Uh oh. FHA negative reserves…Say it ain’t so!

[livinincali]

[quote=dumbrenter]
So from above, the deleveraging process actually evens out the wealth field rather than concentrating it.

Maybe unless the rich get the government to buy the devalued asset and make them whole and stick the difference to the tax payers who are mostly poor. But that would never happen in a democracy, right? :-)[/quote]

Exactly. The reality is we’re aren’t actually deleveraging. If you look at the fed Z1 for total debt you see it slightly increasing with the government deficits replacing any deleveraging in the financial sector. Any deleveraging in the consumer space (i.e. mortgages and car loans) is being replaced by student loan debt. In the great depression we actually deleveraged the debt to a manageable level. In Japan they haven’t deleveraged from 1990. So while it might be possible to carry on like Japan for the next 20 years and avoid the deleveraging process, we aren’t going to see any significant asset price increases assuming nobody does anything stupid to cause hyper inflation.

[no_such_reality]

“The FHA is required to maintain enough cash reserves to cover losses on the mortgages it insures. But in its annual actuarial report to Congress, the agency said a slower-than-anticipated housing market recovery has led its reserves to fall $16.3 billion below anticipated losses.

The FHA’s cash reserves aren’t supposed to drop below 2% of projected losses. They ended the 2012 fiscal year at -1.44%, down from the seriously low level of 0.24% at the end of 2011.”

So $16.3 billion in represents 1.68% of anticipated loses? That would mean anticipated losses are basically $1 Trillion.

“SAN FRANCISCO (MarketWatch) — The Federal Housing Administration has exhausted its capital reserves and is currently running at a deficit of $13.5 billion, The Wall Street Journal reported late Thursday, citing an independent audit. The FHA, which is expected to release the audit on Friday, is the arm of the Department of Housing and Urban Development that insures home mortgages. The audit is expected to show the FHA’s reserves were not enough to cover losses on $1.1 trillion in guaranteed loans, and that the agency will need taxpayer funding for the first time in 78 years, according to the Journal.”

Is that poor writing? Between the two of them do we conclude they’re hold a trillion dollars of loans that are bad?

[livinincali]

[quote=no_such_reality]“The FHA is required to maintain enough cash reserves to cover losses on the mortgages it insures. But in its annual actuarial report to Congress, the agency said a slower-than-anticipated housing market recovery has led its reserves to fall $16.3 billion below anticipated losses.

The FHA’s cash reserves aren’t supposed to drop below 2% of projected losses. They ended the 2012 fiscal year at -1.44%, down from the seriously low level of 0.24% at the end of 2011.”

So $16.3 billion in represents 1.68% of anticipated loses? That would mean anticipated losses are basically $1 Trillion.

“SAN FRANCISCO (MarketWatch) — The Federal Housing Administration has exhausted its capital reserves and is currently running at a deficit of $13.5 billion, The Wall Street Journal reported late Thursday, citing an independent audit. The FHA, which is expected to release the audit on Friday, is the arm of the Department of Housing and Urban Development that insures home mortgages. The audit is expected to show the FHA’s reserves were not enough to cover losses on $1.1 trillion in guaranteed loans, and that the agency will need taxpayer funding for the first time in 78 years, according to the Journal.”

Is that poor writing? Between the two of them do we conclude they’re hold a trillion dollars of loans that are bad?[/quote]

From a slightly different perspective the FHA has a default rate of about 9-10% right now. If the FHA has 1 trillion in guaranteed loans, then you’re probably looking at 100 billion in potential losses. The odd thing about FHA defaults is we should see those in default foreclosed through HUD but there’s nothing coming out of HUD. Is the government just going to let people squat without paying and artificially reduce inventory? You bet. Good luck seeing any foreclosure inventory in the future. The government/FHA controls whether or not it will happen directly.

