“…Christopher Maloney with Bloomberg News wrote up a piece titled, “FHA Should Impose ‘Cap’ on Riskier Borrowers, NY Fed Says.” “A ‘sustainable’ housing policy would necessitate ‘the FHA impose a cap’ on borrowers’ expected default rates, NY Fed economists W. Scott Frame, Kristopher Gerardi and Joseph Tracy write in a blog post…

…The FHA should determine the cap at time of origination using the credit score, LTV, and economic outlook. Government-insured mortgages ‘are not low-risk loans,’ as their high LTV and low credit scores combine ‘into extremely high default rates.’ The 5-yr cumulative default rates (CDR) during 2000-2011 period varied between 5%-25%; those loans done through Fannie/Freddie showed default rates an ‘order of magnitude lower.’ The 2002 and 2009 vintage GSE loans had 5-yr CDRs of ~2%; same vintage GNMA loans were 10%/13%…..”The housing price collapse starting in 2006 resulted in FHA’s Mutual Mortgage Insurance Fund needing ‘financial assistance from the federal government’ in 2013. There is an ‘important relationship’ between credit scores of borrowers and government mortgage performance; lower credit score loans default at higher rate than higher credit score loans. In terms of FICO, loans with FICO scores <600 are ‘by far the riskiest segment’ with 5-yr CDRs peaking at >40% in 2007. Government-insured mortgages post-crisis peaked at ~35% of total in 2009 (from ~3% in 2000-2005 period) and have been ~20% over last 4 years.””,Excerpt from June 2016 Mortgage Industry Newsletter

“Ah!!! The truth is being revealed by the day. Government mortgages are high risk and their risk caused the FHA insurance fund to become insolvent and seek financial assistance from the U.S. Government during the crisis. It wasn’t mortgage fraud or underwriting errors, it was the inherent risk in the FHA loan program’s low down payment mortgages, to borrowers with subprime FICO scores. Yet the government and its DOJ blamed the mortgage lenders, because it fit the government’s false narrative that greedy and reckless bankers caused the crisis and also allowed them to recover tens of billions in their losses from private banks and mortgage lenders.”, Mike Perry, former Chairman and CEO, IndyMac Bank

Posted on June 28, 2016, in Postings. Bookmark the permalink. Leave a comment.

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