Head of GSEs Edward DeMarco faces replacement, unfortunately

 LAGUNA NIGUEL, NEWS
Dec 122012
 
Head of GSEs Edward DeMarco faces replacement, unfortunately

Edward DeMarco is a thorn in the side of the Obama administration. He has consistently resisted calls to pander to loanowners by forgiving principal on GSE loans. Many on the political left are calling for his head, and the Obama administration is poised to oblige them — and that’s not appropriate. DeMarco has proven to be a thoughtful administrator who protects the interests of the US taxpayer. Of course, that’s the problem many politicians have with him. They want to raid the coffers of the treasure to buy more votes. If DeMarco is replaced by someone who will allow politicians [Read More...]

Will the high cost of FHA financing derail the housing recovery?

 CYPRESS, NEWS
Dec 042012
 
Will the high cost of FHA financing derail the housing recovery?

First-time homebuyers are the foundation of the housing market. Move-up buyers need first-time homebuyers to purchase their property to provide the equity to make the move up possible. With the collapse of toxic loan products from the bubble, first-time homebuyers suddenly needed to have qualifying income, and that income would only be applied to conventionally amortizing mortgages. As a result, loan balances cratered, and house prices went down with them. To prevent further declines in mortgage balances, the federal reserve lowered interest rates to near zero and embarked on “operation twist” to bring down mortgage rates. In the process they [Read More...]

FHA = subprime, 12.4% interest cost of FHA insurance, 50% risk premium

 DANA POINT, NEWS
Nov 302012
 
FHA = subprime, 12.4% interest cost of FHA insurance, 50% risk premium

Yesterday I described How to game the system with FHA loans for maximum advantage. Today, I want to look at the cost of that financing. It’s up to you to determine whether you believe the benefits are worth the costs. Many have quipped that FHA has become the replacement for subprime. They have very low standards for qualification (a 580 FICO score), a very low down payment requirement (currently 3.5%), and as a result, they have become the loan-of-necessity for anyone who doesn’t have the credit requirements or the down payment necessary to obtain other financing. In other words, they have [Read More...]

How to game the system with FHA loans for maximum advantage

 LAGUNA WOODS, NEWS
Nov 292012
 
How to game the system with FHA loans for maximum advantage

Our current housing finance system is a mess. It’s laden with moral hazard, and likely to implode with enormous losses to be absorbed at taxpayer expense. All our current policies are geared toward saving our banking system from financial ruin and making loan owners comfortable with their fate. As with any policy initiatives that distort the natural market, the current system is loaded with unintended incentives that permit people to game the system for their personal advantage. Today we look at how using an FHA loan to game the system provides advantages that offset the high cost of the FHA [Read More...]

Rising down payments and loan costs will hinder a housing recovery

 NEWS, WESTMINSTER
Nov 202012
 
Rising down payments and loan costs will hinder a housing recovery

Besides credit qualification barriers due to low FICO scores, there are two barriers to originating more loans and selling more houses to owner occupants: (1) insufficient down payment, and (2) increasing loan costs. The FHA still originates loans at 3.5% down, and the credit barriers are limited, despite realtor pleas and rhetoric to the contrary. However, since the FHA is losing a great deal of money and facing a bailout, they are continually raising their insurance fees as they become the replacement for subprime lending. These increasing costs are making houses less affordable and thereby reducing access to credit. As [Read More...]

The FHA is giving loans to Ponzis to reenter the housing market

 COTO DE CAZA, NEWS
Nov 152012
 
The FHA is giving loans to Ponzis to reenter the housing market

Do we really want to let Ponzis back into the housing market? There is a large group of people who’ve proven to be completely irresponsible with mortgage debt as evidenced by my daily debtor debacles. I wrote yesterday that Pent-up demand from boomerang buyers may not materialize, but isn’t stopping the FHA from trying. I have no problem with peak buyers whose only mistake was poor timing from reentering the housing market, but do we really want to let the irresponsible Ponzis back in? And do we as taxpayers want to be on the hook when they resume their old [Read More...]

17% of FHA loans delinquent in September, bailout coming

 MISSION VIEJO, NEWS
Nov 092012
 
17% of FHA loans delinquent in September, bailout coming

Everyone knew this was coming. The FHA needs a bailout. When the final tally of losses at the FHA come in, everyone will act surprised. Nobody paying careful attention to what the FHA is doing will be shocked. They are absorbing the losses the banks could not by insuring loans with low down payments in a declining market. No private lender or mortgage insurer would do this because the losses would put them out of business. Instead these losses will be absorbed by the US taxpayer — by you. FHA has been the lender of last resort since its inception. It [Read More...]

Tighter mortgage standards for GSEs will encourage private lending

 HUNTINGTON BEACH, NEWS
Nov 012012
 
Tighter mortgage standards for GSEs will encourage private lending

After the collapse of lending caused by skyrocketing delinquency rates which ultimately brought down the housing market, lending was taken over by the US government. The FHA, which was an existing government program, saw its share of mortgage origination balloon from 4% to 25%. The government sponsored entities of Fannie Mae and Freddie Mac were taken into conservatorship by the Department of Treasury and injected with about $150 billion to keep them solvent. With takeover of the GSEs and the increase in FHA lending, the government insured the loans on as much as 98% of the housing market. The current [Read More...]

