FHA Finances Collapse as Leadership Insists Everything is Fine

[zerocarbs]

an independent audit of the FHA released Friday showed that mounting losses from mortgage delinquencies — particularly on loans the FHA backed between 2007 and 2009 — left the agency’s reserves with a projected $16.3 billion deficit as of Sept. 30.

Friday’s results underscored the debate about the proper role of the government in backstopping the nation’s housing market and how much risk taxpayers should face in order to ensure that mortgage markets continue functioning through good times and bad. Roughly nine out of 10 new mortgages are backed by the federal government.

http://www.washingtonpost.com/busine...857_story.html

This is why market manipulation and bailouts don't work in the long-term. Also, it's typical of the government to say everything is fine when reality is the opposite.

[Deleted]

This is why market manipulation and bailouts don't work in the long-term. Also, it's typical of the government to say everything is fine when reality is the opposite.

Erm....the FHA hasn't had a bailout, it's self funded from insurance premiums.

[zerocarbs]

Erm....the FHA hasn't had a bailout, it's self funded from insurance premiums.

Same principle at work here. That's why I said market manipulation AND bailouts.

[Arlor]

Same principle at work here. That's why I said market manipulation AND bailouts.

Private companies made even bigger mistakes of the same kind.

Also, $16.3 billion is about 3 months of what the Iraq war cost us per month in 2003-8, or about 1.5% of the current annual federal deficit, or about 0.001% of our annual GDP, even if the government fully bailed out FHA. The "Bush tax cuts" and the "Obama tax cuts" are costing us far more, and the Iraq war is a near-trillion-dollar sunk cost we'll never get back.

Call me simple-minded, but I think we should decide how much government we want, and then be willing to pay for it. Right now, almost nobody who thinks we should balance the budget through cuts alone is willing to say what they would cut in a way that comes even close to balancing it. And those who are willing to do so have plans that almost nobody else will accept. We need to phase out most of the tax cuts of the past ten years, gradually.

[zerocarbs]

Balancing the budget isn't the half of it. It's the debt that will never be paid off. And phasing out the tax cuts would only be a drop in the bucket anyways. Never mind the fact that you can't raise taxes in a shit economy and expect things to get better.

[Venant]

The problem is that we elect a bunch of people to manage 100s of Billions$ that would otherwise not be qualified to manage a simple cash register in the private sector. It is crony capitalism at its best when you have banks privatizing all gains and having the public pay for losses by shifting them on to the balance sheets of Federalized zombie banks like Fannie and Freddie.

Either the entire financial system has no concept of what 'risk' actually is when the system seems to blow up every 10 years and require a bailout, or the players in the system have learned that there always will be a bailout at the end of the tunnel and therefore there is no such thing as moral hazard.

[Reeve]

The problem is that we elect a bunch of people to manage 100s of Billions$ that would otherwise not be qualified to manage a simple cash register in the private sector. It is crony capitalism at its best when you have banks privatizing all gains and having the public pay for losses by shifting them on to the balance sheets of Federalized zombie banks like Fannie and Freddie.

Either the entire financial system has no concept of what 'risk' actually is when the system seems to blow up every 10 years and require a bailout, or the players in the system have learned that there always will be a bailout at the end of the tunnel and therefore there is no such thing as moral hazard.

Because the private sector did so much better?

[Puremallace]

Get rid of the FHA and mortgage rates would fucking sky rocket to astronomical levels. FHA got screwed just like banks did clearly between those dates.

Source: http://michaelbluejay.com/house/loan.html

FHA. The U.S. government offers the FHA loan program to make home-buying easier. The government guarantees part of the loan if you default, which means that they pay the bank if you fail to make your payments. Since the loan is partially guaranteed, it's easier to get. Don't get excited about the government making your payments for you, though — if you fail to make your mortgage payments the bank will still take the house back from you. The government pays the bank after the bank has already repossessed your house. Note that not all sellers will agree to an FHA loan, because there's a little more red tape involved, and because the house can't be a fixer-upper — the house has to be in excellent shape to pass an FHA inspection.

Basically the government backed a bunch of shit loans with variable interest rates that were sold into the sub prime market.

[Arlon]

Because the private sector did so much better?

Its not about private vs goverment, its about self-obsessed dicks being in charge. You need to root theese people out and start giving sentences for the major fuckups they make. Untill you make theese people pay for the damage they make, it wont matter if the church runs finances since the results would be the same anyway.

