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The FHA's Fatal Scattergram Flaw
Judging by the media rancor, the fact that the FHA has run out of capital is a stunning shock since besides, housing is in recovery right? Well, there is one simple reason why the FHA is FUBAR and is only going to get worse (cue Geithner Bailout). As the only player left, the FHA has simply been the sole source of mortgage provision to the worst of the worst. The following chart from Chicago Booth's Amir Sufi shows the diabolic-distribution of poor-performing zip codes that the FHA has lent into - even during the crisis.
The chart shows the fraction of losses incurred by the FHA (y-axis) for each zip code (each blue dot) compared to the average household default rate in that zip code... if all was well the points would cluster around that 45-degree red line but as is clear, the FHA has clearly been the source for the worst of the worst borrowers as its loan performance is dismal (above the line)...
We are not sure where to start on this - but once again it seems the government subsidization of the weakest (or most levered) has come back to bite the most sensible, staid and unlevered...
Data source: HMDA and Credit Burean Data
(h/t Amir Sufi @profsufi)
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It's what the government does and always will do.
There's an HBO show called Dexter that has spatter patterns as well.
It was showtime.....comment was priceless. +100
Note that the red line is NOT at 45 degrees -- it maps 60% on the x axis to 80% on the y axis.
A true 45 deg line is much shallower, and falls EVEN FURTHER UNDER all those points -- i.e., it's worse than the red line suggests.
Just sayin'.
Affirmative action at work.
You can thank the Soros-Clinton Machine for the Community Reinvestment Act which mandated that deadbeats get funding no matter what.
What's happening with VA Loans (Veterans Admin)?
The ironic part of the Community Reinvestment Act is that you had be to such a deadbeat that they were actually hard to find AND they had to purchase a crackhouse. On top of that, the compensatioin limits on $40K crackhouses virtually assured no "qualified buyers" because lenders didn't want to waste 200 man hours to make $300. GIGO.
As for the article I'm not drinking the koolaid around here. These foreclosures are more about job destruction, inflation, and idiot buyers in poor areas. FHA qualifications have allowed 3.5% downpayments for over 20 years. Why the attack FHA now? Why be shocked to see a First Time Home Buyer program be hit hard during a Great Depression. Once you realize we are in a depression it's not surprising. What IS surprising is the amount of peope HERE that still don't understand we're in a Great Depression.
Very good point, the X and Y scales are different. It IS worse than it appears.
I just sold a house within 5% of the asking price. I cannot imagine what it would be like to be a prisoner in this system.
Would you advise everyone to sell their house before it's too late? For you to escape the system means you have to trap someone else in your place. ;)
"For you to escape the system means you have to trap someone else in your place."
Well, there's always the "pay it off" option for escape too. That's the one I chose.
I'm in agreement with the quote part of this.
As for the 'pay it off' option, it's not really a rosy picture out there either. Property taxes going up, maintenance and the bloody insurance to deal with too. Insurers are trying to prune their losses. I got dumped on a house I own outright, even with no prior claims ever. Besides, if housing prices continue to slide you could be throwing good money after bad. I have two paid off houses and with an uncertain future taxation (property and income) scenario I don't like the looks of home ownership tbh.
When the county coffers run dry who are they going to turn on....property owners.
Yep. Beat me to it...
SCATtergrams from the FHA... Just what we all need...
i too misread the headline as "scatogram"..
Paging Ginnie Mae...Ginnie Mae, please pick up the white courtesy phone...
Surprise!
Oh yea, flashy crashy is back!
The slope on that regression is way higher than the red line drawn. That is, the more the default rate, the WAY more the % backed by FHA. Another leg down.
Boy, I'm glad the government is making sure we all have health care. I mean with Fannie, Freddie and FHA going bust, it's conforting they have our back on health care.
You may want to look at the equally shitty performance of private label sludge before you embark on the victory lap, slick.
Below is the complete list of government-provided goods and services that are superior to those from private enterprise:
.
Unregulated private "enterprise" mortgages are what go us into this mess - see my next post.
No, the government and federal reserve bailing out those private entities is what created the mess.
Honestann, you are telling the truth!
