Go get some charts on the default rates for FHA & VA over time. They were never even close to what we are seeing now and have seen since 2008 for fannie, freddie, and Wall Street loans. Even in the 1980’s, never even close. I just saw a very good chart on this at a Bruce Norris seminar the other day. Nor will they be this time.
b/c FHA is taking on a much larger % of the total loan volume in the U.S. (b/c there is NO private label mortgage market in existence right now) their total # of foreclosures will increase. But the ***percentage*** of those loans defaulting will never be close to what we are seeing today.
Yes fannie/freddie now have a high defualt rate b/c of the housing collapse. But the prices were driven up more by the “kryptonite” loans created by Wall Street 2002-2007. Wall Street did pretty much all the really scary subprime 2 and 3 year fixed exploding ARM’s, ALL of the option arms, and they were much more aggressive with stated IO ARM’s with zero down. Fannie and Freddie were late to the exotic loan stuff and their exotic stuff was not nearly as aggressive. The super toxic stuff from Wall Street was what really drove the market “vertical” in 2003 to early 2007. Those were the first loans to default in 2008 and bring down the market. If you notice most of the REO’s on the market in 2008/2009 were not Fannie owned…now much more REO’s are fannie owned b/c the prime loans are defaulting now that prices collapsed. If we did not have the Wall Street kryptonite loans, we would never had seen prices go even close to where they went at the peak. There were almost NO FHA or VA loans done in CA from 2002-2007.
A lot of people have a huge misunderstanding that fannie/freddie is primarily to blame, when it was the private label “kryptonite loans” from Wall Street that really caused the most damage & put house price increases on steriods from 2003-2007. Fannie/Freddie NEVER did ONE option ARM ever…those were 100% Wall Street products securitized by Credit Suisse, Morgan Stanley, Merrill Lynch, JP Morgan and Goldman Sachs (GS who also made huge bets with credit default swaps that their OWN LOANS they securitized & sold off would go bad… AND paid a half a billion settlement with the SEC b/c of that!).