[Reeve]

Its not about private vs goverment, its about self-obsessed dicks being in charge. You need to root theese people out and start giving sentences for the major fuckups they make.

Actually to both the guy I quoted and the OP, it does seem to be about private vs. government.

[Puremallace]

Well hell if we going to be getting rid of agencies like this. Might as well get rid of the FDIC, so that when a bank collapses your money is not guaranteed by the government. You have to understand what you are typing before you even start.

FHA is basically an insurance company for banks to incentive them to loan.

[Arlon]

Actually to both the guy I quoted and the OP, it does seem to be about private vs. government.

In that case. They are missing the crux of theese problems. Nothing will get fixed by trading places between corrupt goverment and businesses(which is by its very nature, immoral). It would be like picking between pig and cow shit.

[Puremallace]

In that case. They are missing the crux of theese problems. Nothing will get fixed by trading places between corrupt goverment and businesses(which is by its very nature, immoral). It would be like picking between pig and cow shit.

The FHA insured all those shitty loans that brought down Lehman and caused this whole global recession. Sort of hard to fault them for basically guarantying part of the loans they were forced to do under the Bush administration.

[Arlon]

The FHA insured all those shitty loans that brought down Lehman and caused this whole global recession. Sort of hard to fault them for basically guarantying part of the loans they were forced to do under the Bush administration.

Lehman and its buddy banks were the ones who made the Bush administration do it. The resession was calculted profit for both private and public figures on the expense of citizen debt.(Basically plan B when the derivative market, *cough* scam, blew in their face)

[Gaexion Ramza Beoulve]

Enough of your words! Die monster!

[GreatSageCorban]

So, public sector screws up, and your excuse is "Well private sector screwed up too!"

There's a difference here.
Private sector screws up, and if it does, they go out of business. (outside of government manipulation: see to big to fail.)
Public sector screws up, and then they just keep screwing up because it's the government. If they lose money, they'll just take more of it from someone else.

[Arlon]

So, public sector screws up, and your excuse is "Well private sector screwed up too!"

There's a difference here.
Private sector screws up, and if it does, they go out of business. (outside of government manipulation: see to big to fail.)
Public sector screws up, and then they just keep screwing up because it's the government. If they lose money, they'll just take more of it from someone else.

Yes, good luck divorcing business and goverment for your private sector to work correctly. Waving USSR flags around the US during independance day seems more likely.

If you do manage it thought, might aswell make the goverment in charge since it will be morally obligated to do the best it can for the benefit of the people.

[Venant]

Well hell if we going to be getting rid of agencies like this. Might as well get rid of the FDIC, so that when a bank collapses your money is not guaranteed by the government. You have to understand what you are typing before you even start.

FHA is basically an insurance company for banks to incentive them to loan.

Peter Schiff agrees with this, and I think the idea has merits. As it stands now, many institutions are abusing the FDIC rules by taking money market funds and dividing them up into $250k blocks and housing them in various banks so that you can have an FDIC guarantee on the cash in your portfolio. FDIC interferes with free markets, if it didn't exist then people would have to decide on if they liked the risk profile of a bank before depositing money there.

[Sunseeker]

So, public sector screws up, and your excuse is "Well private sector screwed up too!"

There's a difference here.
Private sector screws up, and if it does, they go out of business. (outside of government manipulation: see to big to fail.)

Lets try...thousands of people go out of work, the economy shrinks, people spend less, more businesses fall, more people go out of business, government spending increases but tax revenue decreases so we start running a deficit.

Having an attitude of "oh well they'll just go out of business" is fine when you're talking about the little cafe down the street that employs maybe, 20 people. When you're talking about multi-national corporations who play vital roles in the world economy and employ hundreds of thousands of people both directly and indirectly, you can't just say "oh well let them fail".

What's the solution: hint: they shouldn't have been allowed to get that big to begin with.

[GreatSageCorban]

Lets try...thousands of people go out of work, the economy shrinks, people spend less, more businesses fall, more people go out of business, government spending increases but tax revenue decreases so we start running a deficit.

I would say that other auto manufacturers will fill the void after the sell off of assets. Hiring more people, spending more, etc etc. It's more fluid then to just assume "Oh well GM is gone, guess we'll never have cars or those jobs anywhere else" Large vs Monopoly. A Monopoly going out would be dangerous, and those companies should be split up. Competition is needed. But in recent history, a car manufacturer going belly up would just mean other car manufacturers get more business.

You don't see anyone trying to save the thousands of jobs from Hostess.