25% of 2007, 2008 FHA Loans in Default

If one looks over the recent SIGTARP report, the U.S. government is now propping up and owns the entire residential real estate market.

Today we have another damning statistic via this Washington Post article, Rising FHA default rate foreshadows a crush of foreclosures.

9.1% of FHA loans missed 3 mortgage payments by December 2009.

Seems the problem is loans made in 2007, 2008. But by this time, the U.S. was well into a housing collapse, so the subprime lending was curtailed...but guess what, we have another sucker, the FHA.

FHA Commissioner David H. Stevens, who joined the agency in July, flagged his agency's troubles with the 2007 and 2008 loans in October, when he told a House panel that "rogue players on the margin" immediately migrated to the world of FHA lending after the subprime mortgage market collapsed.

Their aggressive lending tactics attracted borrowers with unusually poor credit profiles to the FHA. "That clearly impacted the books of business in 2007 and 2008, and that performance data is showing up very clearly in today's balance sheet," Stevens said at the time.

Talk about a lack of common sense. If one doesn't have income to make the payments, it's probably not a good idea to lend them the money to buy a home.

a now-defunct FHA program that enabled sellers to cover the down payments of buyers. This meant many borrowers had no skin in the game and were more likely to walk away at early signs of trouble. The program resulted in excessive defaults before it was ended in late 2008, and it is projected to cost FHA an additional $10.5 billion in losses.

Here is the shocker! 25% of all FHA loans from 2007 are bad! The FHA is projecting the same rate for all loans made in 2008.

The FHA projects that it will pay out claims to lenders on one out of every four loans made in 2007 -- the worst rate in at least three decades. The claim rate should be nearly the same on the vastly larger volume of loans made in 2008.

The article then goes on further about credit scores, claiming lending requirements have tightened. A FICO of 690 vs. 630 is more common for 2009.

Are these people stuck on stupid or what? Try income verification as your criteria.

While the FHA claims 2009 will be better, we have another expert disagreeing.

Ann Schnare, a former Freddie Mac official, said the situation could be even worse. She said the audit underestimates future losses because it does not take into account all loans that are now overdue, only those that the FHA has paid claims on.

Why, why, why can we not get a government focused on the real root issue here? Americans need good paying, stable jobs from which all else flows.

Today the FHA instead enabled house flippers.

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Mortgage loans and the USD

According to what a number of other analysts have already mentioned, and the preponderance of data points in that direction, the US dollar is based upon home mortgage loans (at least that's its present underpinning), hence a rise in interest rates may collapse the dollar, while no rise seriously jeopardizes the sale of US debt (not to mention that missing compound interest thing).

My oh my what a conumdrum the masters of fantasy finance have gotten the rest of us into.

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FHA Delinquency Rate and Cause

What is interesting about the default rate quoted in the article, and the data used was from the FHA Outlook Report. The 90 day delinquency rate reported on the FHA Outlook report differs from HUD Neighborhood Watch data which shows the 90 day delinquency rate was 9.76%. The FHA Monthly Report to the Commissioner shows the December 90 day delinquency rate as 9.12%. While the delinquency rates are similar on the FHA Outlook and Monthly Report to the FHA Commissioner show a different number for outstanding insurance in force. The FO report shows 5,815,006 insurance endorsements in force, and the MRTFHAC shows 5,832,024. The FHA servicing report from HUD Neighborhood Watch only shows 5,732,739 active insurance endorsements. According to HUD Neighborhood Watch data, there were 558,672 endorsements that were at least 90 days delinquent in December. This compares to 531,671 endorsements that were 90 days + late in the December 2009 FHA Outlook and Monthly Report to the FHA Commissioner.

Its interesting to note that the HUD Neighborhood Watch data shows a total of 1,298,739 endorsements that are either delinquent or in default. That is 22.69% of active endorsements reported on HUD Neighborhood Watch. HUD Neighborhood Watch also tracks 30 and 60 day endorsements, and in looking at the increase in 90 day delinquencies compared with the somewhat stability of the 30 and 60 day delinquencies, the number of 90 day delinquencies reported under 90 day delinquencies must be relatively small. The question that the media should be asking is what is the average number of months that loans reported under 90 day + delinquencies are actually delinquent? I would expect an average of at least 6 months.

HUD has not implemented any meaningful reform and have not presented any anticipated changes to the program that would constitute meaningful reform. Instead, HUD has demonstrated a further pattern of deregulation.

The default rate has risen in tandem with increased use of automated underwriting. Anyone who has worked with Automated Underwriting/FHA TOTAL Scorecard knows that it cannot be relied upon to produce investment quality recommendations. In fact, AUS/FHA TOTAL Scorecard is well known as a method of closing loans that are not sustainable or investment quality. Until HUD revises FHA TOTAL Scorecard and substantially reduces debt ratios, the program will continue to deteriorate. FHA TOTAL Scorecard is merely a method of FHA committing fraud via proxy to artificially maintain real estate prices. If debt to income ratios were reduced, the number of new endorsements would drop substantially, and prices along with it.

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