FHA may waive 3-year waiting period and prompt millions of strategic defaults

 FULLERTON, NEWS
Sep 172012
 
FHA may waive 3-year waiting period and prompt millions of strategic defaults

Demand for houses by owner occupants has been anemic for nearly three years after four years of steep and unprecedented declines. Despite the refrain of increased demand from the bottom-calling glee club, the data clearly shows any increase in sales volume and demand this year is entirely due to cash investors, largely hedge funds buying low-end properties in beaten down markets. The decline in purchase applications is caused by two factors: potential buyers do not have the down payment, and potential borrowers cannot qualify for the loan. During the housing bubble, debt was cheap and plentiful, so many Americans stopped [Read More...]

Some creditworthy families will always be denied mortgages

 NEWS, SAN CLEMENTE
Sep 112012
 
Some creditworthy families will always be denied mortgages

When you were in high school, did your parents ever caution you about the company you keep? The people you share common interests with can be either a positive or a negative influence on your decision making. They can lead to to success, or they can lead you astray. When lenders want to evaluate a potential borrower, they don’t interview friends, but they do examine the financial characteristics of a borrower’s life, and they make determinations based on the historical behavior of others with the same characteristics. That’s the whole point of a FICO score. The Fair Isaac Corporation built [Read More...]

GSEs admit to “Managing our REO inventory to minimize costs and maximize sales proceeds”

 LAGUNA HILLS, NEWS
Aug 202012
 
GSEs admit to "Managing our REO inventory to minimize costs and maximize sales proceeds"

As strange as it sounds, most REO shouldn’t be listed for sale. REOs being processed for sale — the REO pipeline — is all banks are supposed to have. Once they finish processing, they are supposed to put them for sale and liquidate. It’s not unusual for a high percentage of REOs to be held by the banks. What is more telling about their policies is how long it takes them to sell a property, and how they classify the properties they hold. If all their properties are undergoing preparations for sale, and if sales are happening quickly, there is [Read More...]

To prevent an FHA bailout, lower the conforming limit on GSE loans

 NEWS, SANTA ANA
Jul 312012
 
To prevent an FHA bailout, lower the conforming limit on GSE loans

In a recent post, I noted that FHA mortgage delinquencies skyrocketed more than 25%. Since most FHA borrowers only put 3.5% down, when factoring in a 6% commission, 2% closing costs, and a declining market, nearly all FHA borrowers over the last five years are effectively underwater. When these borrowers sell or quit paying, the losses will be huge because the capital recovery will be far less than the original loan balance. With a 9.4% serious delinquency rate, the FHA is facing 713,104 future foreclosures. This rate has been rising steadily, and many more delinquencies are coming because many borrowers will [Read More...]

FHA foreclosures increase 73%, mostly from 2008 and 2009 bad loans

 NEWS, SAN CLEMENTE
Jun 042012
 
FHA foreclosures increase 73%, mostly from 2008 and 2009 bad loans

FHA has always been the lender of last resort. It was started in 1934 during the depths of the Great Depression to provide mortgage lending at a time when private money wouldn’t do it. Of course, by then the housing market had bottomed, so the FHA loans from the Great Depression didn’t cause huge losses, and since there was almost no other mortgage lending during that period, it was a welcome jump start to a beleaguered housing market. That isn’t the function the FHA played in the collapse of the Great Housing Bubble. FHA was loaning money when nobody else [Read More...]

FHA mortgage premium may rise to 2.05% and delay the recovery

 WESTMINSTER
Apr 032012
 
FHA mortgage premium may rise to 2.05% and delay the recovery

Over the last five years of falling real estate values, the government and federal reserve has done everything in its power to prevent the price collapse. The FHA was pressed into service as a replacement for subprime lending, and it became the only financing available for first-time buyers with less than 20% down. The current FHA minimum down payment is only 3.5%, which effectively puts every buyer underwater when transaction costs are factored in. Since the FHA has originated over a trillion dollars in loans, most of which are underwater, and since prices are still falling, the delinquency rate on [Read More...]

Lenders own $30 billion in California single-family homes

 NEWS, YORBA LINDA
Feb 092012
 
Lenders own $30 billion in California single-family homes

Over the last few years, I have decried efforts from crony capitalists to corner the single-family REO market by negotiating bulk sales directly from lenders or the GSEs. I still believe individual investors have a large role to play in cleaning up the mess, but after contemplating how large the problem really is, I am far less concerned that crony corporations could buy enough to impact the market. In California alone, each month lenders take back nearly $2 billion in single-family properties. They have a standing inventory of about $30 billion. They only obtain $2 billion a month because that’s [Read More...]

Impending FHA bailout justified by saving banks

 COSTA MESA, NEWS
Jan 112012
 
Impending FHA bailout justified by saving banks

The FHA has been the lender of last resort during the collapse of the housing bubble. Conventional lending dried up once they realized how lax lending standards became, and how likely it was that borrowers would strategically default and cause more losses. Without the FHA, a Las Vegas style crash of 70% or more would have been common to markets across the country. The banks would have been obliterated. The FHA insured many of the loans issued as prices declined. Since the FHA down payment is only 3.5%, and since it takes a 6% commission plus closing costs to exit [Read More...]

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