Comments on: FHA Repudiates Housing Rescue Bill

By: Yves Smith

Yves Smith — Wed, 11 Jun 2008 00:19:00 +0000

Anon of 8:12 PM,

I have read that as well, but didn’t want to put it in the post without having a source…..

By: Anonymous

Anonymous — Wed, 11 Jun 2008 00:12:00 +0000

I read recently somewhere that the Depression-era HOLC refinanced mortgages that were 40 to 50 percent down payment (standard for that time), and thus were MUCH lower risk than anything being proposed today. This fact, if correct, is studiously ignored by the DC pols and housing interests.

By: jkiss

jkiss — Tue, 10 Jun 2008 18:37:00 +0000

eric
while it is surprising to me, fha’s own data shows that seller financed 3% down loans default at 3x the rate of real 3% down loans. 3x is a big deal.

jm
the difference in actual payment between a 30 year loan and a 90 year loan is very little – even the thirty year loan payment is almost entirely interest, very little principal. THere was, of course, an enormous difference between a loan amortized over 5 years vs. 30.

By: jm

jm — Tue, 10 Jun 2008 13:36:00 +0000

It was successful and turned a profit, but the key to its success cannot be replicated today.

You need to be more imaginative. In the '30s they extended the mortgage term from 5 to 30 years; using the same concept, if we extend it to 90 years, and have the Fed commit to keeping the interest rate at, say, 2% (quite consistent with Bernanke's famous helicopter speech, and the willingness to take whatever needs to be taken onto the Fed's balance sheet), monthly payments will come down to sustainable levels, and market prices will be able to rise back to bubble-peak levels. It won't matter that no one will ever pay such a mortgage off -- according to my mortgage broker friend, nowadays sophisticated buyers look upon home ownership as "renting from the bank with an income tax deduction", and don't plan ever to pay off.

The 90-year term will have the added advantage that throughout the homeower's life the principal will hardly even be dented, effectively making the entire payment tax-deductible interest.

Continuing to think out of the box, if we were to make mortgage interest and real estate taxes a tax-credit item instead of a deduction, we would greatly expand the number of people willing and able to pay $500k for a 3-br, 2-1/2 bath home.

And this wouldn't have to be funded byUS taxpayers -- if we were to stop pestering the Chinese government about upvaluing the renminbi, and instead greatly expand our imports, China could easily afford to buy all the securities issued to fund this. And they could all be backed by the full faith and credit of the US government.

Problem solved.

By: Erik

Erik — Tue, 10 Jun 2008 11:19:00 +0000

Here's a hint, if a seller gives me money for a down payment, that is the same as 0 down.

It's not my money being risked! Hello! That is an integral part of the down payment, that the buyer has significant exposure so they won't default.

If the FHA thinks a paltry 3% seller assisted DP will make a borrower think twice about defaulting, I have some air to sell them.

And, a seller assisted DP is not a value boost for prices either. If Chrysler gives rebates on their cars then resale values get punished more than they would have been without the assistance. Same with housing. If I get 3% free assistance then my cost basis is 3% lower.

But, none of this applies to the real world for the FHA.