Thought subprime mortgage lending had finished?

tricki1

The Wall St Journal has come out with a report on the activities of the Government National Mortgage Association (Ginnie Mae)

Only last week, Ginnie announced that it issued a monthly record of $43 billion in mortgage-backed securities in June. Ginnie Mae President Joseph Murin sounded almost giddy as he cheered this “phenomenal growth.” Ginnie Mae’s mortgage exposure is expected to top $1 trillion by the end of next year—or far more than double the dollar amount of 2007.

Ginnie Mae's job is to bundle and guarantee mortgages insured by the Federal Housing Administration (FHA) which is owned by the US Govenment, and which has been recently criticised for extremely lax lending practices.

It backs low down payment loans, to buyers who often have below-average to poor credit ratings, and with almost no oversight to protect against fraud...On June 18, HUD’s Inspector General issued a scathing report on the FHA’s lax insurance practices. It found that the FHA’s default rate has grown to 7%, which is about double the level considered safe and sound for lenders, and that 13% of these loans are delinquent by more than 30 days. The FHA’s reserve fund was found to have fallen in half, to 3% from 6.4% in 2007—meaning it now has a 33 to 1 leverage ratio.

The FHA now insures $680 billion of mortgages, estimated to top $1 trillion in 2010, with the normal down payment requirement 3.5%. Other policies—such as allowing the buyer to finance closing costs and use the homebuyer tax credit to cover costs—can drive the down payment to below 2%.

Then there is the booming refinancing program that Congress has approved to move into the FHA hundreds of thousands of borrowers who can’t pay their mortgage, including many with subprime and other exotic loans. HUD just announced that starting this week the FHA will refinance troubled mortgages by reducing up to 30% of the principal under the Home Affordable Modification Program. This program is intended to reduce foreclosures, but someone has to pick up the multibillion-dollar cost of the 30% loan forgiveness. That will be taxpayers.
In some cases, these owners are so overdue in their payments, and housing prices have fallen so dramatically, that the borrowers have a negative 25% equity in the home and they are still eligible for an FHA refi. We also know from other government and private loan modification programs that a borrower who has defaulted on the mortgage once is at very high risk (25%-50%) of defaulting again.



The more things change the more they stay the same....

Incidently I found this response by Karl Denninger to the article which is similar to that of those of us that hoped (even if we knew it was in vein) that this bloody financial mess might actually get something done about all the rampant fraud and stupid financial practices.

The Denninger article is quite a rant, so avoid if you are allergic to lots of large black text, caps lock abuse and exclamation marks