Nothing More Serious

The residential mortgage crisis is over right? OK, housing prices haven’t exactly been swinging upwards, and if you can’t buy a house within the limits of those federally-insured programs, chances of getting a mortgage are pretty slim. Hey, let’s hear it for those federally-insured mortgages! Unfortunately, “Houston [and Boston, Los Angeles, Biloxi, Denver and every other region in the United States], we’ve got a problem.”

The Federal Housing Administration has guaranteed 23% of all the mortgages issued in the United States this year (back in 2006, that number was 3%!). “The percentage of FHA-backed loans at least 90 days overdue or in foreclosure was 7.78% for the second quarter, up from 5.43% a year earlier…” September 19^th Los Angeles Times. The FHA is required to maintain cash reserves at a meager 2% of the mortgages that they guarantee a relatively small amount. Well, it seems that the defaults on FHA-guaranteed home loans have been somewhat steeper than planned. Simply, the FHA is running out of money. They really have only two sources of money: you and you! Phrased slightly differently: U.S. taxpayers and homeowners who access the program.

But if rates are raised for FHA home loans, a very sensitive and still teetering home sales market (and the residential values that go with it) will begin to tilt back to “really bad.” Further, if FHA rates go up, you can pretty much bet that home mortgage rates in general will rise. OK, so Congress will just have to write a few billion more in new checks. Yeah, right, more bailouts are really what Congress wants to vote for right now! Or Congress could reduce the reserve requirement and let America guarantee these loans with… er… air?

The September 18^th Washington Post: “‘It's very serious,’ FHA Commissioner David H. Stevens said in an interview. ‘There's nothing more serious that we're addressing right now, outside the housing crisis in general, than this issue.’… The FHA, which is part of the Department of Housing and Urban Development, insures home mortgages against losses, thus helping prospective borrowers obtain loans. It uses the insurance premiums paid by these borrowers to pay for mortgage defaults. Since its creation in 1934, it has never used taxpayer money to cover losses at its flagship home-buying program. But rapidly rising defaults have burned through the agency's reserves, raising the prospect that it would have to take dramatic action.”

How important is the FHA to our struggling economy? Stevens cited in the above Los Angeles Times article: “‘Without FHA, there would be no housing recovery,’ he said, noting that 80% of its business now is new-home buyers.” We all know that this problem will be solved; it is most certainly not the end of the world. Stevens is looking for other answers, notably focusing on mortgage fraud and the underlying lenders’ responsibility for not supervising loans sufficiently to prevent that fraud. But if you look around, maybe you get the same feeling that I do: the United States is a leaky political and economic boat, and although we think we’ve patched and bailed sufficiently, every now and again (okay, a whole lot more often than that), a problem we believe we have fixed comes back because we didn’t really get it right the first time.

TARP loans to those “too big to fail” financial institutions seem to have fallen into a hole where even government experts can’t measure the effect. And while we all thought we “won” the conflict in Afghanistan “way back when,” we seem to be “losing” the conflict in Afghanistan because we pulled our troops out too soon to fight in an irrelevant war in Iraq, pissed off the Afghani countryside, elevated the Taliban in the eyes of the people and now have to return with over a hundred thousand NATO troop and marginal chances of victory.

Populist knee-jerk reactions are giving Congress whiplash as they follow their constituents and their lobbyists blindly; leadership and follow-up seem to be lacking. If an issue falls out of the public spotlight, we seem to have no problem focusing on the “new next” even if it means we never really accomplish what we set out to do in the first place. Time for a change. Yes… er… I hope… er… we can.

I’m Peter Dekom, and I approve this message.