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The New Way the Government Is Poisoning the American Dream

By Shah Gilani, Capital Wave Strategist, Money Morning • @WallStreet_II - August 20, 2014

Private equity shops and institutional players are buying and packaging nonperforming mortgages from the Federal Housing Administration (FHA) and selling those mortgages to mutual funds and themselves.

On the surface, the HUD wants to minimize the cost to taxpayers. That's really nice of HUD and the FHA, thinking about us taxpayers.

But something else is behind this recent action, and it's poisoning the American Dream...

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The New Way the Government Is Poisoning the American Dream

By Shah Gilani, Capital Wave Strategist, Money Morning • @WallStreet_II - August 20, 2014

Private equity shops and institutional players are buying and packaging nonperforming mortgages from the Federal Housing Administration (FHA) and selling those mortgages to mutual funds and themselves.

On the surface, the HUD wants to minimize the cost to taxpayers. That's really nice of HUD and the FHA, thinking about us taxpayers.

But something else is behind this recent action, and it's poisoning the American Dream...

FHA: Potential For Catastrophic Losses Could Lead to a $115 Billion Shortfall

By Gary Gately, Associate Editor, Money Morning - June 12, 2013

Five years after the financial crisis, just about everyone has had to clean up their act.

Consumers have less credit card debt. Banks are stuffed with capital, prodded by the Federal Reserve. Even the federal deficit is shrinking.

But one federal agency seems to have resisted long-overdue change. It's the Federal Housing Administration or FHA.

Findings by a congressional committee, released last week, show the giant government mortgage-insurance agency could face a $115 billion shortfall - at least, if the housing market tanksby 20% again.

The figure is so large the FHA has worked to keep it under wraps for as long it could.

This winter the Fed required the nation's 18 biggest banks to undergo the same sort of "stress test" scenario.

The FHA, though, excluded the results of its stress test from an independent actuarial review released in November - and hoped to release the results later when Congress and reporters weren't paying attention.

In an October e-mail to Integrated Financial Engineering Inc. of Rockville, Md., which conducted the review, an FHA official wrote, "We just do not want that analysis [the stress test results] to be in the actuarial review report."

The e-mail went on to say, "In congressional hearings, it is quite possible that we will be required to present this information on the record, but that will be well after the actuarial review is released and the initial media coverage takes place."

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The FHA Is Just Another Thanksgiving Turkey Whose Time Has Come

By Shah Gilani, Capital Wave Strategist, Money Morning • @WallStreet_II - November 21, 2012

In 2008, when mortgage-backed securities bled rivers of red ink from the slaughtered subprime housing market, Fannie Mae and Freddie Mac rolled over dead in their tracks.

Then, government geniuses scrambled to fix the crisis by pushing forward another sacrificial turkey.

The Federal Housing Administration (FHA), once a New Deal-era agency tasked with helping needy borrowers in rural America get mortgages, became the mortgage market's savior when Fannie and Freddie had to be taken over by Uncle Sam.

Now, four years later--the day before Thanksgiving -- that turkey, the FHA, is clucking for its life.

As it turns out, the FHA is now saddled with over a trillion dollars worth of mortgages it insured for a lot less than prime borrowers, and is itself in need of a bailout.

The biggest question now isn't how much the FHA will cost taxpayers.

It is whether or not a struggling FHA will become another setback for the housing market and the economic recovery.

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How to Fix the U.S. Housing Market

By Shah Gilani, Capital Wave Strategist, Money Morning • @WallStreet_II - June 3, 2011

If this week's economic reports showed us anything, it's the fact that two years into what's supposed to be an economic recovery, the U.S. housing market remains on life support.

But here's what those reports didn't tell you: If the housing market isn't fixed soon, it's going to drag the rest of the economy down into a hellish bottom that will take years, if not decades, to crawl out of.

The housing market is our single-most important generator of gross domestic product (GDP) and, ultimately, national wealth.

It's time we fixed what's broken and implemented new financing and tax strategies to stabilize prices.

Contrary to the naysayers - and in spite of political pandering and procrastination - we can almost immediately execute a simple two-pronged plan to fix mortgage financing and stabilize U.S. housing prices.

I call it a not-so-modest proposal.

The Worst Since the Great Depression

The facts are frightening: We are in a bad place. The plunge in housing prices we've seen during the current downturn is on par with the horrific freefall the U.S. housing market experienced during the Great Depression.

And without an effective plan to arrest the double-dip in housing, there's no bottom in sight.

Hope Now, an alliance of lenders, investors and non-profits formed at the behest of the U.S. Department of the Treasury and the U.S. Department of Housing and Urban Development, counts 3.45 million homes being foreclosed from 2007 through 2010. Current estimates of pending and potential foreclosures range from another 4 million to as many as 14 million.

According to RealtyTrac, a real-estate data provider, the country's biggest banks and mortgage lenders are sitting on 872,000 repossessed homes. If you add in the rest of the nation's banks, lenders and mortgage-servicers, the true number of these REO (real-estate owned) homes is closer to 1.9 million.

These shocking statistics illustrate just how large the current overhang of bank-owned properties actually is (at current sales levels, REO properties would take three years to unload). And they help us to understand how the staggering number of yet to-be-foreclosed, repossessed, and sold homes will depress U.S. housing market prices for years to come.

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Don't Be Fooled by the Housing Market's False Bottom

By Martin Hutchinson, Global Investing Specialist, Money Morning - December 31, 2009

Existing home sales surprised the markets by rising 7.4% to an annual rate of 6.54 million units in November, the highest since February 2007, according to the National Association of Realtors (NAR). That's only 10% below the all-time peak in 2005.

What's more is that house prices, as measured by the S&P/Case-Shiller 20-city Home Price Index, rose for the fourth consecutive month in September before stabilizing in October when prices were flat.

The NAR is inevitably convinced that the worst is over and that housing is due for a rapid recovery, and that home prices will take out 2006's peaks some time in 2011 or 2012.

Not so fast, guys!

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Will Taxpayers Have to Bail Out the FHA?

By Don Miller, Contributing Writer, Money Morning - October 12, 2009

Government officials testifying before Congress on Thursday staunchly denied that the Federal Housing Administration (FHA) is destined to be the next financial institution to require a taxpayer bailout. But at least one critic testified that the agency is about to burn through its cash reserves in the next 24 to 36 months and will require […]

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Special Report: How the Government is Setting Us Up for a Second Subprime Crisis

By Shah Gilani, Capital Wave Strategist, Money Morning • @WallStreet_II - September 23, 2009

[Editor's Note: Shah Gilani, a retired hedge fund manager and noted expert on the global credit crisis, predicted this developing FHA debacle in a July 2008 Money Morning essay.] Is the government creating another subprime-mortgage bubble? The first time around, the three-headed federal serpent – the Bush administration, the Treasury Department and the U.S. Federal […]

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Inside Wall Street: That Ticking Sound You Hear Out in the Mortgage Market is the FHA

By Shah Gilani, Capital Wave Strategist, Money Morning • @WallStreet_II - July 18, 2008

By Shah GilaniContributing Editor The fundamentals of economic strife based on the disastrous collapse of the U.S. housing market will not get better any time soon. In fact, what's being pushed through both houses of Congress, even as you read this, is so dangerous that it should be immediately abandoned and revealed for what it […]

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