I happen to agree, and was as determined against Hank The Traitor Paulson's $700B blank check as anyone here - but that is what the trigger was. You can't blame the GSEs for that.
well it started with the control fraud in the "private" sector then, when things went bust, the masters of the universe got the "public" sector to bail them out. i believe the relationship is something along the lines of a million in campaign contributions gets you a billion in government subsidies. something like that. billion for a trillion, whatever.
"Fannie Mae engaged in "extensive financial fraud" over six years by doctoring earnings so executives could collect hundreds of millions of dollars in bonuses, federal officials said yesterday in a report that portrayed a company determined to play by its own rules."
"The result was a company whose managers engaged in one questionable maneuver after another, including two transactions with investment banking firm Goldman Sachs Group Inc. that improperly pushed $107 million of Fannie Mae earnings into future years. "
http://www.washingtonpost.com/wp-dyn/content/article/2006/05/23/AR200605...
Nobody in power wanted to see anything else but more loans, so everyone was compensated based on volume rather than quality or loan performance. Almost no politician, D or R, wanted to see fewer loans. The vast majority of loans made money for a TBTF at some point, and they make sure regulations and programs are written to suit themselves. The absurdity of blaming CRA puts the blame in the wrong place. Oh no, cue the faux outrage! More loans = more revenue, and you can be damned sure that financial institutions knew they had TBTF status a long time ago. At every step of the way, crap loans could be passed on until they hit their ultimate destination...being bailed out by taxpayers...as long as it was a TBTF institution collecting. Know what? They lobby and contribute...follow the money.
"Raines had Fannie buy billions of dollars worth of the risky mortgages, which were described in internal emails as "clearly subprime," to meet "affordable housing" quotas set by HUD. In May 2001, Mudd wrote a memo to his boss warning that EA loans "are the highest default risk loans we have ever done."
It was also under Raines that Fannie partnered with Countrywide Financial to buy, in increasing volumes, the subprime lender's Fast & Easy no-documentation mortgages. These loans were specifically targeted toward borrowers with weaker credit histories"
Read More At IBD: http://news.investors.com/ibd-editorials/012012-598522-franklin-raines-not-in-fannie-mae-lawsuit.htm#ixzz2CSpsLsCa
No, you are missing few where government is better:
Misery, suffering, taxes and destruction. And lies.
+1 +1 +1 Awesome!!
"Below is the complete list of government-provided goods and services that are superior to those from private enterprise:"
War?
Inflation through money debasement?
GM is absolutely correct and one should always keep in mind this factoid: if you think Fannie, Freddie and the FHA were creating dreck during the boom years, it can't hold a candle to the slickly greased turds that the private mortgage cum private label securitization machines were squeezing out in huge numbers in those days. In fact, their production of marginal or outright bad mortgages was DWARFED by the private banks.
It is my view that but for the private mortgage industry we'd be doing OK right now. That's not to say there isn't plenty wrong with handing out mortgages to those with minimal equity - it is not a great idea (but note- most FHA mortgages by far are not in default), but if we had limited ourselves to Fannie, Freddie, FHA and VA loans, issued under their credit standards, we'd have missed the whole subprime debacle, which triggered far greater problems.
Check your history and your facts before calling BS on this one. http://www.intellectualtakeout.org/library/chart-graph/growth-mortgage-market-securitization-and-share-market
"The housing boom that began in the late 1990s and the concomitant rise of 'private label mortgage-backed securities' (PLS) shown in Figure 3-1 posed a challenge to the GSEs. This is because the PLS involved non-conforming mortgages (securitized, for instance, by investment banks) that were of lower quality than the mortgages that met the GSEs’ usual underwriting standards or were for amounts that exceeded the GSE conforming loan limit. Borrowers who might otherwise have qualified for a conforming loan were being encouraged by lenders to borrow greater amounts (pushing them into 'jumbo' territory) and/or to structure their loans in ways that wouldn’t meet the GSEs’ underwriting standards (pushing them into the non-conforming territory). The latter was done, for example, by the borrower’s making less than the requisite 20% down payment but not arranging for private mortgage insurance, or by getting a second mortgage loan to cover some or even all of the down payment, or by getting an initial low 'teaser' interest rate but with a scheduled upward adjustment after two or three years.?"
