September 7, 2009

Oh, gee, what a shock. The FHA is bust, and another massive hundreds-of-billions taxpayer bailout will be on the way.

People should go to jail.


If a bunch of idiots like us knew that Fannie, Freddie and the FHA were going to go bust, didn't they?

The answer of course is yes, they did. But the short-term exec bonuses were just too tasty. As well as the lobbyist dollars showered on Barney Frank, Chris Dodd and friends.

What a clusterf*ck. And them grifters, they was good. Real good.

FHA Time Bomb Explodes...Bailout Coming Next!

Mortgage-related losses may push the reserves at the Federal Housing Administration below the level required by Congress. The Wall Street Journal describes this as “a development that could raise concerns about whether the agency needs a taxpayer bailout.”

The FHA has played a key role in the government’s attempts to stabilize the housing market. In the past two years, it has rapidly expanded its loan guarantee portfolio in an effort to encourage mortgage lending. FHA-backed loans outstanding, which totaled $429 billion in fiscal 2008, are projected to hit $627 billion this year. FHA market share rose from 2.7% in 2006 to 23% last quarter.

The FHA will insure loans with down payments as little as 3.5% of a home’s price, and until last year it guaranteed down payment assistance programs that basically let borrowers buy houses with no money down.


Mark in San Diego said...

Meanwhile here on Main Street, condo projects are still offering 3% down FHA loans to sell their still overpriced condos. . .one such project here in downtown SD was put on the market in 2007 with 3% FHA down, sold all the units (finally) and already has a lot of foreclosures.

3% down in a market that goes down 10% a year!!!!. . .and with unemployment in CA at 11.8%!!!!!


What ARE those FHA people smoking??

Anonymous said...

Points to ponder:
1. The FED is NOT part of the US gov - it is a PRIVATE organization. Its ownership is mysterious, but when it was created, it was owned by a consortium of big private european banks.
2. I have been wondering where the losses on the FED's TARP, etc. loans would finally wind up - or more exactly, HOW they would be shifted onto the
taxpayers. Not much has been written on this, but I consider it a MAJOR issue - who will bail out the FED?
3. This seems to be one of the avenues of that bailout - bad mortgages get refinanced into FHA loans - the original mortgage issuers thus get bailed out and the taxpayer gets stuck with the losses in FHA, which IS part of the US gov. This also works if the mortgages were securitized and the securities picked up by the FED under TARP.
4. This won't cover ALL the TARP losses so look for other schemes, too.

now get thee to pondering.

Angry Leprechaun said...


You justified your boy Obama in the past for the stimulus spending saying, "It is just another drop in the bucket." Why the change of heart? It is just another drop on the bucket according to you.

I think you are finally starting to piss out that kool-aid you drank. I think it there was something else in it. I admit Keith, it is good to have you back. The Keith I knew back in the HP days.

Nimesh said...

Ever since banks restricted easy credit, everybody and their mother wanted a 3% down loan.

Realtors have actually "educated" purchasers to obtain a 3% down payment loan from FHA. And if the real estate market declines, then they tell them to walk away and in a few years buy a home!

Anonymous said...

i see distressed units selling foe 15 to 30 thousand dollars in gentryfing neighborhoods, now if i could figure a way out of this mess jusy a mile or 5 away

Anonymous said...

i am willing to lose a large part of 30 grand in a downtick in housing

Anonymous said...

somebody tell those morons in california fighting forest fires that the stuff they were looking at was food fiber not properly managed

Anonymous said...

Can FHA and FDIC become insolvent.

Will the continue funding of these programs with fiat money cause investors to lose faith in the US Dollar.

Knowing that the intrinsic value of the US Dollar could go to zero can foreign central banks request all future issued US treasuries be backed from US treasury gold reserves, and once gold reserves has been used for that purpose no new US treasuries can be issued.


