*deep sigh* Just another day in Rome...
I truly wish those of us who have been warning about this impending mess could get tax exclusions from our wages to be raided for the bailouts that are to come. I do want to make a caveat since I've made the FHA implosion my personal Roubini / Schiff call. Each time a government official denies FHA will need a bailout, I scoff on the blog and say just you wait. Well I found some grave news dear readers about a week ago in some of my readings. The government officials are correct.
Please sit down for this....
When the FHA needs funds from the taxpayer there will be no request to Congress. Because as law is currently written FHA can go directly to Treasury and get the money. Congressional approval is not required - therefore technically, there will be no bailout. Just a movement of shells between one hand and the other.
So all we wait now is the fake surprise and indignity from our politicians, whose policies have taken us here, when this day comes. They will say how could no one see this coming!? how could we keep repeating the same mistakes over and over? Why was no one reading Fund My Mutual Fund blog!? (ok they won't say that last one) .
We'll throw today's comments from Bob Toll onto our warning list... and yes, I've made the list and checked it twice.
- Warning: [May 6, 2009: FHA - The Next Housing Bust]
- Warning: [May 8, 2009: Minyanville - Subprime Lending is Back with a Vengeance]
- Warning: [May 13, 2009: Tax Credit as Mortgage Down Payment Now Official Federal Government Policy]
- Warning: [Jul 6, 2009: WSJ - No Money Down or Negative Equity Top Source of Foreclosures]
- Warning: [Aug 12, 2009: WSJ - The Next Fannie Mae - FHA/Ginnie Mae]
- Warning: [Aug 14, 2009: Ginnie Mae CEO Resigns After 1 Year on the Job]
- Warning [Sep 18, 2009: Washington Post - FHA's Cash Reserves Will Drop Below Requirement]
- Warning [Oct 14, 2009: NYT - FHA Problems Raising Concerns of Policy Makers]
If you are not familiar with Mr. Toll of Toll Brothers (TOL), he is widely considered the best CEO in the public housing market. Much of this seems to be based on his ability to top tick the housing market by exiting much of his stock exposure near the top of the bubble, being granted many more options to replace those during the downturn, and of late furiously selling off his company stock as he did right before the last bust. Now why would we do that as we embark on a housing recovery? Right Mr. Cramer?
Again none of this will be new to regular FMMF readers - since summer 2008 we have said we are just going to repeat the exact same housing situation, except this time we will skip the banks entirely and the bust will go directly onto the government's balance sheet. It is far more efficient to have the government bailout itself than deal with middlemen like banks.
But remember, as long as the stock market goes up, as the best discounting mechanism in the world... all is right in the world. Don't you forget that.
- The Federal Housing Authority, which insures home purchases with as little as 3.5 percent down payments, may create another crisis in the lending industry, Toll Brothers Inc. Chief Executive Officer Robert Toll said.
- “Yesterday’s subprime is today’s FHA,” Toll said today at a New York conference for builders sponsored by UBS AG. “It’s a definite train wreck and the flag will go up in the next couple of months: Bail us out. Give us more money.” Toll Brothers is largest U.S. luxury homes builder..,
That last quote about bail us out is a bit rich coming from a home builder CEO and all the largesse they have received from the taxpayer these past 2 years.
- The FHA’s insurance reserve ratio fell to 0.53 percent, the lowest level in history, and more steps are needed to shore up the agency that guarantees one of every five single family loans, Housing and Urban Development Secretary Shaun Donovan said Nov. 12. The FHA is required by Congress to maintain a loan reserve ratio of at least 2 percent to protect the insurance fund from default.
- The FHA said 456,000 of its loans, or 8.2 percent, were in default as of September. That was up from 5.6 percent in September 2008.
Via WSJ blog
- “And now if you’re doing business at $120,000 and you’re given an $8,000 credit, and you’re only making the guy put down 3.5%, not only does he get the house but he gets some cash to walk away from the settlement table with,” Mr. Toll said.
Which is exactly the point we've been making REPEATEDLY as we pound the table at how evil the $8000 tax credit is, as designed. No skin in the game is the #1 reason people walk away from homes; not being underwater. You now make home ownership easier than renting with this tax credit which the states have turned into a down payment / closing cost replacement. The FHA claims NO that's not true but you can read the details of various state work arounds...this was supposed to be a CREDIT in the first place but desperation took over and it turned into a HANDOUT up front. Therefore no need to have money to actually buy...
- “That’s essentially a no skin-in-the-game person,” says John Burns, president of John Burns Real Estate Consulting.
From this chair, it just feels like waking up each day to be punched in the gut by the stupidest entity on Earth. They only know how to do one thing, and keep repeating it. And tell us it is necessary. I will check the Constitution tonight for every American is entitled to owning a home and all taxpayers must be sacrificed to make it so... must be in an article I missed.
Some days you just want to crawl back into the Matrix.
Disgusted but Numbed