The market disclipline enforced by the GSE standards for mortgages, and thus securitization, was lost once Wall Street figured out how to game the system by originating, packaging and selling its own private label RMBSs.
Yes, and the private label jobs have some of the wackiest "credit enhancements" of them all.
(The exact terms are super-secret)
The first rule of credit enhancement club is...you DO NOT talk about credit enhancement club.
Is credit enhancement like where you get NASA to put on its alchemy hat and turn toxic mortgages into AAA rated securities? [answering the age old question of whether a diamond will pop out if you pack shit tight enough].
The secret credit enhancements are why you don't see more push-backs.
[double-edit] the credit enhancement[s] is the default insurance bets. The holders of that paper got bailed the fuck out also. They all got paid but that is secret too.
I see what you're saying now...the "no job, no income loans", "liar loans" where lenders were putting in the lies. That's the front end.
On SEC statements the private labels can sneak in a lot more "guarantees" or "credit enhancements" and in some instances do not even need to report it.
Ned is getting junked but he has a point. The GSEs are/were very bad actors...but the private labels are/were even worse.
Unfortunately the private garbage has been allowed to get passed on enough times to eventually become public garbage, GSE or non GSE, so the distinction is a bit of a moot point these days.
more than 84 percent of the subprime mortgages in 2006 were issued by private lending institutions. If so, one would presume the delinquency rates suffered by the GSEs during the crisis would have been very high. But David Min, an analyst with the Center for American Progress, shows that the after-crisis delinquency rates on the large additional portion of GSE mortgages that Pinto claimed were high risk, and that was termed “toxic” by Morgenson and Rosner, was roughly 10 percent, far lower than the 25 to 30 percent default rate of true subprimes.4 In fact, the rate of delinquencies for all GSE securities in 2004 was 4.3 percent, compared to a delinquency rate in private industry of 15.1 percent of mortgages. In 2005, the GSE rate was 7.8 percent compared to 28.7 percent, and in 2006 and 2007, the rates reached 13.2 and 14.9 percent in the GSEs and 45.1 and 42.3 percent in the private market.5 None of these figures are cited in Reckless Endangerment. In fact, losses as a proportion of mortgages guaranteed or bought by the GSEs were far lower than in private industry.
Shocker - someone with a working cerebellum on this thread. Beware, these are inconvenient facts for some of the folks on this thread.
It is all really good observation but the real back story is not the failure based on MBS or whether or not the GSEs vs the private lenders were more criminal but rather FHA has been used as a tool as was fannie and freddy and ginnie and sallie to distort markets by pushing political agendas. FHAs underlying function as a political tool is the real story here. Who do you think backed all the loan modifications that keep all of the Obama constituency in their homes until election time? It is correct to assume the banksters had a higher level of default based on credit rating agency collusion with banksters and their ultimate ability at the time to securitize junk and sell it as AAA but that is over now. So under what auspices do you suppose the banksters would now sit down with a prior lier loan recepient and hammer out a renegotiated mortgage in the absense of securitization. They knew 8 months into these mortgage modification programs that the recidivism rate on the mods were unsustainable yet kept it going for another year and a half. Someone please tell me when the dialogue will begin regarding the stoppage of this unattainable fantasy of everyone deserves a home and why they havent started an investigation regarding the current collusion surrounding this vary manipulation involving government, FHA, and the Banksters? How long will the public continue to swallow this repugnant criminal behavior? WhaT IS REALLY AMAZING HERE IS THAT THE STORY IS SOLELY ABOUT FHA BEING BANKRUPT AND NOT ABOUT THE UNDERLYING CAUSE AND WHEN THE GOV IS GOING TO SHUT IT DOWN.
