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"We respect the IG's right to have an opinion," he said.
Doesn't sound like they are putting much faith in that opinion.
"The FHA, which is part of HUD, is trying to recover market share lost in recent years to subprime loans..."
The FHA is a government agency. What do they care about market share? (I know, the bigger the agency, the more powerful the leader of the agency, and these guys want their agencies to be as big as possible). It's not like the FHA turns a profit. If the private sector can do it better, then let them. If not, then FHA will have more people turn to them without FHA "trying to recover market share." Sorry, but I just have a hard time with government agencies looking at "market share" since they are not private businesses.
It's not like the FHA turns a profit.
Weeellll . . .
FHA loans are very profitable for lenders. They were some of the most profitable loans out there, until the bubble markets overtook their maximum loan amounts, and supbrime lenders started paying 105 for stated/stated 100% LTV junk. (FHA rules, when followed--paging Inspector General!--limit the fees and points you can charge the borrower to something reasonable.)
There is, however, a real issue about FHA's "market share." Namely, the MMIF (the FHA insurance fund) has always been self-funded: it is a "negative subsidy" to the taxpayers, because its premiums have always--so far--covered more than its losses.
When the regulators got all over Fannie and Freddie about their "affordable lending goals," the GSEs started buying loans that would otherwise have gone into the FHA program. This was a "cherry-picking" issue; the GSEs took the top slice of the pool. So the average credit quality of the the FHA program went down, putting it at further risk.
Then the subprime lenders started eating into it from the bottom. That would be OK, except that it isn't clear to everyone--certainly not to me--that all those "subprime" loans were so subprime. We were looking at this issue in the post below on Fannie Mae 2007 reset forcasts.
In any event, if the FHA program is to stay healthy--if you aren't just one of those Grover Norquist "drown it in the bathtub" types, I assume you want it to be healthy--it needs to be able to fill its function without either getting cherry-picked or facing "competition" from predators. It most certainly does not need to become just another federal subsidy to greedy lenders.
The FHA can offer anything that it likes for mortgage products in order to regain it's market share. If they don't get greedy they may very well be able to offer better mortgage products than anyone else out there. The interesting thing is the mention of the concern of "fraud" so early on. That just tees up some wonderful Bush administration punch lines that I'll just let sail by for now.
Part of what the FHA is going to have to do in order to ensure that fraud is kept to a minimum concerns exactly who is going to be servicing these loans and, most importantly, whether or not any loans generated by the FHA are going to be securitized and led off to Wall Street to slaughter. Now, fully realizing that the FHA is a government entity, if THAT somehow happens, then the wording of the Pooling and Servicing Agreements, specifically if/how the servicer will be additionally compensated above and beyond it's base line servicing fee will most definitely come in to play. Even if the loans are individually serviced the wording of the PSAs is critical.
The problem that currently exists with Mortgage Servicing Fraud is that the PSAs that govern the trusts allow the servicers to keep things like assumption fees, late fees, and any additional fees that the servicer can generate above and beyond P&I as additional servicing compensation. I've probably mentioned it before, but as a servicer would you want to make $2.50 per loan for servicing or $2.50 per loan PLUS another $50 in late fees every month? Doesn't sound like much at the individual level - but multiply that by 100,00 loans. $50 makes a huge difference to a bottom line.
This is definitely going to be interesting in the future - especially if the FHA only generally reviews 6-7% of its portfolio for proper administration. 93% potentially fraudulent activity is a rather large window to hit and one that I'm sure that, just based on the law of large numbers, SOMEONE would be more than willing to try and orchestrate some kind of scam through - even against the federal government (gasp).
One thing that absolutely irks me is that everybody and their brother is concerned with "predatory lending" and the "subprime meltdown". In the grand scheme of things this latest concern has only come to light since breakfast yesterday. Mortgage Servicing Fraud, on the other hand, has quietly and insidiously been percolating for the better part of 10 or 20 years now - and no one either gets it or wants to talk about it. Homeowners can conceivably survive "predatory lending" issues. But once Mortgage Servicing Fraud sinks it's teeth into a homeowner they're done - but not before they are completely and totally financially and sometimes emotionally and/or psychologically exsanguinated.
