FHA needs a bailout; Gee, who could have seen that coming?

The Federal Housing Administration's projected losses hit $16.3 billion at the end of September, according to an independent annual audit to be released Friday, a much larger figure than had been forecast earlier.

The report strongly suggests the FHA will require taxpayer funding for the first time in its 78 years, though that won't be decided until early next year.

The FHA is required to maintain enough cash to pay for projected losses on the $1.1 trillion in loans that it guarantees. Last year, the independent audit said the FHA would have $2.6 billion after covering estimated losses.
The losses relate to loans made after the bubble burst, in 2008 and 2009.

Gee, who could have seen that coming? Certainly not the thousands of highly-paid bureaucrats in Treasury, HUD, FHA, etc., with their expensive models and experts.

Just some casual observer in San Diego with no particular industry expertise.
FHA is the new subprime

More precisely, FHA is the new put-option mortgage. As we said way back in January 2007 with Countrywide stock flying high around $40:
The mortgage industry calls them pay-option ARMs, because the buyer has the option to pay a full mortgage payment or a lot less. In reality, they are put-option ARMs, because the buyer is really getting a put option on the real estate market. If the market goes up, the buyer refinances or makes fully amortized payments on the loan. If the market goes down, the buyer makes minimal payments to live in a nice house for a period, and then hands the underwater house back to the lender. A no-lose proposition for the smart buyer!
Well, they're not ARMs any more. They are ridiculously low (~5%) 30-year fixed-rate loans. And the sucker is not a sleazy outfit like Countrywide. It's the FHA. That means you, the taxpayer.
These asshats in Washington either couldn't see, or didn't care, that making 3% down loans to deadbeats in a collapsing market would create huge losses for the taxpayer. They should all be run out of town on a rail.


Independent Accountant said...

I disagree. I think most of these people saw it coming, but never said anything. Why? They knew the FHA was another anti-poverty program and supported it as an anti-poverty program. An anti-poverty program which did not require current appropriations.


Negocios Loucos said...

IA the irony is that that anti-poverty program, along with all the others, guarantees that we will all be in poverty soon. $10 gas here we come.


K T Cat said...

It's how it makes you feel that counts.

Happy Super Tuesday!