Tag Archives: housing finance

Something’s Not Adding Up Here… Housing Is Back, But FHA Needs a Bailout?

Housing is back! So says the media and Lawrence Yun of NAR.

872,000 new housing starts in September. Prices are up some 11.7% in September. And Lawrence Yun is projecting 15% increase in home values over the next three years.

So… what the hell is going on over at the FHA?

The Federal Housing Agency, which has played a critical role in stabilizing the housing market, said it ended September with $16.3 billion in projected losses — a possible prelude to a taxpayer bailout.

The precarious financial situation could force the FHA, which has been self-funded through mortgage insurance premiums since it was created during the Great Depression, to tap the U.S. Treasury to stay afloat.

The agency said a determination on whether it needs a bailout won’t come until next year.

The FHA is required to maintain enough cash reserves to cover losses on the mortgages it insures. But in its annual actuarial report to Congress, the FHA said a slower-than-anticipated housing market recovery has led its reserves to fall $16.3 billion below anticipated losses.

The FHA’s cash reserves aren’t supposed to drop below 2% of projected losses. They ended the 2012 fiscal year at -1.44%, down from the seriously low level of 0.24% at the end of 2011.

It appears that the FHA, which guarantees mortgages, has a delinquency problem: 11.14% in September. (Although, that’s an improvement from the 11.89% in June, and 12.09% in 2011.) However, the seriously delinquent category (more than 90 days past due) is up year-over-year from 8.39% in 2011 to 8.54% in 2012. After the “housing is back!” market of 2012. Huh?

Since FHA insures some 16% of home purchases (in 2010, that was 19.1%), a crisis at the FHA is gonna be a pretty big problem for real estate brokers.

I’ve pledged to be more positive and upbeat, but there’s an unsettling feeling at the pit of my stomach.

So what do you make of this divergence in narrative? On the one hand, housing is back! And on the other hand, FHA needs a bailout. Right in the middle of a “fiscal cliff” negotiation, after 2012 saw strong gains in housing market. What the…

Paging economists! Dr. Yun, please call the front desk.



Concerning QE3, A Few Thoughts…


I am not an economist, and I don’t play one on TV, and I didn’t stay at a Holiday Inn Express last night… but I kinda look like one. Plus, Seth Price of Placester isn’t an economist either as far as I know, although he’s a good friend who is not only brilliant but good looking to boot. So I figure, I’m gonna have some fun with a blogpost one of his guys (Colin Ryan, who also doesn’t appear to be an economist) recently wrote on the Placester blog (BTW, Placester is our web designer for HearItDirect). Think of it as sending them linklove with some fun economic/politics debates.

Colin thinks that QE3 — the plan by the Federal Reserve to buy $40B worth of mortgage bonds every month for the foreseeable future — is a wonderful thing for the housing market. He writes:

[I]f we’ve learned anything from all the measures the Fed and the government have taken to mitigate this recession, it’s that recovery will come not immediately, but gradually. As far as that goes, the Fed’s plans come with promises to extend near-zero interest rates well into 2015 and continue buying bonds aggressively until recovery is “well established.”

These promises say two important things to consumers. First, the kinds of assets that caused the housing collapse in the first place, long labeled toxic, are safe again. Indeed, by buying mortgage-backed securities the Fed—an authority when it comes to risk—is suggesting that they’re not only safe, but valuable.

Second, by committing to the long haul, the Fed is providing a safety net that will encourage optimism, coaxing consumers out of hiding. “Go ahead,” the Fed is saying, “buy/sell/build that home. We’ll be here to support you.”

So, in the short-term, this buying-up-of-bonds won’t necessarily have an effect on housing, but in the long run, Colin believes that the Fed will stimulate the housing market.

Where to begin… Well, let’s begin at the beginning.

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Be Wary of the False Spring in Real Estate

Shiny happy people!

Real estate people are some of the most optimistic people I know. They have to be in order to work a business in which they don’t make a penny without a transaction getting done, and the driving motivation for the consumer is a dream: The American Dream, the Dream of Homeownership, Your Dream Home. Real estate, to some extent, is about dreams, hopes, and visions of white picket fences, kids playing in the backyard, and tasteful interior design reflecting your success in life.

So I generally do not fault real estate agents when they put forth honest opinions that perhaps we have finally hit bottom in this historically ugly housing crash. They’re not being disingenuous; they’re simply optimists.

At the same time, in the current market/environment, I believe a professional has to caveat every positive and be extremely wary of false signals. We’ve already had one false signal when the First Time Homebuyer Tax Credit artificially shifted demand forward, thereby leading some people to claim we’d seen the bottom of the market. Of course, when all that demand dried up, the housing market continued its downward slide.

Jim Walberg, and Ira Serkes, both exemplary professionals with years and years of experience, who know their local markets, and analyze the sales data personally, recently suggested that some markets are turning around. And yes, since every market is different, every market is local, you should call your REALTOR for more information or whatever it is that the NAR commercial says. So please don’t bother commenting/protesting that trends don’t mean anything in your particular local market: I know.

Nonetheless, any reasoned analysis of calling the bottom has to take at least the following factors into account, at the very least as a risk.

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Updating the Renter Nation Prediction

This man was a candidate for the governor of New York

The Wall Street Journal carried a story today on its front page entitled, “Banks Push Home Buyers to Put Down More Cash“. The key paragraph:

The median down payment in nine major U.S. cities rose to 22% last year on properties purchased through conventional mortgages, according to an analysis for The Wall Street Journal by real-estate portal Zillow.com. That percentage doubled in three years and represents the highest median down payment since the data were first tracked in 1997.

Last year, I predicted the end of the Homeownership Society as the result of a change in Federal housing policy. This news story confirms the trend that will sharply accelerate once some of the policy battles are fought and decided. I am working on a full report, but my initial impressions are as follows:

  1. The Federal support for residential mortgages will sunset. The remaining issue is one of timing and degree, not of the actual withdrawal.
  2. Private capital for residential mortgages will be more expensive (higher rates) and harder to get (higher down payment).
  3. Rentals will be the mainstay of Federal focus in the near future.

Consequences to the real estate industry are likely to be significant, although it is difficult to foresee all of the possibilities.

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