It is all really good observation but the real back story is not the failure based on MBS or whether or not the GSEs vs the private lenders were more criminal but rather FHA has been used as a tool as was fannie and freddy and ginnie and sallie to distort markets by pushing political agendas. FHAs underlying function as a political tool is the real story here. Who do you think backed all the loan modifications that keep all of the Obama constituency in their homes until election time? It is correct to assume the banksters had a higher level of default based on credit rating agency collusion with banksters and their ultimate ability at the time to securitize junk and sell it as AAA but that is over now. So under what auspices do you suppose the banksters would now sit down with a prior lier loan recepient and hammer out a renegotiated mortgage in the absense of securitization. They knew 8 months into these mortgage modification programs that the recidivism rate on the mods were unsustainable yet kept it going for another year and a half. Someone please tell me when the dialogue will begin regarding the stoppage of this unattainable fantasy of everyone deserves a home and why they havent started an investigation regarding the current collusion surrounding this vary manipulation involving government, FHA, and the Banksters? How long will the public continue to swallow this repugnant criminal behavior? WhaT IS REALLY AMAZING HERE IS THAT THE STORY IS SOLELY ABOUT FHA BEING BANKRUPT AND NOT ABOUT THE UNDERLYING CAUSE AND WHEN THE GOV IS GOING TO SHUT IT DOWN.
It is all really good observation but the real back story is not the failure based on MBS or whether or not the GSEs vs the private lenders were more criminal but rather FHA has been used as a tool as was fannie and freddy and ginnie and sallie to distort markets by pushing political agendas. FHAs underlying function as a political tool is the real story here. Who do you think backed all the loan modifications that keep all of the Obama constituency in their homes until election time? It is correct to assume the banksters had a higher level of default based on credit rating agency collusion with banksters and their ultimate ability at the time to securitize junk and sell it as AAA but that is over now. So under what auspices do you suppose the banksters would now sit down with a prior lier loan recepient and hammer out a renegotiated mortgage in the absense of securitization. They knew 8 months into these mortgage modification programs that the recidivism rate on the mods were unsustainable yet kept it going for another year and a half. Someone please tell me when the dialogue will begin regarding the stoppage of this unattainable fantasy of everyone deserves a home and why they havent started an investigation regarding the current collusion surrounding this vary manipulation involving government, FHA, and the Banksters? How long will the public continue to swallow this repugnant criminal behavior? WhaT IS REALLY AMAZING HERE IS THAT THE STORY IS SOLELY ABOUT FHA BEING BANKRUPT AND NOT ABOUT THE UNDERLYING CAUSE AND WHEN THE GOV IS GOING TO SHUT IT DOWN.
So you are saying that the corrupt criminals in government are less effective at being criminally corrupt than the corrupt criminals in the private sector?
Thanks Buckaroo. I was about ready to vomit from the douchebags trolling for the GSEs. A scumbag is a scumbag whether his email ends in .gov or .com.
Human nature is not magically suspended when someone signs on with the gooberment. When your swimming in a cesspool of moral hazard everyone, and I mean everyone, is going to fuck everyone they can to “to get theirs".
Give me a fucking break...
Not trolling at all for the GSEs, you moron. Just get your facts straight, or stay stupid. Your choice. You see, the bankers want you to believe they are good and government is bad, and in this particular set of facts, there's no doubt the GSEs were bad, but the "private enterprise unregulated types" were absolutely the worst.
And to think that the rating agencies fell over themselves to label those 'pieces of shit' MBS's AAA because of their 'diversity'. Just plain fucking insanity. I read that a bank loaned around 700k to an imigrant fruit picker that earned around 15k a year. Just know that you have rheemed a whole generation you lowlife bottom feeding banking fraud scum of the earth. Rot in hell.
Excerpt(s) from "The Big Short":
"In Bakersfield, CA., a Mexican strawberry picker with an income of $14,000/yr and no English was lent every penny he needed to buy a house for $724,000."
"By May 2007, however, there was a growing dispute between Howie Hubler and Morgan Stanley. Amazingly, it had nothing to do with the wisdom of owning $16 Billion in complex securities whose value ultimately turned on the ability of a Las Vegas stripper with five investment properties, or a Mexican strawberry picker with a single $750,000 home, to make rapidly rising interest payments."
"'Who takes out a home loan and doesn't make the first payment?' asked Danny Moses, putting the matter one way. 'Who the fsck lends money to people who can't make the first payment?' asked Eisman, putting it another."
