Best of the Week
Most Popular
1. Investing in a Bubble Mania Stock Market Trending Towards Financial Crisis 2.0 CRASH! - 9th Sep 21
2.Tech Stocks Bubble Valuations 2000 vs 2021 - 25th Sep 21
3.Stock Market FOMO Going into Crash Season - 8th Oct 21
4.Stock Market FOMO Hits September Brick Wall - Evergrande China's Lehman's Moment - 22nd Sep 21
5.Crypto Bubble BURSTS! BTC, ETH, XRP CRASH! NiceHash Seizes Funds on Account Halting ALL Withdrawals! - 19th May 21
6.How to Protect Your Self From a Stock Market CRASH / Bear Market? - 14th Oct 21
7.AI Stocks Portfolio Buying and Selling Levels Going Into Market Correction - 11th Oct 21
8.Why Silver Price Could Crash by 20%! - 5th Oct 21
9.Powell: Inflation Might Not Be Transitory, After All - 3rd Oct 21
10.Global Stock Markets Topped 60 Days Before the US Stocks Peaked - 23rd Sep 21
Last 7 days
AI Tech Stocks State Going into the CRASH and Capitalising on the Metaverse - 25th Jan 22
Stock Market Relief Rally, Maybe? - 25th Jan 22
Why Gold’s Latest Rally Is Nothing to Get Excited About - 25th Jan 22
Gold Slides and Rebounds in 2022 - 25th Jan 22
Gold; a stellar picture - 25th Jan 22
CATHY WOOD ARK GARBAGE ARK Funds Heading for 90% STOCK CRASH! - 22nd Jan 22
Gold Is the Belle of the Ball. Will Its Dance Turn Bearish? - 22nd Jan 22
Best Neighborhoods to Buy Real Estate in San Diego - 22nd Jan 22
Stock Market January PANIC AI Tech Stocks Buying Opp - Trend Forecast 2022 - 21st Jan 21
How to Get Rich in the MetaVerse - 20th Jan 21
Should you Buy Payment Disruptor Stocks in 2022? - 20th Jan 21
2022 the Year of Smart devices, Electric Vehicles, and AI Startups - 20th Jan 21
Oil Markets More Animated by Geopolitics, Supply, and Demand - 20th Jan 21
WARNING - AI STOCK MARKET CRASH / BEAR SWITCH TRIGGERED! - 19th Jan 22
Fake It Till You Make It: Will Silver’s Motto Work on Gold? - 19th Jan 22
Crude Oil Smashing Stocks - 19th Jan 22
US Stagflation: The Global Risk of 2022 - 19th Jan 22
Stock Market Trend Forecast Early 2022 - Tech Growth Value Stocks Rotation - 18th Jan 22
Stock Market Sentiment Speaks: Are We Setting Up For A 'Mini-Crash'? - 18th Jan 22
Mobile Sports Betting is on a rise: Here’s why - 18th Jan 22
Exponential AI Stocks Mega-trend - 17th Jan 22
THE NEXT BITCOIN - 17th Jan 22
Gold Price Predictions for 2022 - 17th Jan 22
How Do Debt Relief Services Work To Reduce The Amount You Owe? - 17th Jan 22
RIVIAN IPO Illustrates We are in the Mother of all Stock Market Bubbles - 16th Jan 22
All Market Eyes on Copper - 16th Jan 22
The US Dollar Had a Slip-Up, but Gold Turned a Blind Eye to It - 16th Jan 22
A Stock Market Top for the Ages - 16th Jan 22
FREETRADE - Stock Investing Platform, the Good, Bad and Ugly Review, Free Shares, Cancelled Orders - 15th Jan 22
WD 14tb My Book External Drive Unboxing, Testing and Benchmark Performance Amazon Buy Review - 15th Jan 22
Toyland Ferris Wheel Birthday Fun at Gulliver's Rother Valley UK Theme Park 2022 - 15th Jan 22
What You Should Know About a TailoredPay High Risk Merchant Account - 15th Jan 22
Best Metaverse Tech Stocks Investing for 2022 and Beyond - 14th Jan 22
Gold Price Lagging Inflation - 14th Jan 22
Get Your Startup Idea Up And Running With These 7 Tips - 14th Jan 22
What Happens When Your Flight Gets Cancelled in the UK? - 14th Jan 22

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

U.S. Housing Market Potential for Catastrophic Losses for FHA

Housing-Market / US Housing Jun 13, 2013 - 01:48 PM GMT

By: Money_Morning

Housing-Market

Gary Gately writes: Five years after the financial crisis, just about everyone has had to clean up their act.

Consumers have less credit card debt. Banks are stuffed with capital, prodded by the Federal Reserve. Even the federal deficit is shrinking.

