Posted 10/6/2009 18:25 (#873528 - in reply to #872198) Subject: Re: Yikes, another cry of fire in a crowded movie theatre
According to the Wall Street Journal, an undisclosed Housing and Urban Development (HUD) audit shows the FHA's cash reserves may fall below its congressionally mandated 2% of insurance liabilities by year's end.
The FHA is levered 50 to 1 – more than Bear Stearns on the eve of its crash. Its loan delinquency rate – more than 30 days past due – is over 14%, around two to three times higher than conventional mortgages. And its cash reserves have fallen by more than two-thirds in three years. The reason is reckless underwriting... From 2006 through the end of next year, the FHA's portfolio will have expanded to $1 trillion from $410 billion. Today, one quarter of all new mortgages carry an FHA guarantee, up from one in 50 in 2006. And between the FHA, the Veterans Administration, Fannie, and Freddie, taxpayers now guarantee 80% of all U.S. mortgages.
According to sources familiar with the HUD report, mortgage default rates are worsening the quickest on the most recent loans. There's no doubt the FHA will fail, costing taxpayers $100 billion or more. And the total losses from all government-guaranteed mortgages will likely exceed $1 trillion. These debts will never actually be repaid, of course – not even by my grandchildren. Instead, these debts will be "monetized" – inflated away. The resulting inflation will destroy the middle class and lower the average standard of living in America. If the government continues to insist on banana-republic financing schemes, it won't be long before we're living in one.