October 6, 2008

Did Somebody Say Alt-A? (Yes) And Crackup As In Like A Clown? (No)

"The Federal Housing Administration has grown so large that by the end of the year it will guarantee mortgages for three in 10 U.S. borrowers, many of whom have bad credit or loans that required no verification of income."

"FHA has completely replaced subprime and Alt-A," said [David] Olson, former director of market research at Freddie Mac, the second-biggest mortgage buyer, who now runs Wholesale Access Mortgage Research & Consulting Inc. in Columbia, Maryland. "I hope it's not setting them up for another crackup. There have been so many crackups."

FHA Takes on Subprime, Alt-A Loans Shunned by Private Lenders [Bloomberg]

First Published: October 6, 2008 7:50 AM

Comments from "Plugged In" Readers

we've been predicting this for some time. I'm too lazy to google my own posts on this matter from 1/2 year ago, but FHA was doomed the moment they started "modernizing" it.

A pity really, it was a good program

even worse, when people look back they're going to blame these problems on FHA and Fannie/Freddie, when really the loose lending from these 3 titans mainly occured after the fact to "save" the housing catastrophe that was caused by the commercial and investment banks.

I remember the "good old" days of a few months ago when people applauded offloading all this garbage onto entities that are backed by the Federal Government and the taxpayer

now we as taxpayers will pay up. but the banking execs will still keep their bonuses (they earned them by lobbying the govt to take all the risk and socialize the losses)

Posted by: ex SF-er at October 6, 2008 10:33 AM

For what it's worth....

I just heard an interview with an FHA official on NPR. (I believe the guy's name was Montgomery.) He claimed that the FHA is different from the old subprime+mortgage broker loan generation machines because:

1. The FHA verifies incomes by requiring copies of past tax returns.

2. The FHA mandates conservative income / mortgage payment ratios.

3. The FHA requires a non trivial down payment.

4. The FHA verifies employment history.

Posted by: NotSoEZAl at October 6, 2008 10:01 PM

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