Subprime Uncle Sam: The FHA makes Countrywide Financial look prudent

[bobbyw24]

Subprime Uncle Sam
The FHA makes Countrywide Financial look prudent.


The Treasury has announced new "capital cushion" requirements for financial institutions to reduce excessive risk and prevent taxpayer bailouts. Seems sensible enough. Perhaps the Administration will even impose those safety and soundness standards on federal agencies.

One place to start is the Federal Housing Administration, the nation's insurer of nearly $750 billion in outstanding mortgages. The agency acknowledged this month that a new but still undisclosed HUD audit has found that FHA's cash reserve fund is rapidly depleting and may drop below its Congressionally mandated 2% of insurance liabilities by the end of the year.

At a 50 to 1 leverage ratio, the FHA will soon have a smaller capital cushion than did investment bank Bear Stearns on the eve of its crash. (See nearby table.) Its loan delinquency rate (more than 30 days late in payments) is now above 14%, or from two to three times higher than on conventional mortgages. Its cash reserve ratio has fallen by more than two-thirds in three years.

The reason for this financial deterioration is that FHA is underwriting record numbers of high-risk mortgages. Between 2006 and the end of next year, FHA's insurance portfolio will have expanded to $1 trillion from $410 billion. Today nearly one in four new mortgages carries an FHA guarantee, up from one in 50 in 2006. Through FHA, the Veterans Administration, Fannie Mae and Freddie Mac, taxpayers now guarantee repayment on more than 80% of all U.S. mortgages. Sources familiar with a new draft HUD report on FHA's worsening balance sheet tell us that the default rates have risen most rapidly on the most recent loans, i.e., those initiated or refinanced in 2008 and 2009.

Which means all the risk is on taxpayers. David Stevens, the FHA commissioner, nonetheless declared this month: "There will be no taxpayer bailout." That's also what Barney Frank said about Fannie and Freddie.


http://online.wsj.com/article/SB10001424052970204488304574428970233151130.html

[bobbyw24]

Ron Paul: Time for Fed to Get Out of Housing


In a time when even the most conservative politicians are for the idea of bailing out mortgage borrowers and lenders with taxpayer backed programs like the FHA, it is surprising to see a presidential candidate propose a REAL hands-off policy. But that is exactly what Ron Paul is doing. His views are not only refreshing, they actually make sense.



By Bailey Harris

Although most taxpayers don't realize it yet, the housing bust will cost them millions of dollars. And if Democrats (and most Republicans) get their way, taxpayers will be on the hook for billions more.

That's because policymakers are intent on making the problems in the mortgage market problems for everyone. The plans proposed by the candidates are all different, involving everything from a federal fund to the Federal Housing Administration, but they all have the same end: taxpayers lose so irresponsible people don't have to.

These plans will keep the bubble going and make the correction longer and harder than it needs to be. The scary thing is that nearly every presidential candidate supports one or more catastrophic 'cures' for U.S. housing.

(See Where Candidates Stand on Bailouts)

The exception is Ron Paul. Nicknamed 'Dr. No' because of his consistent tendency to vote no on spending bills and other bills not explicitly set out in the Constitution, Congressman Paul is firmly against using taxpayer money to bail out mortgage participants.

It's not that Paul doesn't feel bad for mortgage borrowers who made honest mistakes, it's just that he isn't willing to sacrifice taxpayer dollars and good sense in order to save people from themselves.
The Ron Paul Way

Ron Paul predicted the housing crisis in 2002 and did all he could to stop it. Unfortunately, very few people were listening at the time. In 2005, Paul introduced an amendment to eliminate the implicit taxpayer guarantee backing Fannie Mae and Freddie Mac's debt. Of course, his colleagues had no interest in protecting taxpayers and did not offer the support the bill needed.

Paul has done many other things throughout the years in an effort to make a change and make people understand. Now that the bubble has burst and policymakers have dedicated themselves to a shortsighted attempt to stave off foreclosures, it's time to listen to what Paul has to say.

He believes in free markets and less government. He wants to abolish the Federal Reserve, the IRS and the free lunch that less industrious Americans have come to rely on. If he could not immediately achieve his ultimate goal of abolishing the Federal Reserve, Paul says he will ensure that gold and silver can be used as currency.

Dr. No also wants to say no to bailing out mortgage borrowers and lenders with the Federal Housing Administration. The FHA is on thin ice already. The agency--by its own estimates and others-- will be operating in the red within a matter of months. The money that is needed to keep the agency afloat will come directly from taxpayer pockets.

Paul is one of the only candidates honest enough to point this out. The others are sticking with the idea that use of the FHA and agencies like Freddie Mac and Fannie Mae does not constitute a 'taxpayer bailout.' Quite frankly, it's insulting.

The bottom line is that Paul believes the Fed should STAY OUT of housing. While it may not be the common view, it is the smart view.

Here's hoping that the American public will catch on before it's too late.

http://efinancedirectory.com/articles/Ron_Paul:_Time_for_Fed_to_Get_Out_of_Housing.html