Great read here...funny I always wanted to know what it was like to live as a caveman...My Grandchildren will know for sure.
Upside Down to Right Side Up - iTulip.com
Forthcoming headline: HUD IG Donohue Fired Due To Poor Performance
Mike Dillon, FHA loans are currently securitized by Ginnie Mae (Government National Mortgage Association), which is most of them, or the GSEs, which is the remainder of them.
Wall Street isn't going to be putting FHA loans into private-issue securities. The whole term "private" in this context means, basically, not government-insured.
This is exactly why FHA is "losing market share." It does not feed the Wall Street securitization machine, except insofar as CDO managers like to toss a few Ginnie Mae securities into the mix to prop up the credit quality of those dogs.
I am shocked . . . SHOCKED! . . . to hear the Bush administration mentioned in the same sentence with fraud.
I'm actually shocked for real that the WaPo printed that sentence.
Could there possibly be less joy in Mudville than there once was?
"Right here in America if you own your own home, you're realizing the American Dream." "A third major barrier is the complexity and difficulty of the home buying process. There's a lot of fine print on these forms. And it bothers people, it makes them nervous. And so therefore, what Mel has agreed to do, and Alphonso Jackson has agreed to do is to streamline the process, make the rules simpler, so everybody understands what they are -- makes the closing much less complicated." (President George Bush, 2002 speech to St. Paul AME Church, Atlanta)
I guess we all know how well that worked out. Been here done this.
A loan process that the current president of the United States can actually understand.
Now there's innovation. You have to wonder why the private sector hasn't already tried that.
The dollar is no longer responding to traditional stimulants. This week, despite the apparently "hawkish" tone in the recently released Fed minutes, and trade deficit figures that were slightly less horrific than expected, the dollar nevertheless declined against just about every currency on the planet. As a result, it now teeters dangerously close to the edge of a very large precipice. Looming large is the 80 level of the U.S. Dollar Index which has stood as long term support for almost thirty years. This week, the Index broke below 82, and is sinking fast. When this critical level is breached, look out below. Without any support beneath it, the dollar could literally fall off a cliff......And then what may I ask?????????
From Minyanville -- Stock Market, Investment, Finance, Money, Hoofy & Boo-Minyanville
John Succo
01:48:16 PM
Dear Mr. Shumer and Mr. Frank...
I am trying to understand exactly what is the criteria for getting bailed out by the government. Through process of elimination I have deduced it is "stupidity."
Many have been stupid enough to take the free money you all in Washington have created, even though they could ill afford to. Then you reward their stupidity by bailing them out when their investments go bad. You by definition penalize the smart people who did not take your free money by taking their tax dollars (or their children's future tax dollars) and giving it to the stupid people.
Since you reward stupidity and penalize intelligence I can only conclude that you want a country of really stupid people (this actually may be true).
By rewarding bad behavior and penalizing good you create an economic hazard. The short term pain is relieved, but the long term pain will be that much worse.
The story is getting old and the end is coming.
Whose taking the fraud risk?
I think there are really three questions here.
To take these in turn,
Everyone in the housing sector.
All the remaining brokers still out there, at minimum. Short CFC.
The investment banks, commerical banks, and MBS holders.
Uh, could Sebastian or Capitalist Pig come on in and tell me why I should not worry about the dollar falling?
My nervous fingers keep reaching for the "buy gold and euros" button.
Thanks,
g
I just sold another 200 shares short Bank United, (BKUNA). 80% of their portfolio is ARMS, mostly in Florida. Toxic stuff. They are one of the few walking dead housing companies that you can still short these days. I'd love to short Corus, which gives loans to Condotels and Condos in Florida, but there are no LEAPS to buy and no shares available to short at eTrade.
Dear Mr. Shumer and Mr. Frank...