[CA renter]

[quote=livinincali]

From a slightly different perspective the FHA has a default rate of about 9-10% right now. If the FHA has 1 trillion in guaranteed loans, then you’re probably looking at 100 billion in potential losses. The odd thing about FHA defaults is we should see those in default foreclosed through HUD but there’s nothing coming out of HUD. Is the government just going to let people squat without paying and artificially reduce inventory? You bet. Good luck seeing any foreclosure inventory in the future. The government/FHA controls whether or not it will happen directly.[/quote]

Just interesting anecdotal stuff, but we’re creditors in a BK proceeding (fighting the BK), so I’ve been spending quite a bit of time listening to a lot of cases. You’d be surprised (or not) at how many times the BK trustee asks about the status of the debtors’ mortgages, and how many people haven’t paid in **years** (IIRC, the longest was five years) and have yet to be foreclosed on. In some cases, they are claiming to not have received default notices!

[no_such_reality]

Yea, imagine, you didn’t have to pay rent or a mortgage for a year, or two or more… and you’re still going BK.

[CA renter]

[quote=no_such_reality]Yea, imagine, you didn’t have to pay rent or a mortgage for a year, or two or more… and you’re still going BK.[/quote]

While much of what I’ve seen in BK court is despicable (people going on European vacations, more cars than people in the family, etc.), I’ve also tried to help a few friends who’ve found themselves on the other side of that. I’ve personally gone through their finances, and they are tapped out long before they get to making house payments.

After food (incredible cost inflation!), health insurance (more incredible cost inflation!), transportation expenses, utilities, childcare expenses, etc., they are out of money.

[CA renter]

[quote=dumbrenter][quote=livinincali][quote=dumbrenter]
That’s a pretty good explanation of wealth backed by debt, livinincali.
But if there is a debtor, there needs to be the counter-party creditor.
In this situation, who is the creditor? folks who buy the treasury bonds?
Is it the banks? The FED? Treasury? Foreign governments that peg their currency to dollar?

How are they going to react once they find out that there is very little for them to claim in terms of what they lent against (i.e. assets)?[/quote]

The creditor is the big banks, pension funds, the growing wealth gap between rich and poor. As the American populace has taken on increasing amounts of debt to buy things they want now rather then waiting they made the rich people wealthy. They are responsible for the large wealth gap in this country.

In all honesty I think this is just the natural state of affairs based on the demographics. People are growing older and are desperate to acquire assets to be sold to finance consumption in retirement. The need for somebody to owe you in retirement has lead to the loose money policies. People nearing retirement are desperate to claim part of a future workers productivity.[/quote]

How can a creditor be a “wealth gap between rich and poor”? Shouldn’t the rich become poorer because of loss of wealth.
Let me see if this makes sense:
Poor need “things” right now.
Rich have Money.
Rich loan money to poor buy “things”
Poor default
Rich are left holding a highly devalued asset as a repo.
Poor are exactly where they began other than losing FICO score.
Rich have lost wealth (in real terms).

So from above, the deleveraging process actually evens out the wealth field rather than concentrating it.

Maybe unless the rich get the government to buy the devalued asset and make them whole and stick the difference to the tax payers who are mostly poor. But that would never happen in a democracy, right? :-)[/quote]

DR,

You are right about the eventual conclusion IF we allowed all the defaults to happen. This is why we’re seeing all of the interventions. As you noted, this is why we’ve racked up all of this govt debt. It’s not for the poor people that they’ve initiated all the foreclosure moratoriums, bank bailouts, unemployment insurance extensions (so the debtors can pay off more of their debts), etc.; we’re deeper in debt because they are trying to protect the asset prices of the rich…in order to maintain the wealth gap. Now, they are trying to deflect blame by claiming that workers are somehow responsible for these debts.

While I agree that debtors are indeed responsible for part of this wealth gap as livinincali mentioned, that’s just part of the story. What caused everyone to go into debt is the loss of decent, middle-class jobs in the U.S. that resulted from outsourcing jobs (and bringing in cheap/illegal labor). Americans were trying to maintain their former standard of living, since they were often told that the “downturns” would be temporary, so they started using credit instead of savings for consumption.

