Oct. 1 (Bloomberg) -- Mortgage borrowers seeking federally backed loans would have to make bigger down payments under legislation introduced today as lawmakers try to shore up the Federal Housing Administration’s insurance fund. Representative Scott Garrett, a New Jersey Republican, is pushing the measure to recoup some of the program’s losses as record-high delinquencies drive FHA’s reserve fund... [more]
Oct. 1 (Bloomberg) -- Mortgage borrowers seeking federally
backed loans would have to make bigger down payments under
legislation introduced today as lawmakers try to shore up the
Federal Housing Administration’s insurance fund.
Representative Scott Garrett, a New Jersey Republican, is
pushing the measure to recoup some of the program’s losses as
record-high delinquencies drive FHA’s reserve fund below 2
percent of loans insured, he said in a statement. The bill would
increase the minimum down payment required for an FHA loan to 5
percent from 3.5 percent.
about 20 percent of all U.S. home loans.
Garrett’s legislation would also prohibit the FHA from
letting borrowers roll their closing costs into the outstanding
balance of the loan, a practice he said can lower down payment
requirements by a full percentage point.
requirements by a full percentage point.
“You’ve got two conflicting public policy goals here,”
Federal Reserve Chairman Ben Bernanke told lawmakers at a
hearing today, referring to the FHA. “On the one hand, it’s
providing support to the housing market and homeownership. On
the other hand, clearly, I think it’s fair to say, given the low
down payments, there’s certainly greater risk of loss there that
would ultimately be borne by the taxpayers.”
Bernanke said it was a “trade-off” Congress needs to
examine.
[less]
Response by sidelinesitter
almost 17 years ago
Posts: 1596
Member since: Mar 2009
It seems that the Spanish have even more ideas about how to prop up financing markets and manipulate housing prices than the Fed. Which is pretty impressive, since the Fed is no slouch at market manipulation.
http://www.bloomberg.com/apps/news?pid=20601109&sid=aXWVn3mlVH4c
The one I like is giving people free cars - in the US we could do that as a combo program of subsidized mortgage rates, effectively no money down (per above, 3.5% or maybe 5% down, after everything that's happened the last two years, are you f'ing kidding me? The folks at the taxpayer funded housing casino are partying like it's 2006) and clunkers. Talk about synergies. They could mortgage our grandchildren's future three times in the same transactin.
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Response by Riversider
almost 17 years ago
Posts: 13573
Member since: Apr 2009
http://online.wsj.com/article/SB120070247843301883.html In his book "Manias, Panics and Crashes," the economic historian Charles Kindleberger describes the stages of financial boom and bust. Students of the good professor will recognize where we now are in the current credit crisis: the panic stage. It isn't a pretty sight, but a crash is far from inevitable if political and economic leaders keep their wits about them and focus on the proper remedies.
Amid the daily market turmoil, and to help prevent a crash, it helps to step back and remember how we got here. With the benefit of hindsight, everyone can see that the U.S. economy built up an enormous credit bubble that has now popped. Our own view -- which we warned about going back to 2003 -- is that this bubble was created principally by a Federal Reserve that kept real interest rates too low for too long.
In doing so the Fed created a subsidy for debt and a commodity price spike. The price spike contributed to "excess savings" in countries with a low propensity to consume and which channeled that money back to the U.S. That capital flow and debt subsidy, in turn, became fuel for smart people in mortgage companies, investment banks and elsewhere to exploit. In a sense they created a new financial system -- subprime loans, SIVs, CDOs, etc. -- that is enormously efficient and brought capital to new places. But thanks to low interest rates and human enthusiasm, this debt spree also got carried away. This was the mania phase.
Thus we were told that rising housing prices were no problem, even as they climbed by 20% or more a year in some markets. Demographics and immigration could explain the boom. Credit spreads narrowed to unheard-of levels, but neither lenders nor investors seemed to mind. The rating agencies added their AAA blessing, and financial CEOs basked in rising earnings from investments they little understood.
The political class now attributes this to greed and fraud, and there is some of that in any mania. But most was the product of creative Americans responding to the incentives for debt that the Fed created. The politicians also enjoyed the boom while it lasted, spending the tax revenues, feasting off Fannie Mae campaign dollars, and celebrating the spread of home ownership. No one wanted it to end, which is why there was so much caterwauling once the Fed did begin to remove the debt-subsidy punch.
This does not mean that this decade's growth has been illusionary, any more than the 2000 bursting of the dot-com bubble means growth in the 1990s was fake. Enormous wealth was created in both periods, new industries have developed, and in the current decade there has been a genuine global boom. The excesses have been based mainly in housing and finance, and that is what now threatens the larger economy.
