Comments on: Will Subprime Wolves Start Dressing Like FHA Sheep?

By: bigcityloans

bigcityloans — Fri, 21 Sep 2007 18:23:58 +0000

More PR hype…raising the FHA loan limits to $500K will do absolutely zero for the disaster that is subprime. Why? A majority of subprime borrower applications were stated income, stated asset or bank statement loans. FHA is full doc — W2s, paystubs, tax returns and bank statements — which documents the subprime lenders thought that people could not find in their top dresser drawer so they gave away money at 106% LTV to borrowers who will never have the earning power to repay — And as far qualifying full doc for a $500K loan — @ 6.5% the P&I payment would be $3,160. plus taxes, insurance, and MIP… say $3,500.00 a month — the borrower would have to document more than $10 Gs a month to qualify — think about it …. if the subprime borrower earned $120K or more a year then why did they take a subprime loan in the 1st place.
No, the FHA is not going to bail out this mess nor is Fannie or Freddie. Lenders will be stuck with a massive inventory of homes for sale with no buyers … unless they offer huge discounts to people who can actually document their income … what a unique concept.

By: aztrader

aztrader — Wed, 19 Sep 2007 21:24:46 +0000

http://www.telegraph.co.uk/money/main.jhtml?xml=/money/2007/09/19/bcnsaudi119.xml

This article is a good synopsis of what will eventually happen.

By: aztrader

aztrader — Wed, 19 Sep 2007 21:22:33 +0000

This rate cut was a big mistake. The dollar is getting crushed and now we will see several countries quit buying our debt and may move away from the dollar.
The whole housing mess was caused by FRAUD! You had lenders/brokers lying to their borrowers; You had borrowers lying about their income and assets; You had banks, insurance companies and hedge funds lying about the real value of their mortgages.
The robust economy over the past 3-4 years was caused by the cheap money fueling the housing boom. People saw their homes jump in value and started borrowing against them to buy cars and TV’s. Now that the money is gone, the economy must stand on earned income.
This new bill 1852 is another way to force the taxpayers to support the crappy lending practices that caused this whole mess. I can’t believe the complacency of our government.
They are trying to go back to the free money economy with governement guarantees so that it can’t lock up the mortgage market again. What a waste of taxpayers dollars. They are patching the housing bubble with concrete patches. Sooner or later, it will completely unravel and the economy will pay dearly.

By: twist

twist — Wed, 19 Sep 2007 14:47:54 +0000

Tampabay-

I remember reading once that governments tax what they want to discourage and subsidize what they want to encourage. A policy of subsidizing stupidity makes no sense to me.

By: TAMPABAY1

TAMPABAY1 — Wed, 19 Sep 2007 12:53:28 +0000

I just heard this morning that the veto proof bill that passed in the House takes the FHA limit to as high as 730k with 0% down!!! I didn’t see if the income verification requirement had been changed, but it wouldn’t surprise me if it did. This is par for the course, the Fed has done this for decades; bail out banks, businesses and speculators and recoup the bailout money through the hidden tax called inflation. The people who suffer the most are those who are prudent and save their money.

By: twist

twist — Tue, 18 Sep 2007 14:35:40 +0000

Austrian-

Great article.

By: Tobby

Tobby — Tue, 18 Sep 2007 14:22:41 +0000

Doh! Of course FHA loans outperform subprime. FHA still requires documentation and a demonstration of the ability to pay the mortgage! FHA has no teaser rates or resets. The issue is moot unless congress lets FHA make 110-130% LTV mortgages since most of the deadbeat subprimers are upside down in their houses. And unlike mortgage brokers and thier favorite little monkey appraisers that do what they are told FHA has very tight appraisal procedures.

This is a bandaid that will help maybe 10% of the subprimers.

By: AustrianEconomist

AustrianEconomist — Tue, 18 Sep 2007 07:30:35 +0000

Given the explicit Government guarantee an excess supply of FHA loans would “crowd out” investment directed towards “real” Government debt, effectively pushing up interest rates.

http://www.financialsense.com/editorials/kasriel/2007/0824.html sums it up perfectly.