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Posts Tagged ‘Federal Housing Administration’

“Administration Officials Don’t Really Want Housing Program to Work”

Posted by Larry Doyle on February 2nd, 2012 11:57 AM |

I find myself in a daily battle not to write cynically about our economy and the political dynamic within our nation.

Just this morning I find myself wanting to rail on the Obama administration’s latest efforts to support housing when past efforts have been such enormous disasters.

How enormous? I cannot help myself……. (more…)

UPDATE: Did Wall Street Violate the Racketeering Act?

Posted by Larry Doyle on May 4th, 2011 11:50 AM |

A month ago I questioned whether there was sufficient evidence of abusive and fraudulent practices in the mortgage business on Wall Street (underwriting, servicing, securitizations, etc) to make a case that the industry as a whole violated the Racketeering Act? I would not expect that our ‘leaders’ in Washington would ever think about making that case; that said, I think there is plenty of reason to believe that a very real case could be made.

What will we likely see? Perhaps a number of individual cases. We witness just such a situation today with news that the Department of Justice yesterday filed a lawsuit against Deutsche Bank for lying about the quality of loans made by a mortgage subsidiary of the German bank. (more…)

Barack Really is Going to Pay Her Mortgage

Posted by Larry Doyle on March 26th, 2010 8:24 AM |

My blood is boiling. Why?

The assault on the principles of free market capitalism is escalating with news that banks are poised to start reducing principal balances on certain mortgages.

I empathize with those who are strapped, but I have never felt more strongly on a topic than this principal reduction. Despite any and all bulls*%# put forth by those in Washington, the principal reduction program is an enormous escalation of the violation of moral hazard which our country sadly continues to embrace. I have no doubt it will expedite the development of a socialized housing finance system.

Do not think for a second that banks will take the hit on these principal reductions. Who will take the hit? Me and you. Those who have worked hard, saved, played by the rules, and taught our children to do the same. (more…)

Cash Strapped Seniors Beware!!

Posted by Larry Doyle on October 6th, 2009 2:53 PM |

Tapping home equity was a prime driver in leading us into our current economic crisis. The same dynamic with an added twist may very well be setting the table for another round of fraud and accompanying problems.

I refer to the housing finance product known as a reverse mortgage. This product is targeted primarily at our senior citizens who are cash strapped. Rest assured many a mortgage banker who is currently hard pressed to generate fees and earnings will attempt to take Grandma and Grandpa ‘to the hoop’ with this product.

While many quality professionals within the mortgage industry will work to highlight the potential pitfalls with reverse mortgages, do not think for a second that those messages will make their way to every customer.

Bloomberg highlights that our legal profession is starting to take notice of this ‘racket’ and writes, Reverse Mortgages May Be ‘Subprime Revisited’:

Reverse mortgages may be the next subprime crisis, according to the National Consumer Law Center.

Some of the same U.S. lenders that helped drive the real estate boom with loans to home buyers who couldn’t afford the payments are now targeting seniors, the center said. Brokers, who are given financial incentives to sell the loans, may be making misleading claims to potential customers, according to a report released today by the Boston-based NCLC.

“This market is designed to serve seniors, so when we find abuses cropping up and migrating from the subprime market to the senior market, that sounds an especially loud warning bell,” said Rick Jurgens, an advocate at the National Consumer Law Center, who contributed to the report.

Reverse mortgages enable people aged 62 and over who are looking for extra cash to use the equity in their homes and receive lump-sum payments, periodic checks, a line of credit, or a combination of the three. Lenders are repaid from the sale of the home when the borrowers die or move.

The former maximum payout for reverse mortgages backed by the Federal Housing Administration was $417,000. That limit was increased temporarily to $625,500 in February. Origination fees are capped at $6,000. In 2008, more than 100,000 seniors used reverse mortgages to tap over $17 billion in home equity, according to the Housing and Urban Development Department.

I implore anybody who reads this commentary to fully explore the implied mortgage rate and home appraisal values utilized with reverse mortgages.

Any questions, please do not hesitate to ask or to utilize the mortgage primers (in the left sidebar) here at Sense on Cents to learn more about this product.