The Great American Affordability Scheme

keith said...

comment over at housingdoom:

So, full disclosure here...I work for a VERY large bank. We never made these crazy loans in the past (at least directly)...Then all of a sudden FHA starts making them, so guess what the mix of our business is now? About 75% FHA...all loans we wouldn't make before but because we can sell most of them at a 5% discount it's more profitable to make these bad loans and sell them off to FHA plus we get our money now instead of waiting for the payments to come in. Amazing, people don't learn. We're in big trouble, time to start shorting banks again because when FHA dries up so does a very large chunk of bizz the banks have been doing the last 6 months.

Anonymous said...

As of Friday 5 more banks made it on the FDIC failed bank list. That makes a total of 89 so far in 2009.

If the FDIC had $10.4 billion when there were 81 banks in the FDIC failed bank list, how much does FDIC have now.

The FDIC's insurance fund, which guards $6.2 trillion in U.S. deposits, fell to $10.4 billion at the quarter's end, the lowest since mid-1993.

If FDIC decides to continue to raise the fee to fund the FDIC's insurance fund wouldn't that cause more small banks to fail.

As more and more small banks fails would this become a self reinforcing loop eventually collapse the system when big banks profits become effected also.

In the end will the US treasury have to fund FDIC and FHA programs with fiat currency

Anonymous said...

Re: the issue of shorting bank stocks.

I have tried shorting commercial REIT's several times this year and my broker reports that there is a list called the Do Not Short list which apparently
comes from some regulatory agency. This list apparently applies to everyone. It is currently several hundred companies long and changes often. Pretty much all the financials and other obvious short positions are on it.
Has anyone else run into this?

Anonymous said...


Got gold???


Ross said...

The Implode-o-Meter has been preaching "Stop FHA Subprime" for some time now.

The FHA has always been terrible a managing risk, worse than even Wall Street securitized "warehouse lenders" that caused the Subprime crisis. The difference, of course, is that FHA has the overt support of the Federal Gov't and the Wall Street sponsored lenders Federal support is more questionable and covert.

FHA would loan to people with no savings, a 500 FICO and basically zero money down if they could use a down-payment assistance program. It was easy to get 6% from Ameridream, which would easily pay for closing costs plus the 3% down that is usually required. As long as you didn't have a CAVRS report on you, meaning tax liens or unpaid student loans, FHA was your answer. On top of all that, their rates were near or at prime and the loans are assumable.

Should anyone be shocked that they are finally going under?

Bukko_in_Australia said...

Kudlow hollers "They've learned NOTHING in Washington!" But the politicians, Reocrat as well as Dempublican, have learned to reward the bankmaggots who reward them right back. And the game continues to work for those at the top, until it doesn't. What kinda crash then ensues, who knows? Maybe they can keep the balls in the air forever.

You could look at the whole Fannie, Freddie, FHA, Ginnie thing in two ways -- as a help to little people so they can buy houses, or as a boon to the banks and builders. It all depends on your political mindset.

Sure, these "implicitly explicit" federal guarantees might mean that a single-mother waitress can "buy" a condo instead of renting it, because a bank knows its loan won't blow up directly in its face. The .gov helps foist that potential bad loan onto somebody else, and cleans up the mess if a small percentage go bad. The right wing sees the whole scheme as something Jimmy Carter did to help the undeserving poor, something that was SO powerful that 12 years of Reagan and Bush the First couldn't stop it, and eight years of Bush the Second were not enough either.

Speaking from the Left, I see this as a way that the government used its money power to help business. (i.e. "fascism") The .gov greases the skids so that banks can loan money at no risk, then pass that loan like a hot potato, and loan the same damn money again, over and over. More profits with every loan! It also helps homebuilders like Toll, and construction supply companies, all down the line. Like steroids for that sector of the economy.

You could say that's for the overall social good. It juices growth, whereas without all the .gov guarantees things would poke along. But I don't see it as anything whose ultimate aim was to help the little guy who was too low-paid or spendthrift to save a 20% downpayment. He was the last beneficiary on the politicians' minds.

Anonymous said...

Say it with me folks...



Anonymous said...

If FHA is supposedly self financed through insurance premiums, why not raise the guarantee fees to finance the insurance premiums or raise the interest rate on a FHA loan so that FHA don't need to be bailout

FHA only need a 3.5% down payment for a $729,000 loan and now the media is reporting that FHA is looking for a government bailout.

