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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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