FHA and FDIC Getting Ready to Ask Uncle Sam for a Bigger Allowance

Posted by Larry Doyle on September 18th, 2009 12:27 PM |

It was only a matter of time before both the Federal Housing Administration (FHA) and the Federal Deposit Insurance Corporation (FDIC) would walk over to the U.S. Treasury and ask for a ‘bigger allowance.’ That time has come, despite what some officials may say. High five to MC for bringing the FHA story to my attention.

The Wall Street Journal highlights the FHA’s predicament in writing, FHA Tightens Credit Standards, Sees No Bailout:

The Federal Housing Administration said Friday its cash cushion will dip below mandated levels for the first time, but officials insist it won’t need a taxpayer rescue.

The agency, a growing source of funds for first-time home buyers, faces mounting concerns that it will soon need a taxpayer bailout. As of this summer, about 17% of FHA borrowers were at least one payment behind or in foreclosure, compared with 13% for all loans, according to the Mortgage Bankers Association.

Rising defaults mean the FHA’s reserves may sink below the 2% mark required by federal law. The FHA says a study being sent to Congress in November is expected to show that ratio dipping below required levels for the first time.

Please recall that FHA-insured loans require only a 3% down payment. In writing a previous blog post focused on the FHA, a well informed reader shared with us that builders will often offer rebates which effectively cover that down payment. What is the result? Homeowners purchasing properties with no money down, otherwise known as ‘no skin in the game.’ This practice was prevalent throughout the irresponsible stage of sub-prime lending. Make no mistake, plenty of this is continuing today with the support and backstop of Uncle Sam . . . all in hopes of filling that growing hole in the housing dike.

The FHA will certainly need more capital unless and until mortgage delinquencies, defaults, and foreclosures stabilize and decline. None other than Wells Fargo CEO John Stumpf shared the other day that he does not see a slowing on those fronts.

In regards to the FDIC, the insurance fund has exhausted the bulk of the initial $50 billion which it had prior to bank failures starting in 2008. The costs of these failures have far exceeded that $50 billion figure. How so? Some very large profile failures were brokered to stronger hands with FDIC support but without the FDIC having to make an initial outlay of funds.

The WSJ highlights the current dire straits of the FDIC in writing,  FDIC Mulls Borrowing from Treasury:

Federal Deposit Insurance Corp. Chairman Sheila Bair said Friday her agency may tap its $500 billion credit line with the U.S. Treasury to replenish its deposit insurance fund, though she appeared cautious about doing so.

“We are carefully considering all options” including borrowing from the Treasury, Ms. Bair said Friday after a speech in Washington.

Ms. Bair has already warned banks that they may face an assessment increase to bolster the fund. Friday, she said there are also other little-known options available to the agency, including requiring banks to prepay assessments. The FDIC board of directors will meet at the end of this month to consider how to replenish the fund, she said.

Individually, the FHA and FDIC stories are both significant. However, in the midst of bailouts of other institutions (large banks, Freddie and Fannie, AIG, GM, and Chrysler), the funds likely to be injected into these entities are treated as merely adding another leaf to Mom’s dining room table for Thanksgiving dinner.

Is the American public grateful for the undisciplined and greedy lending practices that have crippled the FHA and FDIC? Perhaps I should rephrase that question: are these institutions grateful for the American public putting their taxpayer dollars on the line?


Uncle Sam Guaranteeing Sub-Prime Loans

Posted by Larry Doyle on May 4th, 2009 7:51 PM |

Is Uncle Sam creating another housing fiasco or merely forestalling some pain embedded in the current mess? Hat tip to bonddadddy for bringing my attention to the WSJ editorial today, The Next Housing Bust, which deserves further analysis and promotion.

This WSJ editorial focuses on the Federal Housing Administration (FHA) which insures mortgages via a 100% taxpayer guarantee. In the early part of the decade, the  FHA lost a significant percentage of its market share as borrowers who qualified for these mortgages shifted to “teaser” loans offered by sub-prime mortgage lenders. We all know how that ended.

FHA and VA (Veterans Administration) loans have traditionally been securitized by GNMA (Government National Mortgage Association) and were restricted to a maximum loan size of $362,500. Traditionally, these loans have experienced very low levels of defaults because many of the loans were of much smaller size. Oh, how times are changing! (more…)

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