Silicon Investor (SI) -- The First Internet Community

STOCKTALK

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor. We ask that you disable ad blocking while on Silicon Investor in the best interests of our community. If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.

Politics : American Presidential Politics and foreign affairs -- Ignore unavailable to you. Want to Upgrade?

To: sandintoes who wrote (37837)	10/19/2009 6:58:19 PM
From: Peter Dierks	Read Replies (1) \| Respond to of 71588

The Carter era CRA fortified by Barney Frank and friends during the Clinton disaster required banks to make bad loans. During this Chris Dodd, Barney Frank and many other democrats were getting massive perks and benefits from Freddie and or Fanny.

To: sandintoes who wrote (37837)	11/24/2009 10:07:21 AM
From: Peter Dierks	1 Recommendation Read Replies (2) \| Respond to of 71588

Homebuyer Tax Credits Threaten the FHA Funding a down payment with the credit increases the odds the buyer will default. NOVEMBER 24, 2009, 8:58 A.M. ET. By ROBERT C. POZEN A few weeks ago, Obama signed legislation extending an $8,000 tax credit for first-time home buyers. The refundable tax credit, available even if a family has no taxable income, will enable many more buyers to close on a home. But it also could bankrupt the Federal Housing Administration (FHA) and, by doing so, damage an already weak housing market. The tax credit was put in place as part of the stimulus package signed into law earlier this year. Initially, it was available only to first-time buyers with a combined income of $150,000 or less ($75,000 for individuals). Approximately 40% of all first-time buyers used the credit in 2009, so extending it was strongly supported by real estate brokers, home builders and their congressional allies. The extension the president signed makes the credit available to first-time buyers, but also to people who have owned a home for at least five years. In addition, it raises the maximum income for a qualified buyer to $225,000 a year for couples and makes the credit available until mid-2010. (It had been set to expire at the end of this month.) The problem is that the FHA insures mortgages of homes below certain price levels with such a low down payment that it can be funded solely by the refundable tax credit. And, as we've seen in the recent housing crisis, buyers with no skin in the game are more likely than others to default on their mortgages when the value of their home falls below their mortgage balance. Here's how the credit allows buyers to avoid putting their own money at risk. Suppose a couple making $60,000 annually buys a home worth $200,000. They can get an FHA-insured loan if they put down 3.5% of the purchase price, about $7,000. The couple will also need to come up with another $1,000 in closing costs, for a total of $8,000. The couple can either dip into savings or borrow that money from relatives or somewhere else on a temporary basis. After closing, the couple can quickly obtain the $8,000 refundable tax credit to pay off their temporary loan (or replenish their savings). In effect, they will have bought a home without putting any of their own money at risk. Owners who don't sink their own money into a house are much more likely to default on the mortgage. The FHA already is facing a rising number of serious problems on its insured mortgages. Last week the agency reported that its cash reserves dropped to 0.53% of the $685 billion of total loans it insurers. This is well below the 2% federal law requires the FHA to have in reserves. Beyond these reserves, the FHA has roughly $28 billion in a capital surplus fund, established by Congress to absorb losses on insured mortgages over the next 30 years. With the reserves and capital in hand, agency officials believe they have enough cushion to avoid needing a federal bailout. But a recent government audit concluded that the FHA would run out of money in 2011 and need a federal bailout if we have a protracted recession. The deteriorating quality of the FHA's mortgage portfolio is a critical challenge to the housing market and the federal budget. By the end of next year, the FHA's portfolio is projected to rise to $1 trillion. Currently, over 20% of all new home mortgages are insured by the FHA. Meanwhile, the tax credit for first-time home buyers is expected to cost the Treasury approximately $15 billion in 2009—more than twice the projected cost when Congress approved the stimulus package. Some of the cost overrun is due to fraud. At least 19,000 filers who claimed $139 million in tax refunds under this credit did not actually buy a home, according to Treasury officials. In addition, 74,000 filers claiming a total of $500 million in refunds seem to already have owned a home. We all want to help first-time buyers acquire homes and support the depressed U.S. housing market. Without real down payments, however, new homeowners are likely to default on their mortgages, and the FHA will probably need a taxpayer bailout. The Obama administration should increase the requirements to qualify for an FHA-insured mortgage. In addition to the 3.5% down payment, the administration should also require that buyers put down at least half of the tax credit they will receive for buying the home. Mr. Pozen, chairman of MFS Investment Management and senior lecturer at Harvard Business School, is the author of "Too Big to Save? How to Fix the U.S. Financial System" (Wiley, 2009).