Yet Another Bailout: Housing’s Hair of the Dog

One of the arguments I keep making is that the folks pushing “Less Bad = Good” are ignoring the impact of Uncle Sam’s largesse.

Let’s look at how much the U.S. government is pushing a housing recovery via a hair of the dog.

As the WSJ reported last week, the number of loans backed by the FHA has soared, and “its market share reached 23% in the second quarter, up from less than 3% in 2006, according to Inside Mortgage Finance.”

Even worse, the FHA is now insuring mortgages with as little as 3.5% down. Add in the $8,000  first time buyer tax credit, and you have all the makings of a government sponsored boomlet.

The downside?

Rising delinquencies, for one thing. The FHA delinquency rate has soared. The Journal noted that “At the end of June, some 7.8% of FHA-backed loans were 90 days late or more, or in foreclosure, according to the Mortgage Bankers Association, up from 5.4% a year ago.”

Then there is this WSJ article:

Before the boom, the FHA wasn’t a big player in the housing business because it didn’t follow private lenders in loosening its standards. Borrowers had to fully document incomes and insured loans were capped at $362,000. Congress increased those limits last year to as high as $729,750 in the most expensive markets. In August, the FHA and the U.S. Department of Veterans Affairs backed 40% of loans for all home sales.

Oh, and the FHA reserves are being seriously depleted. Then there is the little issue of the (not so) green shoots. When the money runs out, so too will much of the economic bump.

So the cure for too much easy credit going to unqualified people with too little skin in the game is more easy credit going to (according to delinquency rates) unqualified people who have too little skin in the game.

Kinda like drinking yourself sober.

Once again, the taxpayer is the one buying drinks for everyone else who should at this point be stone cold sober.

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FHA loans 20090904

courtesy of WSJ

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Sources:
Behind FHA Strains, a Push to Lift Housing
NICK TIMIRAOS
WSJ, SEPTEMBER 5, 2009
http://online.wsj.com/article/SB125211204270688031.html

MBA Reports Government-Insd Share of Mortgage Apps Highest Since 1990, Now at 36%
Mortgage Bankers Association , July 9, 2009
http://www.mortgagebankers.org/NewsandMedia/PressCenter/69541.htm

Loan Losses Spark Concern Over FHA
NICK TIMIRAOS and DEBORAH SOLOMON
WSJ, SEPTEMBER 4, 2009
http://online.wsj.com/article/SB125202440174685297.html

FHA Likely To Be The Next Shoe To Drop
John Burns Real Estate Consulting, September 2009
http://www.realestateconsulting.com/Newsletters.aspx?quicklaunch=true&newsletter=Strategic/strategic200909

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