Is providing a loan modification to a sub prime foreclosure home owner through the use of FHA program going to weaken the US Dollar.

The Federal Housing Administration is the only government agency that is completely self-funded.

However, although it claims to operate solely from its own income at no cost to taxpayers, there is an implicit guarantee that the taxpayer will help them in times of need.

During budget planning for 2008 HUD had been projecting $143,000,000 budget shortfall stemming from the FHA program.

This is the first time in three decades HUD had made a request to Congress for a taxpayer subsidy.

Even though FHA is statutorily required to be budget neutral, the GAO is projecting taxpayer funded subsidies of half a billion dollars over the next three years, if no changes are made to the FHA program.

Anonymous said...

Should FHA raise its lending standards.

The FHA insurance fund, however, is likely running dry, he says: "According to a report from mortgage finance experts, the FHA will not meet its minimum requirement as of its fiscal year-end, which is only 26 days from now. For months, we have been investigating this and reporting our findings to our clients.

Anonymous said...

A year and $300 billion later, will another FHA bailout bill going to be purposed.

The House passed a broad housing rescue plan to provide $300 billion in FHA refinanced mortgages.

Anonymous said...

Is it a question of IF FHA will need a bailout or is it a question of WHEN FHA will need a bailout.

Defaults on the government-backed loans have risen, too, though. The Journal reported that nearly 8 percent of FHA’s loans were seriously delinquent by 90 or more days.

That’s on par with the national average, but since FHA loans require little money down – generally 3.5 percent of the purchase price – analysts fear FHA borrowers will have less invested in their homes and will be likelier to walk away once they owe more than the home is worth.

As a result, the FHA’s reserve ratio – which stood at 6.4 percent in 2007 – dwindled to 3 percent last year, barely above the statutory cut-off.

Anonymous said...

Shadow Inventories or no Shadow Inventories.

Those developments could explain why reporters are now questioning whether Guyton made her move with Wells’ knowledge. If so, it could indicate the bank wanted to quietly keep the mansion in its “shadow inventory” of available housing that’s not brought to market, out of fears doing so would drive down its sales value. The institution also may have decided it was better for the house to be maintained and look lived-in while it was off the market.

Anonymous said...

Who is controlling the Shadow Inventories.

"There appears to be a large 'shadow' inventory of homes available for sale," says Steven Wood of Insight Economics, the result of hesitant homeowners and financial institutions temporarily holding foreclosed homes off the market.

Indeed, foreclosed homes represent the main inventory problem. The Mortgage Bankers Association reports that 720,000 began the foreclosure process in the second quarter. And Barclays Capital forecasts the number will peak at 1.15 million in mid-2010.

Anonymous said...

When the California foreclosure moratorium ends will there be a large number of REO back on the market.

The California Foreclosure Prevention Act, which established a 90-day moratorium on foreclosure went into effect on June 15, 2009.

Anonymous said...

Where are those shadow inventory.

Do you need to track those Notice of Trustee Sale.

Anonymous said...

If you are currently looking to buy a house what is your backup plan if the impossible happens to you.

As the unemployment rate climbs to almost 10 percent, no industry or profession has been spared when employers needed to cut jobs. That includes fields once considered untouchable.

Anonymous said...

How did FHA get into this mess.

Should FHA raise its lending standards.

Nearly 8 percent of FHA loans at the end of June were either 30 days late or in the process of foreclosure.

Anonymous said...

Why does it take this long for FHA to consider tightening its lending standard

As of June 30, Federal Housing Administration-insured loans made by Taylor Bean had a default rate of 9.3%, well above the 6.9% rate for all FHA lenders combined, according to the Department of Housing and Urban Development.

With so many loans made by FHA in 2009, will FHA need a special bailout from the US Treasury or the Federal Reverse.

FHA Commissioner David Stevens said "Under no circumstances will a taxpayer bailout be needed to support the fund"

FHA’s capital reserve ratio dropping below the 2% congressionally-mandated minimum.

Effective Jan 1, 2010 FHA will have tighter rules for appraisals and mortgage companies

Anonymous said...

