Readers who've followed my discussions regarding irresponsible home buying and lending know that I'm pretty opinionated on this topic: It's quite obvious, for instance, that the taxpayer-backed Federal Housing Administration (FHA) has become today's subprime lender of choice. (Nobody else is stupid enough to do it.)As this week's evidence, I point you to this NY Times article:
NY Times: FHA Problems Raising Concern of Policy Makers
Oh, it's worth a read, all right. Even if you only pay attention to the real-life FHA borrowers profiled. The first one's Bernadine Shimon, a teacher in Northglenn, Colorado.
Like many Americans, Ms. Shimon has recently been through some rough times. She lost a house to foreclosure, declared bankruptcy, got divorced and is now a single mother, teaching high school English in a Denver suburb.
She wanted a house but no lender would touch her. The Federal Housing Administration was more obliging. With the F.H.A. insuring her mortgage, Ms. Shimon was able to buy a $134,000 fixer-upper in August.
“The government gave me another chance,” she said.
She wanted a house but no lender would touch her. The Federal Housing Administration was more obliging. With the F.H.A. insuring her mortgage, Ms. Shimon was able to buy a $134,000 fixer-upper in August.
“The government gave me another chance,” she said.
No, the government gave you an anchor ... and then told you to swim. Check this:
Any more than that [3.5% down payment] and Ms. Shimon, 45, would still be a renter. As it was, she cashed in her retirement savings account to come up with the necessary funds. She did not have enough to spare for closing costs, so her mortgage broker arranged a deal where the charges were wrapped into the loan at the cost of a higher interest rate. She cried when the deal was done.
The house was empty and trashed. Slowly, she is trying to bring it back to life. She spent the first few weeks picking up garbage in the backyard.
Is Ms. Shimon a good bet? Even she has no easy answer. Her mortgage payment, $1,100, is half of what she takes home every month. It is not easy to make ends meet. Teachers can get laid off like everyone else.
“The government,” she said, “is doing what it needed to do — taking a risk on people.”
The house was empty and trashed. Slowly, she is trying to bring it back to life. She spent the first few weeks picking up garbage in the backyard.
Is Ms. Shimon a good bet? Even she has no easy answer. Her mortgage payment, $1,100, is half of what she takes home every month. It is not easy to make ends meet. Teachers can get laid off like everyone else.
“The government,” she said, “is doing what it needed to do — taking a risk on people.”
I won't skid off into a ditch here with some rant about how it is NOT the government's job to "take risks on people." (Or did the publisher leave a page out of my pocket U.S. Constitution?)
Instead, I'll just keep the party going, and offer up a second FHA-borrower profile — that of Chaz Fullenkamp:
Chaz Fullenkamp, an automotive technician in Columbus, Ohio, got an F.H.A. loan even though he was living on the financial edge. “If I got unemployed, I’d be wiped out in a month or two,” he says. Thanks to the F.H.A., however, he is better off than he used to be.
Really? How, pray tell, do you figure that?
Mr. Fullenkamp used F.H.A. insurance to buy a house this spring for $179,000. The eager seller paid the closing costs and also gave Mr. Fullenkamp $2,500 in cash. He immediately applied for the $8,000 tax rebate. Even taking his down payment into account, he came out ahead.
“I knew in my heart I could not really afford the house, but they gave it to me anyway,” said Mr. Fullenkamp, 22. “I thought, ‘Wow, I’m surprised I pulled that off.’ ”
“I knew in my heart I could not really afford the house, but they gave it to me anyway,” said Mr. Fullenkamp, 22. “I thought, ‘Wow, I’m surprised I pulled that off.’ ”
Yeah. And I'm surprised we even still have a financial system. Or a currency that's good for anything other than kindling.
And Recent FHA Results Say...
Also in the article, we're told that FHA's loan portfolio is facing, uh, a fair amount of default and delinquency issues.
But he [FHA commissioner David Stevens] acknowledged that some 20 percent of F.H.A. loans insured last year — and as many as 24 percent of those from 2007 — faced serious problems including foreclosure, offering a preview of a forthcoming audit of the agency’s finances.
And:
The number of F.H.A. mortgage holders in default is 410,916, up 76 percent from a year ago, when 232,864 were in default, according to agency data.
And:
Despite the agency’s attempt to outrun its fate by insuring ever-larger amounts of new loans to such borrowers as Ms. Shimon — the current rate is over a billion dollars a day — 7.77 percent of the portfolio is in default, up from 5.6 percent a year ago.
So how do Congressfolk feel about this? It's no biggie, apparently.
“F.H.A. has stepped into the void left by the private market,” Representative Maxine Waters, Democrat from California, said at the hearing. “Let’s be clear; without F.H.A., there would be no mortgage market right now.”
And a certain Massachusetts representative's response is even better:
Barney Frank, the Massachusetts Democrat who is chairman of the House Financial Services Committee, said in an interview that the defaults were, in essence, worth it.
“I don’t think it’s a bad thing that the bad loans occurred,” he said. “It was an effort to keep prices from falling too fast. That’s a policy.”
“I don’t think it’s a bad thing that the bad loans occurred,” he said. “It was an effort to keep prices from falling too fast. That’s a policy.”
I'd say these reactions are unbelievable, but they aren't. What else would you expect to hear from elected officials who well and truly believe there are no limits to what we can and should throw money at? (Vive la printing press!)
You know, really, I wish that this were all a bad dream. But it's not. It's real.
The financial profligacy — and often, sheer ignorance — of these people is absolutely astounding.
Labels: Homeownership, Mortgages