I am trying to understand exactly what is the criteria for getting bailed out by the government. I'd like to buy a really, really nice house so I can participate more in the American Dream. I figure the bigger the house, the greater the participation, the more Dreaming I can do. Now in my area an $800,000 house ought to do just fine. This isn't California or Florida or someplace like that. $800K ought to get me a house up in the hills overlooking the city and with a view of the mountains - it'll be great! Now $800,000 is about 10X what I make in a year and I figure that could be a little problematic - is it OK if I fudge a little on the loan application? You know, include future "intended" income. Hey, everybody else is doing it and now that you guys are going to protect all of us, well, I say that's just swell. Mighty big of you guys - I'm glad somebody in Washinton is looking after us. So where do I sign up?
OT: I am interested in investing in a Gld Mutual Fund...anyone have any recomendations>>>
thank you
If you want to see just how quickly a company can go bankrupt playing the FL housing market, here is a gem from the 2006 annual report of Technical Olympus (TOA), a Florida homebuilder teetering on the edge of bankruptcy.
The biggest owner of TOA's debt, which trades at about 68 cents on the dollar these days, is Deutche Bank.
Basically TOA, for half of $826 million, bought half of another homebuilder, which now has a book value of -$339.6 million, actually probably much even worse now than at the close of 2006.
Transeastern JV Update
We acquired our 50% interest in the Transeastern JV on August 1, 2005, when the Transeastern JV acquired substantially all of the homebuilding assets and operations of Transeastern Properties including work in process, finished lots and certain land option rights. The Transeastern JV paid approximately $826.2 million for these assets and operations (which included the assumption of $127.1 million of liabilities and certain transaction costs, net of $30.1 million of cash). The other member of the joint venture is an entity controlled by the former majority owners of Transeastern Properties, Inc. We continue to function as the managing member of the Transeastern JV through our wholly owned subsidiary, TOUSA Homes L.P.
When the Transeastern JV was formed in August of 2005, it had more than 3,000 homes in backlog and projected 2006 deliveries of approximately 3,500 homes. Since that time, the Florida housing market has become more challenging and is now characterized by weak demand, an over-supply of new and existing homes available for sale, increased competition, and an overall lack of buyer urgency. These conditions have caused elevated cancellation rates and downward pressure on margins due to increased sales incentives and higher advertising and broker commissions. These conditions have caused significant liquidity problems for the joint venture. In September 2006, management of the joint venture developed and distributed to its members financial projections that indicated the joint venture would not have the ability to continue as a going concern under the current debt structure.
For its fiscal year ended November 30, 2006, the Transeastern JV recorded a net loss of $468.0 million. A significant portion of the Transeastern JVs loss can be attributed to $279.8 million in inventory impairments, write-off of land deposits and abandonment costs. The joint venture also recorded $176.6 million of impairment charges on goodwill and other intangible assets during fiscal 2006. After recognizing the impairment charges discussed above, the carrying value of Transeastern JVs assets at November 30, 2006 approximated $471.0 million, of which $293.9 million represented land and construction in progress. At November 30, 2006, the liabilities of the Transeastern JV amounted to $810.6 million, of which $625.0 million represents the bank debt. At November 30, 2006, the joint venture
"It's not like the FHA turns a profit.
"Weeellll . . .
"FHA loans are very profitable for lenders."
True. But my point was that FHA itself is not making a profit. Sure, the private industry is, but that money doesn't go to the bottom line of FHA, which receives federal tax dollars each year. So, if the FHA itself is not earning a profit (and, really, what government agency does?), then should it really be so concerned about "market share"?
I understand your points about the cherry-picking. I have no problem with the regulators making sure that the GSEs aren't trying to cherry-pick from FHA. And the subprime and Alt-A lenders may have actually done FHA a favor in recent years by taking the less desirable borrowers. But my point is that FHA should not be concerned about "market share" which is usually only the concern of for-profit enterprises. FHA is there to provide loans to people on certain terms and conditions. If people decide that they can get (or believe they can get) better terms and conditions elsewhere, then they should do so and FHA shouldn't worry about their market share.
