Friday, November 13, 2009

Friday the 13th: FHA, Foreclosures, Fannie, Freddie...and Declining Mortgage Applications

The Federal Housing Administration is in deep trouble. The agency insures loans made by private lenders, and a recent audit showed the capital reserves were o.53%, much below the 2% mandated by Congress last year. 

[T]he agency insured too many loans to unqualified borrowers in 2007 and 2008, a position the agency itself now agrees with. Nearly one in five loans it insured in 2007 now fall into the category of “seriously delinquent,” it revealed Tuesday.

Note that these loans were made years after Bubble Peak, primarily to those with low(er) credit scores who couldn't come up with more than 3-3.5% down payments.

HUD Secretary Shaun Donovan has no worries.  CalculatedRisk wonders about mortgageholders who aren't ready for homeownership.

US Foreclosure Filings topped the 300,000 level for the 8th straight in every 335 houses received some kind of late or default or auction notice, up 19% from a year ago, according to RealtyTrac.  Read more.

More than 2.4 MILLION homes are expected to be lost to foreclosure in 2010, a conservative estimate.  Add this to the over 7 MILLION homes comprising the "shadow inventory" that are not yet on the open market?  Home values will be driven lower, and the cycle will continue.   While lower prices/values would be good for areas such as Charlottesville Albemarle which haven't finished "correcting" to historic metrics, in other areas falling values will continue a vicious cycle. The NYT urges the Obama Admin to do more with Making Home Affordable, the mod program.

Fannie and Freddie Warn There Will Be More Losses due to the weakening condition of mortgage-insurance companies:

Fannie and Freddie together have required capital injections from the Treasury of $112 billion since the government took them over through conservatorship last year.... Fannie and Freddie have received payouts of $2.3 billion and $658 million, respectively, from mortgage insurers through September this year....But as conditions for mortgage insurers deteriorate, Fannie and Freddie have warned that their claims against the insurers may not be paid in full. 

More here.

Mortgage Applications, for both new purchases and re-fi's, were at a nine-year low last week, despite rates beneath 5%.  Read here.


craigger said...

Sadly "deep trouble" can be fixed by printing more money.

Real C'ville - The Bubble Blog said...

Exactly. And for a very clear explanation of how the FHA uses Treasury as an ATM, see Diana Olick, Realty Check:

Salvatore said...

Everything on this blog points to an uncertain outlook with respect to the real estate market. Charlottesville is even more difficult to read because it does not appear that prices has come down as much as they should have in order to line up with the current realities of the market. Yet, it seems to me that this is a good time to buy a house...but how does one know what is a reasonable and fair offer? In order to factor out the effect of the bubble in recent years, does it make sense to offer a price that is based on the year 2000 assessment, plus a fair annual rate of return? if so, what would you consider to be a fair rate of return?
Thank you,
future buyer