Monday, October 19, 2009

Foreclosure Epidemic Worsens With 1 Million New Filings

NuWire Investor gives us this staggering story about America's housing crisis:

Foreclosure notices were reported on nearly 1-million U.S. residential properties in the third quarter, marking a five percent increase from the second quarter, according to RealtyTrac. One in every 136 residential properties received a foreclosure notice in the last three months.

Some 937,840 properties had foreclosure notice filings. However, notices dropped four percent in September from numbers in August. Ten-million foreclosures are forecast through 2012 by Housing Predictor, and as many as 25-million foreclosures are possible as more homeowners walk away from their properties. "Bank repossessions or REOs jumped 21% from the second quarter to the third quarter," said James Saccacio, CEO of RealtyTrac.
Twenty-five million foreclosures?  Think about that number for a moment.  Folks, this is depression stuff.  Forget about the "jobless recovery" that we're being told about.  How will the country experience any meaningful recovery when unemployment is 10% and rising, and one million homeowners are losing their homes every quarter.  This is a national disaster.

Remember the bailouts of Fannie Mae and Freddie Mac?  $100 billion dollars to stabilize the housing market?  Perhaps it was worth it for the country to learn the lessons of irresponsible lending in the name of expanding home ownership.  But did we really learn anything?  Perhaps not. Today in the Washington Times, Patrice Hill exposes how the Federal Housing Administration (FHA) is taking up the role of the subprime lenders whose risky loans were a major catalyst for this housing bust.  From the article:
Loans insured by the Federal Housing Administration (FHA) have become "the new subprime," and these loans are exposing taxpayers to the same kinds of soaring default rates and losses that brought down Fannie Mae and Freddie Mac as well as destroyed many banks and the private market for mortgage loans.
While private lenders learned a lesson from the mortgage crisis and are shying away from easy-money loans, the FHA has stepped into the breach. The agency has provided backing for 37 percent of all mortgages used to buy homes this year.
 And this:
The significant expansion and liberalization of FHA's loan programs is enabling Americans to go back to many of the same bad credit practices that analysts say were at the root of the housing crisis, likely feeding further waves of default and foreclosure. But this time it is the taxpayer - not the banks - who could end up holding the bag.

Whitney Tilson, manager of investment firm T2 Partners LLC and author of "More Mortgage Meltdown: 6 Ways to Profit in These Bad Times," called "cataclysmic" the surging default rates of more than 30 percent on loans insured since 2006 by the FHA. That is not far below the 40 percent rate of default and foreclosure on the notorious subprime loans that ignited the credit crisis.
"The FHA's portfolio is exploding and the taxpayer is now on the hook for 100 percent of the losses," he said.
Peter J. Wallison, in an opinion piece in the Wall Street Journal , reminds us that most of these defaults were driven directly or indirectly by government policy, not just corporate greed:
When the crisis first arose, the left's explanation was that it was caused by corporate greed, primarily on Wall Street, and by deregulation of the financial system during the Bush administration. The implicit charge was that the financial system was flawed and required broader regulation to keep it out of trouble. As it became clear that there was no financial deregulation during the Bush administration and that the financial crisis was caused by the meltdown of almost 25 million subprime and other nonprime mortgages—almost half of all U.S. mortgages—the narrative changed. The new villains were the unregulated mortgage brokers who allegedly earned enormous fees through a new form of "predatory" lending—by putting unsuspecting home buyers into subprime mortgages when they could have afforded prime mortgages. This idea underlies the Obama administration's proposal for a Consumer Financial Protection Agency. The link to the financial crisis—recently emphasized by President Obama—is that these mortgages would not have been made if regulators had been watching those fly-by-night mortgage brokers.
There was always a problem with this theory. Mortgage brokers had to be able to sell their mortgages to someone. They could only produce what those above them in the distribution chain wanted to buy. In other words, they could only respond to demand, not create it themselves. Who wanted these dicey loans? The data shows that the principal buyers were insured banks, government sponsored enterprises (GSEs) such as Fannie Mae and Freddie Mac, and the FHA—all government agencies or private companies forced to comply with government mandates about mortgage lending. When Fannie and Freddie were finally taken over by the government in 2008, more than 10 million subprime and other weak loans were either on their books or were in mortgage-backed securities they had guaranteed. An additional 4.5 million were guaranteed by the FHA and sold through Ginnie Mae before 2008, and a further 2.5 million loans were made under the rubric of the Community Reinvestment Act (CRA), which required insured banks to provide mortgage credit to home buyers who were at or below 80% of median income. Thus, almost two-thirds of all the bad mortgages in our financial system, many of which are now defaulting at unprecedented rates, were bought by government agencies or required by government regulations.
These loans were forced on lenders by the federal government, spearheaded by the likes of Barney Frank, Christopher Dodd and Maxine Waters.  In his book, The Housing Boom and Bust, Dr. Thomas Sowell gives us a complete accounting of their malfeasance. Here is just a sample:
After accounting errors totaling $11 billion were discovered on the books of Fannie Mae and Freddie Mac, President Bush in 2007 said that these government-sponsored enterprises should complete "a robust reform package" before being allowed to expand their mortgage portfolios.  Senator Dodd said that President Bush should "immediately reconsider his ill-advised" position.  As late as July 2008, after the housing market had collapsed, Senator Dodd continued to defend Fannie Mae and Freddie Mac as being "on a sound footing."  Later events did not deal kindly with this assertion, as both these hybrid enterprises were bailed out to prevent their collapse and were taken over by the federal government.
It is clear to me that the Democrat-controlled Congress will not stop the destruction of our economy until they are forcibly removed from office.  Will American voters wake up in time?

1 comment:

  1. You are right, of course. It will be hard because the Democrat base of power is made up of so many people who understand all this even less than I do, and are perennially on the receiving end of government handouts.

    I count on you to carry the banner.

    Love, Mama