Bfatz: GLD, it's an ETF. You each share represents something like 1/10oz of actual gold in a vault somewhere. It's probably one of the most cost effective ways to invest in gold.
"Right here in America if you own your own home, you're realizing the American Dream." "A third major barrier is the complexity and difficulty of the home buying process. There's a lot of fine print on these forms. And it bothers people, it makes them nervous. And so therefore, what Mel has agreed to do, and Alphonso Jackson has agreed to do is to streamline the process, make the rules simpler, so everybody understands what they are -- makes the closing much less complicated." (President George Bush, 2002 speech to St. Paul AME Church, Atlanta)
Kevin, close, it was to buy the black vote in the south. At that time Atlanta had 6 or 7 of the ten fastest growing counties at that specific time. Review the usatoday article from 12th and see about the forclosure problem and keep in mind GA passed Pred Lending law in 2002 and see the house Vacancies for TAlanmta 16 metro counties, then look at Atlanta FC's for the last 2 yrs compared rest of state...
Multiply that by 50 states.
WaitinginOC, I'd agree with you that the use of the term "market share" says more about the bozos with MBAs pretending to be government officials than it makes sense about FHA.
My point, though, is that FHA runs on group insurance. Therefore, it has to worry about the size and composition of its risk pool.
Obviously I'm not advocating that FHA join the predatory or irresponsible lenders if it can't beat them. I am suggesting that we could see "market share" of FHA as a measure of what FHA is doing, or a measure of what some other party is doing. Because of course you're right; heretofore, FHA was not able to "compete."
Bfatz - I've had luck with BGEIX lately. Up about 7- 8% since I got in on 3-19. I think they charge a 1% fee though if you don't stay in at least a month.
Rose, so Bush tried to get the black vote by telling them he'd make FHA so simple that even they could understand it?
Must be why approximately 1% of blacks voted for him.
Putting fraud and Bush in the same sentence is a tautology.
Bfatz - My opinion (for what its worth) is that the USD tends to fluctuate with the relative popularity of US equities - when US equities are relatively popular, as in the mid 80s and late 90's, the USD tends to appreciate. When emerging and foreign developed markets are all the rage, like the late 80's (Japan), and 2002 to the present with money being thrown at any and all emerging markets, the USD depreciates. I think the current infatuation with emerging markets, the uber-beneficiaries of the current credit cycle, is close to peaking, so I'm not terribly worried about the USD crashing and burning, even though I'm fairly bearish on the US economy for the medium term. The idea that the US, which is 1/3 of the world economy, can slow down dramatically and the rest of the world will just merrily continue on is absolute horse hockey in my view. If you look at a long term chart, DXY has trended between 120 and 80 during most of the post Bretton Woods era.
The American Century International Bond Fund (BEGBX) and the Pimco Global Bond Fund (Unhedged) are both good international bond funds that would diversify you out of the USD at relatively low risk, and I owned both until very recently.
I wonder if there is any blogs that will track next week investment reports? I mean related to all those credit bubble problems.
We will have Citibank, Wachovia, Wells Fargo next week. Which shoe will drop?
Bfatz,
here is the link for your 'quote' above about the dollar by Peter Schiff
"The dollar is no longer responding to traditional stimulants. This week,..."
http://www.europac.net/newspop.asp?id=8310&from=home
just in case someone wants to read the whole thing
A few more facts about Bank United (BKUNA)
87% of their 1-4 family residential loans are ARMs.
69.3% are option ARMs.
"Average LTV of the option ARM portfolio at inception was 73.67% with the adjustment for coverage of Private Mortgage Insurance (PMI)."
I'm not sure what PMI adjustment means, but I'm guess that means that they claimed LTV was lower than it really is because the borrowers have PMI.
This is really wild too, the amount of option ARMS on BKUNA's books went up $600 million just in Q4 2006. About $50 from increasing balances on old loans, and about $550 million in new option-payment ARM originations!
Hundreds of millions in NEW option ARM mortgages, in late 2006, in South Florida!
