All About FHA: A Bumpy Ride Gets Worse…

Okay so it appears that the FHA has 4.4% reserves ‘insured’ for potential losses, yet 14% of their loans are late. They repeatedly ‘assure’ us they will not require a taxpayer bailout, yet UBS and RealtyTrac project mortgage losses escalating through 2011 and FHA is at last count approx 25% of the mortgage market…D-E-N-I-A-L? Or is there enormous pressure perhaps,  to push back any oncoming bailout until the dopey health care bill gets rammed through?

Diana Olick Realty Check:

Someone get me the smelling salts, because I’m shocked, yes passing out over the latest headline from the FHA: “Officials Anticipate Annual Actuarial Study to Show Capital Reserve Ratio Dropping Below Congressionally-Mandated 2 Percent.”Read news story here.

The writing has been on the wall, in red, for a good long time. Last Tuesday, on this very blog, I wrote: FHA Claims It Won’t Need Bailout.

When I put the question of undercapitalization to FHA officials last week, they sent me this very complicated statement, which you can go back and read, but which starts by saying they would not comment until they receive the actuarial study. Today they say said study is “being completed.”Sept. 30th, I’m told, is the due date.

Last week they told me the same thing they’re saying today, that they are undercapitalized, but still okay.(Except last week they said they hold more than 5 percent of their insurance in force. Today they put that at 4.4 percent.)

“To be clear, the fund’s reserves are sufficient to cover our future losses, so the FHA will not require taxpayer assistance or new Congressional action,” said Commissioner David Stevens in a statement this morning. “That said, given the size and scope of the FHA and its importance to today’s market, these risk management and credit policy changes are important steps in strengthening the FHA fund, by ensuring that lenders have proper and sufficient protection.”

Ok, so why won’t they need a bailout? Next paragraph:

“FHA’s congressionally mandated capital reserve ratio…measures excess reserves above and beyond projected losses over the next 30 years. FHA continues to hold more than $30 billion in its reserves today, or more than 4.4 percent of it insurance in force.”

And the upshot is they will HAVE to tighten standards to avoid the losses (because we are, as Kudlow said just this morning on The Call, repeating the exact steps that led to the housing collapse). That will pressure the housing market recovery (albeit for excellent reasons).

At MiM we always say, take the loss and move forward! The incessant attempts to avoid cyclical recessions always, always leads to a bubble and a BIGGER downturn than we would have if we just let the business and economic cycle naturally ..well cycle!

When this lending standard tightening goes into effect we predict ACORN and Co. will scream until Barney Frank (D-MA) writes more legislation that either turns all the homes into subsidized low income rental housing, or forces more lending below GAAP underwriting standards, reinflating the bubble. And this is without even touching the Team TOTUS plan to remake FANNIE and FREDDIE which they have not yet revealed. So buckle up for a bumpy housing ride!

September 18, 2009. Tags: , , , , , , , , , , , , , , , . Celebrities, Economy, Film, Finance, Foreclosures, Housing, Obama Administration, Politics, Popular Culture, Suspense, Unemployment Statistics, Wall St.

4 Comments

  1. They’re baaaack: FHA prepares to raise premiums to boost reserves… « Moderate in the Middle replied:

    […] When last we visited with the FHA they were swearing up and down they would not need a bailout and were expanding their loan programs hand over fist. […]

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  2. FHA Commissioner on audit results… « Moderate in the Middle replied:

    […] Listen to this guy parse like the wind! Our previous post on the imminent need to rescue the FHA here. Our posts going back to our blog creation in December 2008 on the HOLC plan which WOULD HAVE ended […]

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  3. Housing Update: All About Fannie Mae – Delinquency rate explodes, book of business now at $3.242 trillion « Moderate in the Middle replied:

    […] of it here in Phoenix. We discussed the impending FHA bailout (which they still deny they need) here. Our coverage of the impending second collapse in housing courtesy of UBS’ think tank here. […]

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  4. Unemployment Update: Extension still stalled in the Senate… « Moderate in the Middle replied:

    […] remember what Donovan said there about FHA not needing a bailout, we have discussed this here before and it seems impossible that they will be able to fund with the losses they have, which are only […]

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