Housing Policy

Forget Savings, Federal Mortgage Guarantees Now Expected to Cost Billions

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Like so many federal schemes, The Federal Housing Administration's (FHA's) guarantee program for single-family mortgages was supposed to be not just good for Americans, but a money saver for the government—guaranteed! The Department of Housing and Urban Development touts it as "an important tool through which the Federal Government expands homeownership opportunities for first time homebuyers and other borrowers who would not otherwise qualify for conventional mortgages on affordable terms." It was also forecast to save the federal budget $63.0 billion, the Congressial Budget Office (CBO) reminds us.

In fact, though, the CBO announced this week, the mortgage program is awash in billions of dollars of red ink.

CBO's estimate that the guarantees made during the 1992–2013 period will cost $2.2 billion is slightly higher than the estimate of $0.1 billion in costs that can be inferred from the subsidy rates and loan volumes reported by the Office of Management and Budget (OMB), but it is quite different from the $63.0 billion in budgetary savings implied by the original estimates for those guarantees recorded in the federal budget.

The turnaround in financial fortunes is attributed to the housing slump of the late 2000s.

Official government accounting standards (the same standards that now result in losses for the 1992-2013 loans) predict a small budgetary savings from mortgage guarantees made by the FHA in 2014 and 2015. "However," the CBO cautions, "under a more comprehensive fair-value approach to estimating the cost of loan guarantees, FHA's 2014 and 2015 guarantees are projected to have small costs instead of savings." Those "small costs" add up to another $2 billion.

That might be a problem since, at the end of 2013, the FHA's capital reserve account was zero. It's relying on savings in 2014 and 2015 to top off the account.

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  1. That might be a problem since, at the end of 2013, the FHA’s capital reserve account was zero. It’s relying on savings in 2014 and 2015 to top off the account.

    Maybe they can get a payday loan? Oh, who am I kidding – they will just rape it out of us taxpayers.

    1. PAYDAY LOAN SHARKS ARE TEH DEBIL AND OUTLAWED!

      But, yes, ass raping taxpayers is OK because GOVERNMENT!!11! so it’s all good.

  2. I’ve been saying for years: subprime never went away, they just call it FHA now. credit scores as low as 580.

    1. I’m fairly certain it was the FHA that backstopped the loan, for over 100% of value, for the buyers of my previous house. It was under some rural development program. I doubt that hosue is worth more than I sold it for, 5 years later.

      1. sounds like the USDA mortgage program.

  3. I can’t begin to tell you how happy I am – as a WAY fucking net GIVER of taxes – to be subsidizing other US citizens’ house purchases. Unlike all of my own, which I have totally paid for myself, with no Federal gummint anything.

    Especially because it’s right there in the Constitution – “…shall be empowered to create programs to spend the People’s Treasure on bad loans to otherwise-unqualified new-hoome buyers….”

    I think it’s after the “FYTW” clause, but I may be mistaken.

    1. Article I, ? 8, when read through special judge glasses, reads, “Congress shall have the power to do whatever the fuck it wants, so there.”

    2. My father was like that. He figured his tax bill was a sign of how well off he was. “The more I pay, the more I make.”

      1. Come to think of it, I would rather be a tax payer than a tax recipient, and I think most other people would be as well. If it were like a lottery, and not related to ability to pay & need to receive, few people would think that way.

  4. I am shocked! Shocked that loans made to people who are favored by progressives aren’t repaid promptly, and that their collateral is insufficient to cover loan balances.

    Seriously, this isn’t news. This is just routine government money squandering.

    1. People who can’t save up the downpayment for a house are going to have financial discipline to make a mortgage payment for 360 consecutive months. I’m totally shocked that the lending institutions wouldn’t give them money without Uncle co-signing the note. Its almost like mortgage companies know their business better than the government.

      1. People who can’t save up the downpayment for a house are going to have financial discipline to make a mortgage payment for 360 consecutive months.

        It’s not clear to me that this is necessarily the case. If the payments on the house are wildly higher than what they were formerly paying for housing, yeah, but not if they’re making a horizontal move from rental housing to similarly priced owner occupied housing.

        1. And yet, the program is $65B off what they predicted to the bad because it correlates strongly enough.

        2. Its possible to save up a downpayment while renting.

          Its pretty easy to do in fact.

          But you have to be willing to live beneath your means (either in the choice of rental location or in what you buy).

        3. If you can’t save for a down payment, that means your rent is about equal to the maximum you can afford to pay right now. Thus you are one small change in life circumstances away from being unable to pay your rent.

          The down payment is a weeding-out mechanism to identify people who are less likely to be able to make the mortgage payments in the long run because prior fiscal habits are a strong indicator of future fiscal habits.

          This isn’t perfectly deterministic, but the correlation is definitely there.

          1. The fact you didn’t save for a down payment doesn’t necessarily mean you couldn’t.

            Suppose it would take you five years to save up the down payment. If ownership provides a better financial deal than renting now, why waste five years paying money to the landlord that could be building equity?

            1. The fact you didn’t save for a down payment doesn’t necessarily mean you couldn’t.

              The only way to demonstrate the ability to do something is to actually do it.

              No lender should be obligated to put hundreds of thousands of dollars on the line without being able to establish some confidence in the borrower’s ability to pay it back.

              A big part of the problem is that rents are inflated because of programs like Section 8 and the difficulty in evicting delinquent tenants. It’s hard to save when you’re subsidizing others.

  5. This government program will save the taxpayers money. Also, the check is in the mail, and I won’t breathe a word to anyone else about what you’ve just told me.

    1. Just the tip.

      1. Just the tip.

        In your mouth.

        As it snakes up from your anus to the back of your throat.

  6. never forget that subprime loans were the rational response to the CRA. would you rather lose $1 million to Barack Obama and ACORN for not making bad loans and have nothing to show for it or would you rather make $1 million in bad loans and have deeds to $1 million in property with recourse and be innoculated against the CRA. One way you lose $1 million and the other way you lose substantially less.

  7. When I bought my condo several years back, I got a fully private mortgage because the property wasn’t eligible for FHA mortgages (there was an outstanding slip and fall lawsuit against the condo association at the time). Three months after the loan was originated it got bought by FHA.

    It seemed bizarre to me that the would be allowed to buy a mortgage that they weren’t allowed to originate.

    1. FHA doesn’t buy or originate loans. They insure lenders against loss for a fee.

  8. How was the guarantee supposed to save billions, even theoretically?

    1. 5 hrs., still no answer, huh? It’s what I was going to ask too.

  9. Just do it man, lets roll with it.

    http://www.Crypt-Tools.tk

  10. At present there are a lot of mortgages for home-buyers and home movers in UK. So customers only need to choose the lender who suits their needs best. On the web you can apply online for short term payday loans which might be helpful and timely. The rates are moderate and the whole deal doesn’t involve much paperwork, which attracts a lot of customers.

  11. It is vital to get governmental benefits when buying a house or at least to choose the most attractive rate when taking a mortgage. Good credit score will help you to get the most attractive interest rate. Besides you can always count on QuickAndEasyLoanService in emergency money issues.

  12. I wish mortgage loans were as easily available in UK as in US. This year UK banks are trying to reduce the risks by increasing the requirements for the borrowers. For example it is very hard to get a mortgage loan if your first deposit is paid by an same day cash loan in UK.

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