If you have a Billion to make loans with and you raise the loan amount then won't that mean you will be able to make less loans.

Will HR 3527 and HR 3146 means that there will be less loans to be made.

Will FHA mortgage insurance reserves go lower with HR 3527, the FHA Multifamily Loan Limit Adjustment Act and HR 3146, 21st Century FHA Housing Act to FHA.

Does this mean that FHA will have to take a government bailout.

What will happen if FHA have to provide less loans by helping the rich landlords who owns the multifamily homes.

Two FHA Bills Move To The Senate

On Tuesday, the House of Representatives passed the 21st Century FHA Housing Act and the FHA Multifamily Loan Limit Adjustment Act, which seek to add capacity to the Federal Housing Administration (FHA) and allow the FHA to raise its multifamily loan limits, respectively.

Guess who is making most of the loans these days.

Government-insured, FHA mortgages made up 37.4 percent of all purchase loans in August, up from 37.0 percent in July and 27.1 percent in August last year.

Anonymous said...

Is borrowing from the US TREASURY consider a BAILOUT.

FDIC Considers Borrowing From Treasury to Shore Up Deposit Insurance

Anonymous said...

With 3.5% down in a housing market that is going down, shouldn't FHA require lenders have a net worth of more $1 million dollars to prevent FHA from doing the same thing as FDIC - asking for a US Treasury bailout.

Where is the Credit Worthiness in MBS

1) if the Lenders do not have any money

2) if FDIC and FHA who suppose to help the lenders do not have any money

3) if US Treasury can not raise taxes to provide FDIC and FHA with money.

FDIC said they did not need a bailout, but did it.

If taxes are not raised then how does the US Treasury create new money to bailout FDIC.

Will FHA ask the US Treasury for a bailout.

Can a fiat currency like the US Dollar collapse.

Gov't home loan agency faces money squeeze

Federal Housing Administration imposes new rules for lenders, insists no bailout needed

FHA is proposing that lenders have a net worth of $1 million, up from the current requirement of $250,000

Anonymous said...

Two more banks made it on the FDIC failed bank list.

That make 94 banks so far this year.

Anonymous said...

Were is the CREDIT WORTHINESS in the whole system

Lenders need a bailout
FDIC needs a bailout

High foreclosure, high unemployment, and reckless lending compounded with higher gas and food prices - is it only a matter of time when the whole system get taken down again.

Anonymous said...

Is the Shadow Inventory hurting newly minted novice real estate investors

Accidental Landlords: Unable to Sell, More Rent Out Their Homes

In many parts of the country the rental market is soft too — thanks in part to shadow inventory like houses from Accidental Landlords.

Anonymous said...

With FHA taking more than 20 percent share of all new loans and with 14.4 percent of FHA loans at least one payment past due but short of foreclosure in the second quarter of 2009, will it be a matter of time when the shadow inventory come back to the real estate market as REO.

The F.H.A. has become the government equivalent of Countrywide Financial, the hyper-aggressive private lender that crashed two years ago.

Anonymous said...

At one time the MBS investors did not have to worry about agency loans resetting, but with FHA reserve down and FHA delinquency raising should MSB investors take a second look at Credit Suisse' Monthly Mortgage Rate Reset now that people are calling FHA the next Countrywide.

Anonymous said...

Thank You Chris Thornberg for putting the Shadow Inventory into simpler words.

“He’s right, the number of REO units is falling, but the reason it’s falling is because the inventory is stalled in the pre-REO space. There’s all these crazy programs out there, all these help for home owners programs that banks are forced to indulge in.

“Something like nine percent of mortgages are extremely behind on payments, another six percent of mortgages are somewhere in the foreclosures process.

“So you have about 15% about to be foreclosed on. That the number of REO units is dropping is irrelevant, because there’s an enormous backlog behind them. You haven’t cleaned the pipe.”

If the flow of foreclosures is like a river, then the government programs are a dam, slowing the flow of the river.

The drop in bank inventory corresponds to a drop in foreclosures, which are the lessened flow beneath the dam.

But the water behind the dam is still building up, and at some point it will need to be released. And when that happens, the flow of foreclosures may be another flood.