With recent reports that 20% of mortgages guaranteed by the Federal Housing Administration (FHA) in 2007 and 2008 are defaulting, it appears that the corner of the carpet that things are being swept under might have changed but that the sweeping is still going on. Proof that lessons were not learned is shown by similar default rates for the period of 2005-2006 (20%) when the bubble seemed to have gained its own inertia and was sucking mortgages in instead of having to have them pumped out.
In addition to the losses tied to the eventual defaults on the mortgages it guaranteed, the FHA is also suffering from mortgages it invested in. Write downs on $1.04BN in the value of private-label MBS, the kind not backed by any GSE, resulted in the booking of a $165MM loss on these types of securities by the FHA in 3Q09; a veritable one-two punch that will, once again, have the taxpayer being dragged from the ring.
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Man, am I glad I talked my dad into not buying a house he most likely couldn’t afford, 8 years ago, and I was only 15! Too bad all these sob’s didn’t do the same.
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Dummies should have made sure they could afford houses before buying them. Lenders should have been more analytical is choosing borrowers who really had the capacity to repay loans at whatever the maximum interest rate could be after any teaser rate ended. Fools–all of the players in this drama are fools.
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