LyrArc Article Gist
A lot of the same subprime lenders who had questionable ethical practices and in many cases defrauded homeowners are back in business as FHA guaranteed lenders. The FHA gets to pick up the tab for faulty lending by these brokers and companies. Inside Mortgage Finance, a research newsletter, estimates that over the next 5 years fresh FHA loans that go sour will cost thaxpayers $100 billion more. Risk Mitigation Group, a consultancy, says over the next 12-18 months there is going to be a FHA Insurance Armageddon. Founded in the New Deal years the FHA is supposed to promote first time home purchases by allowing small down payments, as little as 3%, and lenient standards on borrower income , as long as mortgage and related expenses do not exceed 31% of household earnings. Buyers pay a modest fee for the taxpayer backed insurance. Lenders and brokers can get a license to participate in FHA programs by showing industry experience and knowledge of agency rules. BUt experts say the FHA does not have the staff to deal with its expanded responsibilities under the new Bush programs like HOPE for homeowners, and does not have the IT systems to show if the brokers had violations and convictions in the past in their records. Overburdened, lacking the computer systems to track brokers records, and understaffed, the FHA has licensed some of the same brokers who caused the subprime disaster as they applied under different names and as different companies. After the subprime market evaporated in 2007 FHA loans are all thats available for many borrowers. In fact by fall 2008 FHA loans accounted for 26% of all new mortgages issued nationwide, up from only 4% a year earlier. The Bush administration and FHA extended $300 billion in loan guarantees to HOPE. And these brokers who defraud investors with deceptive practices are known to put down even disabled people as employed, and show incomes that are not verified. Once these loans are sold as securities these brokers engaged in deceptive practives have collected their fees and being FHA guaranteed they hold their value as securities, except that the losses as they default are the taxpayers responsibility. This is the $100 billion in losses that Inside Mortgage Finance is warning about. Along the way it leaves a trail of trouble for homeowners, state agencies trying to stem these practices, and taxpayers.