Skip to comments.The FHA is Blowing Up: Bad News for the Housing Market
Posted on 11/15/2012 11:18:09 AM PST by RobertClark
A very important article came out from the Wall Street Journal yesterday titled FHA Nears Need for Taxpayer Funds, and it outlines the serious financial problems facing the Federal Housing Administration. For those that are unaware or need a refresher, the FHA has been the key element to the phony housing recovery the government has been trying to create. In the wake of the collapse of 2008, Fannie Mae and Freddie Mac blew up and what was left to pick up the pieces was the FHA. No private player would issue loans with down payments of 3%, but this was no problem for the FHA!
Interestingly enough, a lot of the subprime borrowers that blew up the housing market the last time became the primary customers of the FHA. Lets see, 3% down and subprime borrowers what could possibly go wrong?! From the WSJ:
The Federal Housing Administration is expected to report this week it could exhaust its reserves because of rising mortgage delinquencies, according to people familiar with the agencys finances, a development that could result in the agency needing to draw on taxpayer funding for the first time in its 78-year history.
Together with Fannie and Freddie, federal agencies are backing nearly nine in 10 new mortgages.
The FHA accounted for one third of loans used to purchase homes last year among owner occupants.
Though the agency guarantees fewer mortgages than either Fannie or Freddie, it now has more seriously delinquent loans than either of the mortgage-finance giants. Overall, the FHA insured nearly 739,000 loans that were 90 days or more past due or in foreclosure at the end of September, an increase of more than 100,000 loans from a year ago. That represents about 9.6% of its $1.08 trillion in mortgages guaranteed.
This is a big deal. The FHA is already in trouble despite a miraculous housing recovery and we havent even hit a severe cyclical economic slowdown yet, which is almost certain to occur in 2013. What shambles do you think the housing market will be in once that happens and the last backstop to housing is broke? You can kiss this housing recovery goodbye. I think home prices nationally could fall 25%+ from here. For more detailed thoughts on housing read my piece from April titled Thought of the Day House Flipping in Colorado.
The real kicker is that the FHA (which now insures 84% of all new home mortgages since lenders/processors just want the transactional/closing fees & dish that $h^t off to the taxpayers) won’t have to formally request a bailout from the treasury, because such funds are automatically guaranteed under current regulations.
Good thing the Treasury is flush!!!
House of cards. Giant sneeze.
We still aren't doing too bad. The house was a mortgage foreclosure and we got a hell of a deal on it. Just sucks that if we can't ride out the Democrat imposed hell over the nest few years... Selling will be hard to do.
Until the CRA gets abolished, banks require 20% down, banks required to hold a mortgage for 3 years, and borrowers required to pass a fiscal test to show their ability to repay the loan ..... this mess will continue to raise it’s ugly head again and again.
The county market value is not what your home is worth. It is worth what a willing buyer and seller negotiate the price to be, and then appraised by a state approved licensed appraiser. It may be more or less than the county records.
If the home is appraised lower than the value that the county has, you can get a copy of the appraisal and appeal your tax assessment.
In ‘09 we bought a home with a Wells Fargo mortgage. The ink on the closing papers was scarcely dry before we received a letter from Fannie Mae that they had taken over our mortgage, something we certainly did not agree to. Multiply that by millions of home owners, and you get the picture of how the government wound up holding 90% of the mortgages in the country.
Fannie Mae just bought my mortgage too. Not happy about it.
I have a theory that, over the long term, house values should not outpace inflation...in fact, the only reason I can think of for a house value to go up is a devaluation of the dollar.
This is a long term look, and it doesn’t account for the roller coaster ride in between.
Locally, looking at a property I used to own, I bought it at $93,500 in 1994...and its current county valuation is $165,000. Using the annual inflation rate and a spreadsheet, I calculate that inflation alone would have increased its value from $93,500 to $145,600. So, in my mind its still valued 14% too high, and likely to drop (it dropped $10k from 2011 to 2012.
That’s a local look - Kansas market. Still inflated by 14%...and it will almost certainly go down.
And since most buyers have almost zero equity, they won’t be able to sell, and the housing market becomes very stagnant...
...unless the government prolongs the agony, with our money.
A whole flock of black swans coming our way.
not the best indicator of whether you are underwater.....i have never owned a home that the assessed value was as mush as actual worth.....
the lower the accessed value the better....lower taxes.....
My current home was assessed at 231,000.. The investor I bought it from paid 30,000 for it. Put 60,000 in repairs and upgrades in to it and sold it to me for 100,000 after trying for over a year to get north of 180. It appraised at 125,000
It was a hell of a fight at the county offices getting the taxes lowered.
But I won the fight.
Around here. Take what ever the county has the value of your home at and cut it in half. Then your close to what it’s really worth.
So once again tons of homes are being sold to "renters" with no skin in the game!
I have a theory of why the big banks sell most of their loans to the GSE’s (Government-sponsored entities - Fannie, Freddie and FHA/HUD).
Once the Cloward-Piven plans, massive debts and taxation/regulation hit, and most homes are underwater, the Feds will own most of the housing stock, where they will be able to use it to redistribute when they own it.
Don’t believe me? In hard-hit parts of the Central Valley here in CA they allowed Section 8 (or similar subsidy) vouchers to be used for foreclosed homes either by the city, county, state or Feds. You have people living in a neighborhood paying their rent and raising a family and next door are people up all night, drugs, gangs, noise, trash, etc.
It actually hurt the housing market for those still paying their mortgages. One of my work colleagues moved and rented out their old home to a Section 8 tenant, above market.
Funny how government wastes your money.
GSE - Government Sponsored Enterprise, not Entity...apologies
Ummm, haven’t we seen this before?
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