But one federal agency seems to have resisted long-overdue change. It's the Federal Housing Administration or FHA.


Findings by a congressional committee, released last week, show the giant government mortgage-insurance agency could face a $115 billion shortfall - at least, if the housing market tanksby 20% again.

The figure is so large the FHA has worked to keep it under wraps for as long it could.

This winter the Fed required the nation's 18 biggest banks to undergo the same sort of "stress test" scenario.

The FHA, though, excluded the results of its stress test from an independent actuarial review released in November - and hoped to release the results later when Congress and reporters weren't paying attention.

In an October e-mail to Integrated Financial Engineering Inc. of Rockville, Md., which conducted the review, an FHA official wrote, "We just do not want that analysis [the stress test results] to be in the actuarial review report."

The e-mail went on to say, "In congressional hearings, it is quite possible that we will be required to present this information on the record, but that will be well after the actuarial review is released and the initial media coverage takes place."

FHA: "Contempt for Congress and Taxpayers"
Edward J. Pinto, a senior research fellow at the American Enterprise Institute think tank, told Money Morning it's an "outrage" FHA didn't release the stress test results in November and that they became public only during the congressional committee's review.

"The employees of FHA hold a public trust," Pinto said. "To withhold this information from the FHA's regulator, Congress, shows contempt for Congress and taxpayers."

The FHA doesn't originate mortgages or lend money but provides government-backed insurance to lenders against mortgage borrowers defaulting, and has taken on a much bigger role after Fannie Mae and Freddie Mac had to bet taken over by the government.

Pinto says under generally accepted accounting principles, the FHA, which now insures over $1.1 trillion in mortgage loans, has a net worth of negative $27 billion.

Given its financial state - the FHA did present as part of the review an estimated shortfall of $65.4 billion based on a "protracted" economic "slump" - Pinto said the agency is one recession away from a disaster.

"The FHA is a mild to moderate recession away from catastrophic losses - losses that would need to be absorbed by taxpayers," Pinto said.

Such losses could total $50 billion, he said.

Pointing to the Great Recession, Pinto said, "FHA's role as the leverage leader was instrumental in promoting the rush to loose lending standards that figured so prominently in the collapse of the housing market and the tanking of our economy."

No Cash Reserves
The FHA, he says, has "no cash reserves to fall back on to protect the taxpayers, and that is the problem."

Pinto, a former chief credit officer for Fannie Mae, says he's not predicting a housing crash right away, but says it's conceivable interest rates could climb to 6% within a year or two - and that would greatly increase the odds of a crash.

And the FHA is making the potential catastrophe bigger and bigger - by easing lending standards and by making too many loans to people outside its original mission of supporting low- and middle-income and first-time buyers, Pinto says.

He says the FHA needs to change underwriting standards to bring down foreclosure rates, which he says have been about 12 percent over the past 37 years. That would require a lower debt-to-income ratio among homebuyers and weighing expenses beyond debts, among other things.

Today, he says, FHA's market share is nearly 30%, compared with its historic level of 10%-15%.

The FHA has backed mortgages to borrowers making down payments of as little as 3.0%. Most private lenders wouldn't offer these borrowers loans without a government guarantee.

Pinto's concerns are shared with those of our own Shah Gilani.

In November last year, the Capital Wave Strategist warned, "The FHA is now saddled with over a trillion dollars' worth of mortgages it insured for a lot less than prime borrowers, and is itself in need of a bailout."

"It's just another example of our government kicking yet another can down the road," Shah said, "only, this is another turkey that isn't going to make it across the road."

Source :http://moneymorning.com/2013/06/12/fha-potential-for-catastrophic-losses-could-lead-to-a-115-billion-shortfall/

Money Morning/The Money Map Report

©2013 Monument Street Publishing. All Rights Reserved. Protected by copyright laws of the United States and international treaties. Any reproduction, copying, or redistribution (electronic or otherwise, including on the world wide web), of content from this website, in whole or in part, is strictly prohibited without the express written permission of Monument Street Publishing. 105 West Monument Street, Baltimore MD 21201, Email: customerservice@moneymorning.com

Disclaimer: Nothing published by Money Morning should be considered personalized investment advice. Although our employees may answer your general customer service questions, they are not licensed under securities laws to address your particular investment situation. No communication by our employees to you should be deemed as personalized investent advice. We expressly forbid our writers from having a financial interest in any security recommended to our readers. All of our employees and agents must wait 24 hours after on-line publication, or after the mailing of printed-only publication prior to following an initial recommendation. Any investments recommended by Money Morning should be made only after consulting with your investment advisor and only after reviewing the prospectus or financial statements of the company.

Money Morning Archive

© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in