"Option ARMs represent 60.9% of BankUniteds total loans outstanding as of December 31, 2006. ...Option ARM loans with a balance of $5.6 billion were negatively amortizing with approximately $129.7 million of their principal balances resulting from negative amortization. As of September 30, 2006, Option ARM loans with a balance of $5 billion were negatively amortizing with approximately $89 million of their principal balances resulting from negative amortization."
BKUNA's net income was $27M for 4Q 2006, but negative amortization balances increased by $40.7M. NegAm was 151% of net income.
Sorry for all the !!!'s but I am excited to be able to short this stock before it collapses. I did short internet stocks before that bubble popped, but my funds were pretty limited back then so my profits when I finally covered were only about 20K.
The solution offreed by Hilary is to increase FHA limits so that this couple can qualify for a low intrest loan:
Minorities are the emerging face of the subprime crisis
WaitingInOC
IIRC Bureau of Land Management and Forest Service both "return a profit" -- mostly by selling our national forests
Hey "dork", I am not saying not to be short on bank united but you may want to do a little more research into what type of borrowers they are lending to. I understand the whole part about south florida and option arms but just be aware that a bank called World Savings did a boat load of option arms in Los Angeles 90+% but they were conservative on LTV's and required reserves for their borrowers. They got bought by Wachovia a while ago and now Wachovia is looking to expand this product further. And Wachovia is a relatively conservative bank. Again, not saying not to be short on them but you might want to call and pretend to be a 80% ltv borrower with a 660 fico stated income with 2 months piti reserves and see if they give you a loan. If not then think twice about a hefty short position.
Those lander have developed a Hutzpa:
Sacramento real estate agent Carey Covey said many first-time buyers no longer qualify for todays more demanding loans. They actually wanted the buyers to have a pretty good credit history and a job and some income coming in, said Covey
I think picking up few way-out-of-money calls on bkuna may protect from acquisition.
One of the groups that won't get in trouble for the fraud are the guys that created the securities and made them attractive -- the attorneys. They stay out of trouble because they fall outside the definition of "predatory lender.
"http://www.cadwalader.com/assets/article/GelerntKalembka070103.pdf
error GelerntKalembka070103.pdf
http://www.cadwalader.com/assets/article/GelerntKalembka070103.pdf
Thanks, Tanta. I haven't even bothered to look at the governMENTAL end of this thing. I always try to make it known that I know just enough to be dangerous....
Hey, Tanta, isn't it time for ROCK BLOG?
Go to cnn.com and the main ad on the right side of page is for a mortgage refi.... two minority girls dancing, and the details showing refi rates for an Alabama resident in the 3% range.
How are we to believe the outrage or urgency of the politicos when we see this on a daily basis?
No, mp, it's time for the divine Maria.
I say so, and I've got the keys to the blog, so there you go.
In the pharmacy literature lately there have been a couple of studies showing that most folks with a 6th grade reading level can't figure out that a prescription label that says e.g."take 2 pills twice a day" means that you take a total of four pills daily. To assert that the same folks understand the nature of ARMs is preposterous.
Thank you for the great replies m8's much apreciated
Must be why approximately 1% of blacks voted for [Bush].
"November 5, 2004 -- [President Bush] beat John Kerry fair and square. And Bush did it with greater support from Black voters than he won four years ago.
"Bush made a modest inroad into the Black community, but thats more than enough to let Republicans crow. Surveys of voters after they left the polls indicated that 11 percent of African Americans voted for him, up at least two points from 2000. In some places, like Ohio, Bush took 16 percent of the Black vote, an increase of seven points."
Source? - Black Entertainment Television
As for a weaker dollar, good, let it come. We'll pay more for oil, but American workers will become a lot more globally competitive with Asian workers, and China and Japan will find a lot less U.S. demand for their exports.
Did you read the link Reep?
Surveys of voters after they left the polls indicated that 11 percent of African Americans voted for him, up at least two points from 2000. In some places, like Ohio, Bush took 16 percent of the Black vote, an increase of seven points.