Enter the panic stage. The desire for debt has turned into a stampede to quality, especially Treasury bills. The same folks who never predicted the economy would recover in 2003 are now cheerleading recession. Any bank writedown or deal to raise capital -- no matter that it is part of the healing process -- is taken as a sign that there is more bad news to come.
Meanwhile, the politicians plot to "stimulate" the economy by dropping dollars from the Capitol dome. We are also told the Fed funds rate must chase the 90-day T-bill rate down to the levels it reached when we had negative real interest rates -- never mind the anemic dollar and soaring commodity prices. The danger now is that this panic becomes a self-fulfilling prophesy and talks us into a crash.
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Response by Riversider
almost 17 years ago
Posts: 13573
Member since: Apr 2009
On a seperate note auto sales came in very low. It's clear all this short term stimulus is just stealing future sales and getting us into debt. And since only so many people need to buy a house, this first time tax credit will play out similarly. In other words, you can't blow up a balloon with a leak in it.. It just doesn't work very well.
It seems that the Spanish have even more ideas about how to prop up financing markets and manipulate housing prices than the Fed. Which is pretty impressive, since the Fed is no slouch at market manipulation.
http://www.bloomberg.com/apps/news?pid=20601109&sid=aXWVn3mlVH4c
The one I like is giving people free cars - in the US we could do that as a combo program of subsidized mortgage rates, effectively no money down (per above, 3.5% or maybe 5% down, after everything that's happened the last two years, are you f'ing kidding me? The folks at the taxpayer funded housing casino are partying like it's 2006) and clunkers. Talk about synergies. They could mortgage our grandchildren's future three times in the same transactin.
http://online.wsj.com/article/SB120070247843301883.html
In his book "Manias, Panics and Crashes," the economic historian Charles Kindleberger describes the stages of financial boom and bust. Students of the good professor will recognize where we now are in the current credit crisis: the panic stage. It isn't a pretty sight, but a crash is far from inevitable if political and economic leaders keep their wits about them and focus on the proper remedies.
Amid the daily market turmoil, and to help prevent a crash, it helps to step back and remember how we got here. With the benefit of hindsight, everyone can see that the U.S. economy built up an enormous credit bubble that has now popped. Our own view -- which we warned about going back to 2003 -- is that this bubble was created principally by a Federal Reserve that kept real interest rates too low for too long.
In doing so the Fed created a subsidy for debt and a commodity price spike. The price spike contributed to "excess savings" in countries with a low propensity to consume and which channeled that money back to the U.S. That capital flow and debt subsidy, in turn, became fuel for smart people in mortgage companies, investment banks and elsewhere to exploit. In a sense they created a new financial system -- subprime loans, SIVs, CDOs, etc. -- that is enormously efficient and brought capital to new places. But thanks to low interest rates and human enthusiasm, this debt spree also got carried away. This was the mania phase.
Thus we were told that rising housing prices were no problem, even as they climbed by 20% or more a year in some markets. Demographics and immigration could explain the boom. Credit spreads narrowed to unheard-of levels, but neither lenders nor investors seemed to mind. The rating agencies added their AAA blessing, and financial CEOs basked in rising earnings from investments they little understood.
The political class now attributes this to greed and fraud, and there is some of that in any mania. But most was the product of creative Americans responding to the incentives for debt that the Fed created. The politicians also enjoyed the boom while it lasted, spending the tax revenues, feasting off Fannie Mae campaign dollars, and celebrating the spread of home ownership. No one wanted it to end, which is why there was so much caterwauling once the Fed did begin to remove the debt-subsidy punch.
This does not mean that this decade's growth has been illusionary, any more than the 2000 bursting of the dot-com bubble means growth in the 1990s was fake. Enormous wealth was created in both periods, new industries have developed, and in the current decade there has been a genuine global boom. The excesses have been based mainly in housing and finance, and that is what now threatens the larger economy.
Enter the panic stage. The desire for debt has turned into a stampede to quality, especially Treasury bills. The same folks who never predicted the economy would recover in 2003 are now cheerleading recession. Any bank writedown or deal to raise capital -- no matter that it is part of the healing process -- is taken as a sign that there is more bad news to come.
Meanwhile, the politicians plot to "stimulate" the economy by dropping dollars from the Capitol dome. We are also told the Fed funds rate must chase the 90-day T-bill rate down to the levels it reached when we had negative real interest rates -- never mind the anemic dollar and soaring commodity prices. The danger now is that this panic becomes a self-fulfilling prophesy and talks us into a crash.
On a seperate note auto sales came in very low. It's clear all this short term stimulus is just stealing future sales and getting us into debt. And since only so many people need to buy a house, this first time tax credit will play out similarly. In other words, you can't blow up a balloon with a leak in it.. It just doesn't work very well.