Is there anyone that doesn't need a bailout at this point? It's really adding up.

http://online.wsj.com/article/SB12520244....

Quote:

The Federal Housing Administration, hit by increasing mortgage-related losses, is in danger of seeing its reserves fall below the level demanded by Congress, according to government officials, in a development that could raise concerns about whether the agency needs a taxpayer bailout.

The rising losses at the FHA, part of the U.S. Department of Housing and Urban Development, come as the agency has rapidly increased its role in guaranteeing loans in an attempt to stabilize the housing market.

It isn't clear how the rising losses may affect home buyers. Options for the agency could include politically unpalatable choices, such as asking for taxpayer funds to top up its reserves or increasing the premiums borrowers pay for the insurance offered by the agency.

It just never ends it seems.

I think one of two things is going to happen:

1. We need another $700 billion but we PROMISE it's the last time. It will solve EVERYTHING.

2. We tried our hardest to save our financial institutions but unfortunately we were unable to do so.

All those on the CNBC segment on those who used the $8,000 to buy a house, they ALL went FHA. Half of 'em were in over their heads from the jump.

How about theey stop making $750k loans to Fred Flinstone and his hair dresser wife!!! WTF!!!

FHA needs to blow up.

FNM, FRE, FHA... FHLB is next?

Mayorquimby, it comes down to re-election for them.
The economics don't matter. If people demand an end to the bailouts and promise to kick people who vote for them out of office, the bailouts will end. If people do nothing, the pigmen will keep collecting the money.

My guess is that since there are pigmen on both the left and right, and both sides will say the bailouts are good, more bailouts will keep coming. The American public is too stupid and will only do whatever their particular party leaders tell them to do.

The _venerable:

Yep, to a "T".

"You nice red sheep follow this goat over to that cliff, and you nice blue sheep follow that goat over to that cliff."

Ending is the same, they all die on the rocks below. The only winners are the Judas Goats leading each of them.

So we agree, it's #1 right? Now...how much?

Anyone know the current requirements to get an FHA loan and if the requirements have been loosened over the past few years?

I heard that FHA is the new subprime: give a loan to anyone to prop up the housing market.

LF: I would post over in the Mortgage Lenders forum. Do_the_math is pretty sharp on the FHA stuff.

(or ask him to come here)

Apparently the FHA has loosened their standards quite a bit. Is it any wonder they are insolvent?

Take a gander:

http://money.cnn.com/galleries/2009/real....

A couple problems I've noticed with FHA. #1, they seem to mainly base giving a loan out on having a job and decent credit score. This is a problem, because from what I've seen, this is about the only major requirement. #2, They've raised loan limits in "high priced" areas a little while ago, which means they now are loaning larger amounts, in bubble areas. Big problem. #3, the piddly amount required for a downpayment. ~3%, and apparently folks can now use the $8k tax credit towards a downpayment! So essentially, many folks are essentially putting nothing down.

The people who they loan to don't have to have much/any savings, which means many are one hardship away from losing the house. FHA is a ****ing joke, definitely no question about that. It's a temporary bandaid that's keeping the wheels from falling off of housing, but won't last.

Thank you for the compliment Stevie. By the way, I am female.

Lunatic_fringe. Standard FHA DTI is 31/43. It used to be 29/41, but the ratios were expanded in 2005 after the Bush tax cuts. The logic was that the tax cuts allowed borrowers to allocate more of the their gross income toward housing and liabilities. These debt ratios are not cut and dry, and can be exceeded with significant compensating factors unless the borrower has alternative credit.

However, if the lender uses AUS TOTAL Scorecard to analyze credit and income qualifying, the debt ratios can be exceeded. I've seen AUS recommendations in the 40's/50's without compensating factors AND layering of risk. Fortunately, more lenders are implementing underwriting overlays that limit the back end ratio.

In regard to the top ratio (housing to income ratios), this ratio has progressively become less important. FNMA and FHLMC set precedent here by relaxing the role of debt ratios in general, and almost entirely disregarding the housing expense ratio. In fact, FNMA relegated debt to income ratios as being secondary risk factors several years ago. Not exactly the old school underwriting I was weaned on.

