It's yet another prime example of "The strong get more while the weak ones slave."
Private equity shops and institutional players are buying and packaging (securitizing) nonperforming mortgages from the Federal Housing Administration (FHA) and selling those mortgages to mutual funds and themselves.
On the surface, the U.S. Department of Housing and Urban Development (HUD) wants to minimize the cost to taxpayers. After all, we have to cover the insurance guarantees the FHA made on loans it backed but are now nonperforming or in foreclosure.
That's really nice of HUD and the FHA, thinking about us taxpayers. Maybe they should have thought about us when they agreed to guarantee payment on loans to less-than-prime borrowers who only have to put down 3% to get their loans.
But, whatever, they're from the government…
The FHA Is Here to "Help"
It's also nice that most of those loans, the FHA-insured ones, get packaged into securities and sold to institutional investors. Because, you know, those institutional investors, the same ones who package FHA loans into securities and sell them to each other and keep piles for themselves, need us to cover their backsides.
It's just the socialization of losses to protect poor wee banks and financial institutions.
The FHA is looking to cut its losses on mortgages it guarantees, right at the time the housing market is supposedly strengthening. And so it's gotten HUD's blessing to sell billions of dollars of loans at $0.70 or $0.60 on the dollar (or less) to some of the same players that bought them in their original packaged form.
Why now? Why is the FHA selling nonperforming mortgages and mortgages on homes in foreclosure to institutional buyers just as the market has bounced and is supposedly strengthening?
Well, here's why all of this is happening right now.
About the Author
Shah Gilani is the Event Trading Specialist for Money Map Press. He provides specific trading recommendations in Capital Wave Forecast, where he predicts gigantic "waves" of money forming and shows you how to play them for the biggest gains. In Short-Side Fortunes, Shah shows the "little guy" how to make massive size gains – sometimes in a single day – by flipping large asset classes like stocks, bonds, commodities, ETFs and more. He also writes our most talked-about publication, Wall Street Insights & Indictments, where he reveals how Wall Street's high-stakes game is really played.