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August 11, 2009
Another sub-prime crisis looms
Rick Moran
If there was ever any proof needed that government is run by a bunch of idiots, this is it.
After bailing out Fannie Mae and Freddie Mac to the tune of almost a trillion dollars, one might think that government had learned its lesson about loaning money to people for houses who either can't afford it or have proven to be bad risks in the past.
Enter Ginnie Mae - the Government National Mortgage Association - whose parent, the FHA, has quadrupled its loan portfolios since 2006. Ginnie has mostly been issuing the same kind of mortgage backed securities to guarantee loans made to bad risks that were made by Fannie Mae.
Very good explanation of this in a Wall Street Journal editorial:
Ginnie's mission is to bundle, guarantee and then sell mortgages insured by the Federal Housing Administration, which is Uncle Sam's home mortgage shop. Ginnie's growth is a by-product of the FHA's spectacular growth. The FHA now insures $560 billion of mortgages-quadruple the amount in 2006. Among the FHA, Ginnie, Fannie and Freddie, nearly nine of every 10 new mortgages in America now carry a federal taxpayer guarantee.
Herein lies the problem. The FHA's standard insurance program today is notoriously lax. It backs low downpayment loans, to buyers who often have below-average to poor credit ratings, and with almost no oversight to protect against fraud. Sound familiar? This is called subprime lending-the same financial roulette that busted Fannie, Freddie and large mortgage houses like Countrywide Financial.
On June 18, HUD's Inspector General issued a scathing report on the FHA's lax insurance practices. It found that the FHA's default rate has grown to 7%, which is about double the level considered safe and sound for lenders, and that 13% of these loans are delinquent by more than 30 days. The FHA's reserve fund was found to have fallen in half, to 3% from 6.4% in 2007-meaning it now has a 33 to 1 leverage ratio, which is into Bear Stearns territory. The IG says the FHA may need a "Congressional appropriation intervention to make up the shortfall."
Don't you just love government nomenclature? "Congressional appropriation intervention" - sounds almost harmless, eh? Except it's a bailout by any other name using our tax dollars to pull bureaucratic chestnuts out of the fire because they were too stupid to learn the lessons from Fannie Mae's downfall.
The description that comes to mind when reading about this is "brainless twits" - a good, old fashioned expression to describe both the intellectual capacity and relative lack of critical thinking skills that obviosly abound in government bureaucrats.
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