It pays to pay look at obama's favorite billionaire warren buffet's role in this he was the major shareholder in Moody's so he made money off the crappy ratings then again at wells fargo and to top it all off he lobbied for the bailouts and was a major recipient of them to boot. And Peter Orzag obama's former Office of Management and Budget Director Peter Orszag.what about his role in this?
The Taxpayer Bailed Out Buffoon who was also the majority owner of Moody's another outfit that should be prosecuted but NONE OF THEM WERE obama and holder didn't bring one single criminal prosecution. In fact Bloomberg just caught them lying again!
Corporate Crime, Russia, Peter Orszag and Getting Away with Murder
https://www.commondreams.org/view/2011/07/29-3
Eric Holder Owes America Some Answers
http://www.bloomberg.com/news/2012-11-15/banker-math-meets-the-justice-department-s-cooks.html
When Warren Buffett Says Jump, Goldman CEO Blankfein Asks, "How high?"
Negative Reviews for Warren Buffett's Defense of Moody's to Crisis Commission
Wells Fargo Fined $6.5 Million Over Risky Mortgage Securities
don't forget Sallie. soaring college costs + govt with 98% market share of loans + no jobs after graduation = another massive disaster that no one, i mean no one, could have seen coming
the "45-degree red line" should be connecting equal values on both axis
as both axis have different scales, the line should be flatter lower (0.4 should connect 0.4)
and the results are even worse than portayed
"the "45-degree red line" should be connecting equal values"
agree completely
a horizontal red line at 50%, for example
the region above the line would fit the caption "FHA underwrites most of the loans in zip codes shown above the red line, where the average default rate is about 30%. Non-FHA lenders provide most of the funds for mortgages in zip codes below the red line, where the average default rate is 10%"
It's a regression line; the positive slope means the FHA has a higher proportion of the loans in high default zip codes, but the way the points are more scattered at higher default rates shows this isn't uniformly the case. Not sure what the point of the oval is...
Yes, "20% down" is a mighty coarse step-function alright.
A corporate lending strategy based on 30+ times leverage. 30x didn't work for Lehman and shockingly it won't work for the FHA as well.
These people can just piss away more OPM than anybody ever even imagined ...
And somebody's gonna relent on raising taxes...
Jesus H Fucking Christ on a Crutch
There is no hope in Mudville
anymore
forever
Not to worry, when the US Postal Service goes belly up, Zip Codes will be irrelevant, and this chart will therefore no longer apply...problem solved...you're welcome.
Fuck, that means I won't be able to get gas anymore because all the pumps use ZipSafe.
+1 well played
Without the FHA housing is dead below the $150k per year income threshold. Good luck finding anyone in the middle class that can come up with 20% down to buy your house.
It won't matter what the price is if there isn't anyone that can buy it. When the FHA insurance doubled this summer, homes lost 15% of their value in my city. Realtrs had to get the values down to keep the monthly payment the same for prospective buyers.
Kind of like pre-2008 cars. Since banks won't finance loans on anything older than 2008, the value plummets and car lots won't take them on trade.
It is really funny to see a 2008 selling for $13k and a 2007 with less miles and the same body style stickered at $8500.
land sale contracts...
Once again. The responsible will bail out the irresponsible.
The printer cannot be held responsible.
But the irresponsibility of the printer is responsible for bailing out those responsible for so much irresponsibility.
I feel shocked, Cotton!
Predatory libertarians have gone too far this time! Attacking the FHA is simply too much for decent American citizens to tolerate. The FHA allows millions of poor people to buy houses that they could never afford otherwise thanks to the evil capitalist's attack on our housing market. And if the FHA needs a bailout, it is duty, as outlined by newly re-elected President Barack Obama, to support our fellow citizens by making some sacrifices in the name of fairness. Just think, without houses, where would our government mail benefit checks to?
/MDB
Kudos to you sir.
Even better than the original.
Thats racist.
Santa Claus is coming to town!
Is the straight line an XY plot of FHA-backed mortgages with SNAP recipients?
