The Next Shoe To Drop

by Sal on September 30, 2009

in Economy,Politics

As we all know, the beginning of last year’s recession was triggered by a series of events, including the failure of two quasi-government agencies, Fannie Mae and Freddy Mac, precipitated by the over-abundance of sub-prime mortgages given to people who had no capability of paying them back.  A year later, it appears that we have not learned our lesson.  A third Government entity, the FHA, is on the verge of collapse:

The agency (FHA) acknowledged this month that a new but still undisclosed HUD audit has found that FHA’s cash reserve fund is rapidly depleting and may drop below its Congressionally mandated 2% of insurance liabilities by the end of the year.  At a 50 to 1 leverage ratio, the FHA will soon have a smaller capital cushion than did investment bank Bear Stearns on the eve of its crash. Its loan delinquency rate (more than 30 days late in payments) is now above 14%, or from two to three times higher than on conventional mortgages. Its cash reserve ratio has fallen by more than two-thirds in three years.

The reason for this financial deterioration is that FHA is underwriting record numbers of high-risk mortgages. Between 2006 and the end of next year, FHA’s insurance portfolio will have expanded to $1 trillion from $410 billion. Today nearly one in four new mortgages carries an FHA guarantee, up from one in 50 in 2006.

Now, it is possible that FHA will not default.  If housing prices suddenly and dramatically rise in several states (e.g. California, Nevada, etc.), then FHA may end up being able to cover its losses!  Yet again, the troubles being experienced by FHA are the outgrowth of unchecked liberalism.  There has been no real housing reform since last year’s disaster, and the government is still making risky loans to those who cannot afford them.  Couple this with the record number of imminent foreclosures, and it becomes obvious to anyone with even a basic understanding of economics that the market is not fixed, it is simply in stand-by until the next collapse.  Obama and the Democrats are doing nothing to fix it because their worldview does not see the problem, and the next collapse will be squarely on their shoulders.

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Karl Rove Sets The Record Straight | Axis of Right
October 3, 2009 at 12:50 pm

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MAS1916 October 1, 2009 at 9:55 am

It will be very, very interesting to see who Democrats blame this time when the bottom falls out or the thing needs a huge cash infusion.

This is why Obama is jetting off to Denmark today. ( http://www.conservativeblog.thewebinfocenter.com/conservative-blog/the-obama-homecoming ) He really needs to get people’s attention away from these reality issues and focused back on Himself.

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