"In the past year alone, the number of borrowers who failed to make more than a single payment before defaulting on FHA-backed mortgages has nearly tripled, far outpacing the agency's overall growth in new loans, according to a Washington Post analysis of federal data."
Many industry experts attribute the jump in these instant defaults to factors that include the weak economy, lax scrutiny of prospective borrowers and most notably, foul play among unscrupulous lenders looking to make a quick buck.
If a loan "is going into default immediately, it clearly suggests impropriety and fraudulent activity," said Kenneth Donohue, the inspector general of the Department of Housing and Urban Development, which includes the FHA. (no schitt Sherlock!)
Once again, thousands of borrowers are getting loans they do not stand a chance of repaying. Only now, unlike in the subprime meltdown, Congress would have to bail out the lenders if the FHA cannot make good on guarantees from its existing reserves. And those once-robust reserves are showing signs of stress, raising the possibility that taxpayers may have to pick up the tab for the first time since the agency was established in 1934.(gee swell, more money the taxpayers are on the hook for. Looks like those down payment assistance programs are working out great! Thanks Barney Frank and friends)
The overall default rate on FHA loans is accelerating rapidly as well but not as dramatically as that of instant defaults.
The agency's share of the mortgage market is up from 2 percent three years ago to nearly a third of the mortgages now made, its highest level in at least two decades, according to Inside Mortgage Finance, an industry trade publication. The FHA does not lend money directly. It provides mortgage insurance for borrowers working with FHA-approved lenders and uses the premiums to cover its losses. If the premiums are not enough, taxpayers could be on the hook.
And we all thought that the lending standards were getting tougher......
3 comments:
Business Week did an article on this about a year ago. Many of the culprits in the sub-prime business were converting to FHA lenders.
I think it was the December 2008 edition of Business Week. Something like "The Subprime Wolves are Back." It's available online for free.
You gotta hand it to the scumbags, they can exploit every flawed program anyone cares to invent to the maximum extent possible.
Three cheers for the death of Moral Hazard.
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