Globalization is the leading cause of the wealth gap, and this benefited the rich as their profits increased as a result, and the workers saw their wages decline/stagnate over decades.

Tax policies that favored investment income over labor then finished the job. The rich were then able to accelerate the accumulation of wealth since investment income is taxed at such a low rate. Their wealth compounded at an incredible rate because the tax savings enabled them to use that money to make even more money, which was taxed at a lower rate, and on and on it went.

Joe Sixpack, the worker, never stood a chance.

[bearishgurl]

[quote=CA renter][quote=livinincali]

From a slightly different perspective the FHA has a default rate of about 9-10% right now. If the FHA has 1 trillion in guaranteed loans, then you’re probably looking at 100 billion in potential losses. The odd thing about FHA defaults is we should see those in default foreclosed through HUD but there’s nothing coming out of HUD. Is the government just going to let people squat without paying and artificially reduce inventory? You bet. Good luck seeing any foreclosure inventory in the future. The government/FHA controls whether or not it will happen directly.[/quote]

Just interesting anecdotal stuff, but we’re creditors in a BK proceeding (fighting the BK), so I’ve been spending quite a bit of time listening to a lot of cases. You’d be surprised (or not) at how many times the BK trustee asks about the status of the debtors’ mortgages, and how many people haven’t paid in **years** (IIRC, the longest was five years) and have yet to be foreclosed on. In some cases, they are claiming to not have received default notices![/quote]

Yes, CAR, it’s mighty interesting in there . . . ESP the motion hgs. The debtor individuals and couples who come into court are often wearing paint-splattered clothes and torn up work boots or look like they stepped straight out of a Goodwill bin. Then you leave after them and follow them to the parking meters where they enter their late-model Bimmer and take off. You know . . . the one that they have petitioned to “reaffirm.” :=0

[CA renter]

Tell me about it, BG. The debtors we’re fighting drive much newer, fancier cars than we do. One is an Audi. 🙁

[bearishgurl]

[quote=CA renter]Tell me about it, BG. The debtors we’re fighting drive much newer, fancier cars than we do. One is an Audi. :([/quote]

What galls me is the appointed trustees for both Chapter 7 and Chapter 13 debtors are so overwhelmed with debtor “clients” that they have to ask the debtors in court stupid questions such as “What is the status of your mortgage(s).” Since Notices of Default and Notices of Sale are public record, they should only ask that question if there is no public record and also no public record of cash-out refi, 2nd TDs and 3rd TD’s, etc. If there is clear evidence of a debtor’s cash out and HELOCing, they need to put these debtors on the spot and ask pointed questions of the debtor while they have them (and the judge) in the same room. The majority of these individual debtors don’t have attorneys and have just filed their own BK or had a paralegal service do it.

[paramount]

U.S. heading for another crash, debt crisis looms: top economists

Bair, who stepped down as head of the FDIC in July 2011, said she believed the United States was heading for a financial crash on the scale seen when the housing market collapsed.

[CA renter]

Paramount,

This shouldn’t be a surprise to anyone who’s been paying attention for the past 10+ years. They’ve pushed the credit bubble well beyond any kind of sustainable limit, and once it started to collapse in 2007/2008…they piled on more debt! Stupid, stupid, stupid.

[scaredyclassic]

someone said…

This is why we have to make this count and screw up big time. There will be no second chance to screw up again.[/quote]

this seems to be the plan.

[dumbrenter]

[quote=CA renter][quote=dumbrenter][quote=livinincali][quote=dumbrenter]
That’s a pretty good explanation of wealth backed by debt, livinincali.
But if there is a debtor, there needs to be the counter-party creditor.
In this situation, who is the creditor? folks who buy the treasury bonds?
Is it the banks? The FED? Treasury? Foreign governments that peg their currency to dollar?

