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Another Round of Housing Bailouts

Written by Gary North on March 28, 2012

Fannie Mae is out of money again. Every few months, it returns to Congress and asks for more money.

The U.S. housing market is a on life support. The few voters who are aware of this don’t care. Most voters don’t know.

The two government-owned mortgage companies are bleeding us dry.

Fannie Mae burned through $24 billion in losses in the final quarter of 2011. It needs another $4.6 billion.

Fannie Mae and Freddie Mac have cost taxpayers $150 billion since September 2008. They are expected to need another $100 billion, minimum.

Will this money be repaid? Not according to the head of the Federal Housing Finance Agency’a Acting Director. “It ought to be clear to everyone at this point, given the (firms’) losses since being placed into conservatorship…(they) will not be able to earn their way back to a condition that allows them to emerge from conservatorship.”

Now another disaster is looming: the FHA (Federal Housing Administration). This agency is in the mortgage insurance business. It has operated for 78 years. It stands behind certain loans, mainly to low-income borrowers.

An FHA released on November 15, 2011 revealed that the insurance fund has a 50 percent chance of requiring a bailout in the near term.  The audit exposed the fact that the fund has only $2.6 billion in cash reserves to back up $1.1 trillion in FHA-insured mortgages.  The reserves were $4.7 billion in 2010.  This marks the fourth year in a row that the fund has operated below its statutorily required minimum capital requirements of 2 percent.  At this level, the FHA is operating with a 422:1 leverage ratio, yet FHA officials have deemed the chances of an FHA bailout slim.

However, that prediction is only as reliable as the FHA’s shaky underlying assumptions.  For example, the audit estimates that housing prices will rise by 18 percent over the next several years, when most analysts expect housing prices to rise by no more than about 8 percent, if at all.  Should housing prices fall short of the FHA’s predictions, the audit projects a “situation in which the current portfolio would require additional support” from the taxpayers, possibly as much as $43.2 billion.

Congress as usual is doing nothing to force the FHA to clean up its act.

The FHA insures mortgages up to $729,000. For poor people? Yes.

Starting in 2008, FHA began to aggressively expand its portfolio, attempting to “grow its way” out of its progressively more tenuous fiscal condition.  This was a huge gamble; research demonstrates that the two key catalysts for home mortgage defaults are negative home equity and job loss, both of which have been prominent features of the country’s economic downturn since 2007.  So, while the FHA’s market share has risen from 5 percent before the crisis to around 30 percent now, its cash on hand in case of massive defaults has not grown commensurately.  Furthermore, as of October 31, 2011, at least 18 percent of all FHA loans were at least one payment behind of in foreclosure, compared with 14 percent for all loans, according to the Mortgage Bankers Association.

The government will continue to bail out the mortgage market. Voters want the bailouts. There is no political possibility that Congress will cut these parasites loose until the Great Default. The federal dent will rise.

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7 thoughts on “Another Round of Housing Bailouts

  1. Jonathan says:

    As someone who is 28 years old (and renting) I have spent the last 4 years putting aside money for a home downpayment waiting for the second wave of home price collapse. I still expect it to happen, but my better half is getting impatient! I am also leaving the beautiful state of Colorado to move back to my home state of Louisiana partly because home prices there are much more affordable. Will we take a pay cut? A little, but the less expensive home prices and property taxes will more than offset this.

  2. HadItUpToHere says:

    Thank you Bawney Fwank, you bone smoker.

  3. I pray that you will find the home and job you want and need. We need more like you who will pay what they can afford instead of depending on other entities for their subsistence. God bless you and your wife and your endeavors!!!!!!!!

  4. No more bailouts.

  5. MontanaMEL says:

    As usual…. or, is that "business as usual"…. in our Congress???

    We wanted changes when we voted in/for 2010…
    What have we got??… Same'o, Same'o….
    CAN YOU SPELL RINO??? CAN YOU SPELL INSIDER???? Can you spell bone smokers' all???

    Con't below…

  6. MontanaMEL says:

    Con't from above…

    Our only recourse is to vote every incombent out of office…and insist that ever Jug Ears' appointment be reversed…i.e., kick them all out and under the nearest bus with any fuel to move forward!.. We also need to insist on EVERY OFFICER OF THE US FORCES THAT SUPORTED THIS INPOSTER BE CASHIERED…some, even need to be brought up on charges of failure to command..i.e., this mess with the queers in there… AND…THE FED NEEDS TO BE FULLY AUDITED WITH FULL PUBLIC DEBATE INCLUDING THE RECALL or RETURN OF FUNDS THAT WERE NOT IN THE DIRECT SUPPORT OF USA INTERESTS, LOANS without due dates or terms for market value interst, etc… AND…our nation needs to be CLEANED OF ALL ILLEGALS…AND, any visa holders that are over term or have otherwise lied and then disapeared…KICK THEM ALL OUT…let them walk to the border of their choice…or, swim for it…but, they are leaving! (And, any of them with warrents go to jail down in AZ under Joe's program of pink undies…before they leave)..

  7. Navy Vet says:

    Does this really surprise anyone? This worthless outfit will continue to bleed money from the American taxpayer. Why? Because Obama's "buddies" are in charge of it.