Who gives exit polls any weight?
I imagine that you figure Rice is further proof that w is well liked by African Americans.
Who gives exit polls any weight?
Everyone.
For instance, exit polls allowed the TV networks to correctly identify the winners of all 50 states in 2004, well before the votes were actually counted.
Which is not to say that exit polls are never inaccurate, merely that everyone gives credence to the results, and for historically good reasons.
Further, calmo, are you implying that Bush actually did receive only 1% of the black vote, and that the polls were wildly wrong ?
If you can find a source for such a wild-eyes position, I'll read it. Otherwise, what's your point ?
Remember the Reagan laugh lines, "I'm from the government and I'm here to help", and "Grab hold of your wallet, the government's here."? This administration, more than any, has made those deadly serious words. What about 911, 911 cleanup, Tora Bora, Iraq, Halliburton etal, Katrina, and Medicare drug prescription? After 6 years of this administration any, repeat ANY, proposal to "fix a problem" must be gone over with a magnifying glass to see who it actually helps and which buddy the money will go to.
And perhaps the biggest "solution" given by this administration-record low interest rates that fueled this entire mess. If you look at the destruction wrought in all of the government agencies that have been seen as "important to control" by this administration, you would fear by habit their interest in these programs. The MBA who runs this country has taken as short term a view as any quarterly profit driven CEO and has sucked off as much loot for his underlings and supporters as any of the crooked CEO's has.
It is critical that the FHA increase their market share. As anyone familiar with our new paradigm economy knows, if you are going to sell at a loss, you must make it up on volume!
Before I take my Valium, one more rant.
The things this administration has screwed up are not limited to the Grover Norquist wet dream of "drowning it in a bathtub" peripheral programs, these are national security issues of war provocation, war prosecution, responses to national disasters and emergencies, and long term national security and economic interests. Perhaps the question of "Are you better off now..." should be asked.
What I don't get regarding FHA is why Congress is NOW talking about cutting the FHA down payment requirement, considering 40-year loan terms, etc. Those are steps that collectively are known as "loosening lending standards."
Haven't we just seen the private mortgage companies/subprimers ...
A) slash their standards to the bone
B) give loans to anyone with a pulse and
C) go belly up as a result?
Do we really think it's a "good" idea to have the government, via FHA, make similar, high-risk mortgages?
Sorry, forgot to link to this story from a few weeks ago about proposed ways to revamp FHA ...
Ginnie Mae, FHA Say Subprime Shakeout Will Help Reverse Slide - Bloomberg.com
Greetings,
Tanta, and Mike Dillon;
You should be aware of a HUD/FHA program called the "601 Accelerated Claims Disposition Demonstration".
Do a Google search and you'll find the "Third Report Evaluation of 601 Accelerated Claims disposition Demonstration". This 11 pages will open your eyes to a whole nother method of distressed asset disposition HUD/FHA has come up with.
Essentially, this program implements public ( HUD/FHA ) private
( Citigroup, Lehman, JP Morgan ) Joint Ventures ( Delaware domiciled LLC's ), in which HUD "participating servicers" transfer ( by assignment ) problem mortgage notes to these joint ventures for servicing and asset disposition. The public and private parties share ownership interests in the LLC'S.
The joint ventures are permitted to sell the mortgage notes, either through securitization sales or whole loan sales. They can also perform note restructurings. FHA standard servicing does not allow for those activities.
So while FHA does not directly sell its notes in the private market, it now does so indirectly.
Practically, the effect is to transform FHA's equity interest in real property ( through holding mortgage notes )into an equity interest in personal property
( through the ownership of the LLC interest ). At the time of the actual transfer, the FHA insurance coverage terminates ! Interesting possibilities.
This effects HUD/FHA reporting in a number of areas; assets at risk, non performing assets in portfolio, homeownership retention rates, etc.
On another note ( pun intended ); Google search "katherine austin fitz" for further information on Hud shenagins.
Thank You.
SpyBoy