Government failure: housing bubbles and subprime lending

 
Down Payment Rules Are at Heart of Mortgage Debate - NYT

"And the subprime debacle has only distorted the debate, say some analysts. “The problem with this conversation is that it’s like discussing the future of shipbuilding from the deck of the Titanic,” said Roberto G. Quercia, director of the Center for Community Capital at the University of North Carolina at Chapel Hill. “There’s a lack of perspective.”

To underscore his point, Mr. Quercia studied mortgages in a special program for low-income borrowers, typically those with minimal down payments. From 1998 through the end of last year, 5.5 percent of the mortgages ended up in foreclosure, he found. Subprime mortgages made during the last housing boom, regardless of down payment size, had far higher foreclosure rates, roughly 25 percent."

http://dealbook.nytimes.com/2013/04/24/down-payment-rules-are-at-heart-of-mortgage-debate/


　


-OR-
　

Let’s not repeat the same mistakes that led to the housing bubble -AEI

"I‘ll call those 2,500 borrowers and raise 3.1 million families. Since 1975, one in eight of the 25 million families getting an FHA insured loan suffered a foreclosure from their 30-year, fixed-rate mortgages with a small down payment. The dashed American dreams of these families trumps the 2,500 in the UNC study. America’s homeowners have already experienced the horrific impact of the government’s successful effort to loosen underwriting standards that drove the boom that went bust. Let’s not repeat the same mistake."


http://www.aei-ideas.org/2013/04/lets-not-repeat-the-same-mistakes-that-led-to-the-housing-bubble/?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+aei-ideas%2Fposts+%28AEIdeas+Posts%29

No-Down-Payment Home Sales During the Housing Bubble Fueled by Non-Profits? No Way! Way!

“Before the housing boom got underway in the late 1990s, a California nonprofit group hatched an idea to help families who qualified for government-backed mortgages but still couldn't raise the down payment.

A home builder would agree to make a donation to the nonprofit in an amount equal to the down payment. The nonprofit would give the cash to the buyer, often earning a generous fee for its role as middleman. In less than a decade, nonprofits had arranged more than a million no-money-down house sales around the country. By 2008, they represented more than a third of all loans backed by the Federal Housing Administration.

Now many of those loans have gone bad. Defaulting at up to three times the rate of other FHA loans, they are one reason the housing agency's insurance fund is about to drop below its required capital level for the first time since it was created during the Great Depression.

Congress last year stopped the FHA from insuring any more of the loans, saying they were risky and carried the potential for fraud and abuse. One case in July confirmed those concerns: As part of a settlement of criminal charges in U.S. District Court in North Carolina in July, Beazer Homes USA Inc., acknowledged that its employees had defrauded buyers by simply rolling the extra cost of the down payment assistance into the house price.

Little attention has been paid to the role of the down payment programs in the origins of the financial crisis. Government and court records examined by the Huffington Post Investigative Fund illustrate how two large housing nonprofits - Nehemiah Corporation of America and AmeriDream Inc. -- worked closely with the mortgage divisions of the nation's biggest home builders, adding fuel to the housing bubble and in effect paving the way for even riskier subprime loans by private lenders.” - Home Loans Brokered By Nonprofits Helped Fuel The Housing Crisis, Huffington Post, 03/02/2012 [first posted 12/01/2009]

The link to the entire article appears below:

http://www.huffingtonpost.com/2009/10/01/home-loans-brokered-by-no_n_306520.html

Take the “If the Economy is Getting Better” Quiz!

The blog TheEconomicCollapse has compiled a short quiz on the subject of the media’s relentless taking point that “….the economy is getting better”. (1)

Try the "If the economy is getting better" Quiz!



　

　

　

If the economy is getting better, then why did new home sales in the United States hit a brand new all-time record low during 2011?

If the economy is getting better, then why are there 6 million less jobs in America today than there were before the recession started?

If the economy is getting better, then why is the average duration of unemployment in this country close to an all-time record high?

If the economy is getting better, then why has the number of homeless female veterans more than doubled?

If the economy is getting better, then why has the number of Americans on food stamps increased by 3 million since this time last year and by more than 14 million since Barack Obama entered the White House?

If the economy is getting better, then why has the number of children living in poverty in America risen for four years in a row?

If the economy is getting better, then why is the percentage of Americans living in "extreme poverty" at an all-time high?

If the economy is getting better, then why is the Federal Housing Administration on the verge of a financial collapse?

If the economy is getting better, then why do only 23 percent of American companies plan to hire more employees in 2012?

If the economy is getting better, then why has the number of self-employed Americans fallen by more than 2 million since 2006?

If the economy is getting better, then why did an all-time record low percentage of U.S. teens have a job last summer?

If the economy is getting better, then why does median household income keep declining? Overall, median household income in the United States has declined by a total of 6.8% since December 2007 once you account for inflation.

If the economy is getting better, then why has the number of Americans living below the poverty line increased by 10 million since 2006?

If the economy is getting better, then why is the average age of a vehicle in America now sitting at an all-time high?

If the economy is getting better, then why are 18 percent of all homes in the state of Florida currently sitting vacant?

If the economy is getting better, then why are 19 percent of all American men between the ages of 25 and 34 living with their parents?

If the economy is getting better, then why does the number of "long-term unemployed workers" stay so high? When Barack Obama first took office, the number of "long-term unemployed workers" in the United States was approximately 2.6 million. Today, that number is sitting at 5.6 million.

Notes:

(1) http://theeconomiccollapseblog.com/archives/if-the-economy-is-improving

Housing and Urban Development Secretary Shaun Donovan: “positive fund balance and the current book of business is strong”. Really?

More Housing Red Flags 


"Housing and Urban Development Secretary Shaun Donovan told the House Financial Services Committee last week that "unlike many other institutions," the taxpayer-backed Federal Housing Administration "retains a positive fund balance and the current book of business is strong." If only the numbers would cooperate.


The American Enterprise Institute's Ed Pinto recently unearthed new FHA lending data buried in a little-known HUD website called Neighborhood Watch. As of Oct. 31, 17% of FHA's loans were in delinquency or in trouble, up slightly from September. Of that total, 9% of FHA loans are "seriously delinquent," up from 8.2% at the end of June. To put this in perspective, FHA has around 75,000 more bad loans today than it had a few months ago. Meanwhile, the agency's capital reserves are languishing at 0.24%, well below the 2% legally mandated floor.


FHA waves away these worries by arguing that the business it did since the 2007 housing crash is in better shape than the guarantees made at the height of the boom. AEI's Mr. Pinto calculates that 1.9% of loans signed between Nov. 1, 2009, and Oct. 31 of this year are seriously delinquent, which is a far cry from 9% but still exceptionally high. And this comes after FHA installed a chief risk officer and boosted its underwriting standards, among other things.


In effect, FHA is betting that it can grow its way out of trouble by insuring higher-end homes and higher-quality borrowers. Mr. Donovan, in his written statement to Congress, also promised to raise premiums, crack down on bad lenders, look at reforming claims processes and more. But none of this will shrink the FHA down to its traditional role as a lender to first-time low- or moderate-income homebuyers. Until that happens, the agency will continue to dominate the mortgage insurance market, and private competitors will shrink or go bust. That's the last thing the U.S. economy needs".

-- Wall Street Journal, political diary, 12/05/2011, by Mary Kissel