply raiding the coffers (e.g. bonuses) and/or that these institutions are lead by nothing but dart throwers and tea leaf readers (i.e. people and institutions not worthy of bailouts).

And yes, that eats the fractional chunk created, which are "assets" on the bank's balance sheet.  Now, if these assets were actually required to be marked to their market value....  then I guess the financial institutions would be more insolvent...


Born-Again Bankster's picture

That's one of the most redundant headlines I've ever seen on ZH.