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Is FHA Really Broke? Answer: It’s All About Cash Flow, Baby

NOV 16, 2012 5:59pm ET
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The story of the week in Mortgageland USA was, without a doubt, the FHA Mutual Mortgage Insurance fund. Is it broke? Is it the red as some reporters have mistakenly reported? Actually no. Is the fund in trouble? Answer: Yes. Without rehashing the numbers, it all boils down to this: cash flow. As claims come in, FHA has to pay off on them. The agency’s insurance fund is facing $70 billion in claims on a $1 trillion book of business funded during the years 2007-2009. The $70 billion figure is tied to all the garbage that both bankers and brokers funded/facilitated after the subprime market tanked in 2007. As you might recall, with subprime resources imploding rapidly, lenders funneled all their questionable A- to D loans into the FHA program. The agency (happy for the business, I assume) took in as much as it could, thinking, "Boy this is great." (But it wasn’t great. They got stuck with the dregs.) According to figures compiled by National Mortgage News and the Quarterly Data Report, during subprime’s go-go years, FHA had a market share of 3%. When FHA was the only game in town that share spiked to 25%. And now all the crappy loans insured by the fund during those years have come home to roost. As for the MMI, it has $30.4 billion in cash (so we’re told). The idea of being in the red boils down to this: As claims come in, can the agency pay them off without borrowing from Treasury? Answer: It all depends on how fast those claims get resolved and how fast FHA can bring in new money via premium hikes and new business. If I were a betting man I would wager that FHA somehow squeaks by without tapping Treasury. And how do I derive at this crazy thought? Answer: To avoid the embarrassment of tapping Uncle, it sues a few megalenders that botched up underwriting and gets enough cash to pay the piper…

Lawyers for the megalenders, start your engines…

Former OCC chief Eugene Ludwig to loan brokers: drop dead. According to a recent story by our sister publication, Ludwig–former Comptroller of the Currency under the last president to balance the budget (Bill Clinton)–recently had this to say: “Everything that goes wrong in finance is a bank. The mortgage brokers caused the crisis, but it's the banks" that get blamed. Marc Savitt, president of the National Association of Independent Housing Professionals, start your rebuttal engine…

I assume most of Gene’s big clients are bankers…

Is the private-label MBS market about to see some new jumbo issuers, finally? We all know about Redwood Trust–and now Lew Ranieri’s Shellpoint, but we’re hearing that at least one megabank and one REIT are contemplating jumbo MBS deals. Have any intelligence on this? Drop me a line at: Paul.Muolo@SourceMedia.com...

In case you missed it, the California Association of Realtors doesn’t like, one bit, Fannie Mae’s bulk sale of foreclosed homes in Southern California. It calls the sale to Colony Capital “another gift” to Wall Street. It believes that the area is now facing a shortage of “available housing,” noting that prices are rising rapidly in both the once hard hit Inland Empire area and Los Angeles…

Oh, and CAR, also wants FHFA chief Ed DeMarco fired. Of course Obama can’t fire him. He’s a career civil servant…

WASHINGTON NEWS: The Consumer Financial Protection Bureau late this past week day said it will give residential lenders extra time to provide certain new disclosures required under the Dodd-Frank Act. This pertains to RESPA-TILA and other disclosures.  

TWITTER (MORTGAGE) NEWS: Watch my personal Twitter feed where I provide updates on breaking stories. Just visit Twitter and plug in my name.

MORTGAGE DATA: NMN recently published the 2Q edition of its exclusive Quarterly Data Report product. It includes the nation’s top 100 servicers and top 40 subservicers ("A" paper and subservicers.) To order email Deatra.Todd@SourceMedia.com.  

COMPLAINTS? NEWS LEADS? Send them to Paul.Muolo@SourceMedia.com.

FINAL WORD: For those without heat and power in NY-NJ, hang in there. And I’m sorry about the Jets. At least you have my team, the Giants.

Comments (1)
Thanks Paul for continuing to decipher and share with others your knowledge and your updates on the hot mortgage industry issues. Been following you for a long time. Your articles continue to provide outstanding information which are always well thought out and accurately analyzed with no-nonsense reporting. Thanks for all your efforts and for sharing!!
Posted by sandra n | Saturday, November 17 2012 at 10:31AM ET
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