How are they going to react once they find out that there is very little for them to claim in terms of what they lent against (i.e. assets)?[/quote]

The creditor is the big banks, pension funds, the growing wealth gap between rich and poor. As the American populace has taken on increasing amounts of debt to buy things they want now rather then waiting they made the rich people wealthy. They are responsible for the large wealth gap in this country.

In all honesty I think this is just the natural state of affairs based on the demographics. People are growing older and are desperate to acquire assets to be sold to finance consumption in retirement. The need for somebody to owe you in retirement has lead to the loose money policies. People nearing retirement are desperate to claim part of a future workers productivity.[/quote]

How can a creditor be a “wealth gap between rich and poor”? Shouldn’t the rich become poorer because of loss of wealth.
Let me see if this makes sense:
Poor need “things” right now.
Rich have Money.
Rich loan money to poor buy “things”
Poor default
Rich are left holding a highly devalued asset as a repo.
Poor are exactly where they began other than losing FICO score.
Rich have lost wealth (in real terms).

So from above, the deleveraging process actually evens out the wealth field rather than concentrating it.

Maybe unless the rich get the government to buy the devalued asset and make them whole and stick the difference to the tax payers who are mostly poor. But that would never happen in a democracy, right? :-)[/quote]

DR,

You are right about the eventual conclusion IF we allowed all the defaults to happen. This is why we’re seeing all of the interventions. As you noted, this is why we’ve racked up all of this govt debt. It’s not for the poor people that they’ve initiated all the foreclosure moratoriums, bank bailouts, unemployment insurance extensions (so the debtors can pay off more of their debts), etc.; we’re deeper in debt because they are trying to protect the asset prices of the rich…in order to maintain the wealth gap. Now, they are trying to deflect blame by claiming that workers are somehow responsible for these debts.

While I agree that debtors are indeed responsible for part of this wealth gap as livinincali mentioned, that’s just part of the story. What caused everyone to go into debt is the loss of decent, middle-class jobs in the U.S. that resulted from outsourcing jobs (and bringing in cheap/illegal labor). Americans were trying to maintain their former standard of living, since they were often told that the “downturns” would be temporary, so they started using credit instead of savings for consumption.

Globalization is the leading cause of the wealth gap, and this benefited the rich as their profits increased as a result, and the workers saw their wages decline/stagnate over decades.

Tax policies that favored investment income over labor then finished the job. The rich were then able to accelerate the accumulation of wealth since investment income is taxed at such a low rate. Their wealth compounded at an incredible rate because the tax savings enabled them to use that money to make even more money, which was taxed at a lower rate, and on and on it went.

Joe Sixpack, the worker, never stood a chance.[/quote]

CAR,
I fail to see the relationship between asset prices and unemployment insurance extensions. For you everything seems to be about unions and globalization.
If the asset prices are maintained for the rich, then you the poor unions/middle class can force their hands by reverting to simple living, not buying their stuff and maybe not even paying taxes. Paying taxes can be avoided if poor simply barter goods/services with each other.
If the union folks and middle class default things and default big time, the asset prices are bound to fall. However, they will never get that next ipad or the smart phone on credit.

But going back to my original question, the drop in asset prices will affect the rich most. The unions and middle class had nothing to begin with other than being sold some “dreams” and “told” about things.
The question is: how will the creditors react when they find out they have lost a chunk of their asset values and very little to claim against it?

[dumbrenter]

[quote=squat250]someone said…

This is why we have to make this count and screw up big time. There will be no second chance to screw up again.[/quote]

this seems to be the plan.[/quote]

that would be yours truly.
A corollary to that would be that each screw up has to be bigger than last time. Repeat screw up at smaller scale would not be helpful at all.
What this means is that the magnitude of next screw up after housing bubble has to eclipse the housing bubble in scale.

[Author]

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