The dots are plotted as the ratio of FHA failures to all failures, by zip code. The dots above the line are FHA-backed mortgages with SNAP recipients. More dots above the line than below the line means only one thing...
SANTA CLAUS CAME TO TOWN!!!
Like a crack dealer offering hope, the gov't is not your friend nor your savior. At least it buys votes though and in the end as long as the status quo is maintained then the Pelosi's, "Hairplugs", "Collagen Lips", etc. of the world will be happy and that's what it's all about.
You are not allowed to use "Pelosi" "Hair" and "Lips" in the same sentence. Ever. Now if you'll excuse me I need to clean up the vomitus on my keyboard.
Don't expect bailing out the FHA to be the final act of intervention... rumor has it that Obumble is considering sweeping mortgage debt forgiveness for mortgages at (or below) the $150,000 threshold.
More FUBAR to come...
...another image of the beast house'd in the offer of temptation, and account of the number of Hellbound Fools that accepted the mark and stand in agreement with the prophetic strong delusion. It's not as if people are blind and the numbers are not obvious, they just do not care about throwing their children upon the alter of the black hole, and they love the darkness of the political black hole they voted for, which fuels the power and force of correction to come on a daily basis. http://www.youtube.com/watch?v=xNnAvTTaJjM
put some Obamaphones in that scattergram, along with the hollywood gay sitcom, and bailout nation; or we ll say your racist, sexist homophofic and unfeeling and mean.
Yeah right, if you prove the obvious, by the numbers, the case against the people that are not in debt, because it was morally not in them to be, is clear and defined by demographics that have nothing to do with their race ...religion etc..., it just defines the power of the deceived evil bastards. The fact that people will attempt to carry that football and pass their political (prophetic strong delusion) goal without any defense by the numbers, that proves the demographic ''minority'' in agreement with the Constitution stand compromised in the fire and have no hope in Babylon's Furnace, at this point, beyond the sustaining Spirit of Mercy and the return call to fall upon the gate keepers of the furnace.
The fact that this is all part of the Occult drive, mapped out by the builders of the borderless criminals, to a one world new world order Great Wal Mart of China Syndrom, ...is as obvious as the words and pyramid on the Dollar and the 666 ''screw yourself'' people pass by on the Mall in D.C. on their way to Black Friday as they leave their government jobs to buy more made in China crap for themselves and their kids, helping out the rising demographic male that was not aborted in China. Wu Hu.
P.S. I saw some dipshit on CNBC today say ''(g)od Bless China'' and their new government leaders. That guy is going straight to Hell and is aiding the evil bastards, like every Vote 2 Party 666 bastard.
Now that is concise. You, Sir, have an extraordinarily clear and analytical mind.
Can I interest you in some exciting and innovative new financial products?
I'll take one of those Hypothicated High Frequency Hedge Fund Hu's with a side order of aborted Li.
I think there's a misinterpretation of the chart. The y=x line is *not* the "all is normal" line.
If increased FHA involvement had little to do with the rate of default, then the scatterplot would look a lot like the y=0 to y=0.1 section. Meaning, the scatterplot would be a big vertical rectangle, bounded by x=[0 .. 0.1]. *This* is what "all is normal" would look like.
What the y=x line shows is that there *is* a relationship between increased FHA involvement and default rates. It's the "FHA involvement distortion line", and not the "all is normal" line.
I'd love to know how many first time homebuyers took out more than $500k in debt. Not only could they be worst of worst, but they could have overpaid too. So they're sitting on a much bigger loss.
poor charting, unclear conclusion. regardless FHA is a garbage dump we all know that
On top of this news, UPS is raising delivery rates by 4.9% in 2013...
http://www.reuters.com/article/2012/11/16/ups-rates-idUSL1E8MGBLT2012111...
But this is not inflationary... and if it were, Uncle Ben could control it in 15 minutes...
Yessir boys and girls. This and the good faith and credit of a recently downgraded country is backing those things in your wallet.
Pure and simple middle class taxpayer theft by a government that increasingly has no idea what to do when consumers decide to delever for a full decade.
So, does this foretell more shadow inventory?
So isn't FHA, to quote 0bozo "following the failed policies of the past that got us into this trouble?"