As far as credit goes, true manual FHA credit guidelines were never that strict and still aren't if a borrower can get past the credit score issue. FHA was primarily concerned with the hierarchy of credit- housing, installment, and then revolving. Payment histories over the 12 months were most important unless there was evidence of major derogatory. Currently FHA alternative credit guidelines do not allow ratios to be exceeded, and will not allow non occupant borrower's income to be included in the debt ratios. I don't have an issue with old school credit underwriting, and would like to see less dependence of FICO.

Credit scores are increasing in importance, and as lenders tighten, the average credit scores for the MMI fund are increasing. Unfortunately, relying on credit scores is the equivalent of 1 "C" underwriting and often allows for too much layering of risk. Again, would like to see a return to 5 "C" underwriting.

The real problem with AUS is that it is too lax and does not put enough emphasis on capacity. FICO scores aren't capacity, in fact a high FICO score can actually lead to greater risk if the borrower takes on too much debt. Often times, borrowers with high scores are over leveraged.

Going back to debt to income ratios, DTI measures capacity, and by FHA deviating from sound debt ratios, they allow a situation whereby borrowers don't have the capacity to repay. If you sit down and really crunch the numbers and look at residual income, you will find that these debt ratios cannot be maintained in high cost areas for certain income groups. Taxes aside, we have experienced large inflation levels that have more than offset the Bush tax cuts. Many borrowers who could manage higher debt ratios years ago, can no longer do so. In fact, as unemployment rises, many households find themselves not only choked by inflation, but suffering from income curtailment as well.

Unfortunately, this is not all attributable to lenders, many of which have tightened underwriting guidelines to reduce defaults. The problem lies with HUD for failing to take action. I may not be in the 20% down camp, but I'm definitely in favor of moving DTI to 28/36. Consider this, the HAMP program is targeting a 31% housing expense ratio. Based on this fact, there should never be cause to exceed a 31% top ratio without significant compensating factors in this environment. By significant compensating factors, I mean a residual income that supports the mortgage, all obligations, commute and child care expenses, savings, and a diet that doesn't include cat food.

I do not believe for one minute that FHA will be able to maintain a capital ratio over 2% within the next 24 months unless they tighten AUS, lower debt to income ratios, require a residual income test and start requiring reserves on all loans (regardless of credit score) that are not streamline refinances.

Math, great name and avatar.

I thought all you had to do was fog a mirror and pretend you have a job and...PRESTO: Your dream of being a debt-slave comes true!

Emb- if the lender uses AUS TOTAL Scorecard, that's pretty much it (as long as the credit score is at least 640). Except the part about being able to fog a mirror. There are reverse mortgages for borrowers that can't do that.

I heart Do_the_Math! Awesome explanation, thank you!

like gen said, that guy resigning wasn't a coincidence

Thanks for the explanation, very helpful...

Now let's talk capital ratios. Check out the FY 2008 Actuarial Review of the FHA MMI Fund. See exhibit V-1 of Section V:

http://www.disasterhousing.gov/offices/h....

Also check out this OIG report that stated concerns that the assumptions used in FY 2008 MMI Fund Actuarial Review may have been too optimistic, and that the capital ratios could fall below 2% if actual economic conditions were worse.

http://www.hud.gov/offices/oig/reports/f....

A few things I would like to point out regarding Exhibit V-1 from Section V of the report is that 1) endorsements have far exceeded projections, and 2) loan limits are now substantially higher, and 3) the impact of 100% financing via tax credits was not factored into the estimates.

I see almost no loan proposals for houses at below 96.5% LTV. For some reason lenders are offering $5000 seconds behind FHA loan. This seems very risky to me but they figure a $3500 "EM" (pretty close to zero cash at closing) and the $8000 tax credit will cover the $5000 second. The way I see these seconds offered is $250 processing fee and 5% penalty interest if paid in 90 days or 8% amortized per year for 5 years. I am not a loan broker...just stating what I'm seeing on the sell side. House transactions have become like the Miami car market either you drive a Bentley (all cash) or a beater Civic (101.5% LTV). I see almost nothing FNM or FRE even nowdays.

as santelli said...

a trillion here, a trillion there, soon it really starts to add up.