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The Road to Facism. Government Ownership of Private Property

By Scott Wall

Real Estate Agent with StoneHouse Realty, Inc

May 05, 2009 05:32 PM

I am from the government and am here to help.

Words that should make any American shudder. And the housing market may be wondering why we got sucked into another black hole of foreclosures and bankruptcies after the massive infusion of FHA loans into the economy.

1 in 8 Federal Housing Administration loans is delinquent. That is a higher rate than any major loan portfolio that the same government is calling irresponsible by a factor of 3.

So when you read about how the government officials are berating banks as being selfish and writing bad loans, just smile on the inside. They are the worst offenders, the true wolf in sheep's clothing, and they are using your money to lend to people who can not pay it back. Thus setting us, the tax payer up to own more and more private property.

Last year banks issued $180 billion of new mortgages insured by the FHA, which means they carry a 100% taxpayer guarantee. Many of these have the same characteristics as subprime loans: low down payment requirements, high-risk borrowers, and in many cases shady mortgage originators. FHA now insures nearly one of every three new mortgages, up from 2% in 2006.

The financial results so far are not as dire as those created by the subprime frenzy of 2004-2007, but taxpayer losses are mounting on its $562 billion portfolio. According to Mortgage Bankers Association data, more than one in eight FHA loans is now delinquent - nearly triple the rate on conventional, non-subprime loan portfolios. Another 7.5% of recent FHA loans are in "serious delinquency," which means at least three months overdue.- WSJ.com.

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Jay-Paul Lowry

Riverside, CA

Scott - Are you saying that FHA should just be shutdown? You say that the product is as bad or worse than subprime loans and that originators are just as shady. How do come up with that? Compared to conventional lenders and FHA lender have many more regulations and checks and balances to follow. That was one of the biggest complains against FHA lending and why it lost popularity when subprime became so successful in the years 2000-06. FHA lenders and brokers are required to keep minimum net worth requirements, not on the owners but in the actual business. Also for over 70 years FHA was a compleltey self sustaining program, meaning that it paid for itself with out tax payer assitance through its Mutual Mortgage Insurance Fund, and that includes the major crash in the 90's that resulted in HUD taking posession of hundreds of thousands of homes ( in southern california alone i know of at least 30,000 properties that were disposessed through HUD auctions). As far as the shady lenders go, they dont last long doing shady FHA loans. If one lender has too many loans going bad they could be called to indemnify HUD against losses on further foreclosures (hence the networth requirements). I am just not sure what your post was getting at. It seems that you read something in the Journal and repeated it with out much research. FHA compared to subprime stated income/ NINA/ products is far safer investment. There is reasearch going back over 40 years on FHA loan performance there was less than half that of subprime loan performance research.

JP Lowry--Preferred Financial Funding, Inc

May 06, 2009 09:24 AM

Scott Wall

StoneHouse Realty, Inc - Bristow, VA

JP - I have no problem with FHAs in general and while I appreciate that I am not an economic expert and little articles might confuse me, I am a thinker. The issue is not the FHA product nor any other product. The issue is the amount of government involvement. As report by the Associate Press, "Uncle Sam is the 800 pound gorilla in the U.S. mortgage market." I appreciate your historical numbers but I believe that the "world" has changed. Back in Sep 2008, the Government seized Fannie Mae and Freddie Mac. They essential own approximately 80% in each company. In September, these companies (and thus the government) together own or guarantee about $5 trillion in home loans, THEN about half the nation's total (this number continues to grow as the Government HELPS). That was mostly on the convential banking side. Then throw in how AIG is backing loans to States, Cities and mortgages (taxpayer assistance has now grown to $170 billion), and the government owns nearly 80% of that company. Now let's throw in FHA (which is backed 100% back by the government) and how 1 in 8 are failing.

Two principle that I am worried about are:

Life and Liberty are Secured Only so Long as the Right to Property is Secure.
The Highest Level of Prosperity Occurs when there is a Free-market Economy and a Minimum of Government Regulations.

The more the Government controls the banks and your property, the more they with control YOU. How much of your liberty are you willing to give up? You are free to place the shackles of financial slavery on you. My point is to simply highlight the shackles.

May 06, 2009 01:48 PM

I agree that it is very concerning for the US Government to nationalize any business. I am very conservative on my views when it comes to this. I dont see FHA as compounding the problem however.

I am all for Minimizing Government Regulation and Size. Dont get me wrong. But FHA is not a component of the problem. Also i think your figues are off. Currently only 7% of FHA's book of business is 90 days or more past due but your 1 in 8 numbers point to 12.5% defualt. I am not sure where you got those numbers but I can assure you they are not accurate. And compared to subprime which has a 90 day or mast past due of 1 in 4 or 25% of all outstanding loans, FHA again is a much safer investment. You cannot have a "no risk" loan. Even if you do everything possible to systematically eliminate defualt risk you are still going to have defualts. E.g. Hurricane Katrina wiped out thousands of homes in Louisana and the Insurance companies won a settlement that said they did not have to pay the damages due to the homeowner through their Hazard Insurance and as a result many people defaulted on their loans.

It is refreshing to find another conservative minded individual on here. There are not many!

JP Lowry

May 11, 2009 12:01 PM

The Road to Facism. Government Ownership of Private Property

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