Monday, October 19, 2009

Here we go again!

You have heard it all before, or maybe not, because the media has done a wonderful job of de-emphasizing it. The economic crisis we are in was not caused by “free-market capitalism” or “greed on Wall Street” or (that favorite bogey-man) “eight years of deregulation under George W. Bush”. I wrote about this ad nauseum in previous posts such as Despair and others referred to therein:

We are suffering from the domino effect of a credit crunch created by the government, which encouraged and even coerced banks into irresponsible lending practices to non-credit worthy individuals. And to add insult to injury, the inmates who caused this mess, who brushed off Bush Administration warnings about the impending insolvency of Fannie and Freddie and the toxic assets they were spreading around the financial community, have been put in charge of the asylum.

But even if the perpetrators and perpetuators got away with their irresponsible behavior, you would have thought that the one bright side in this fiasco is that the irresponsible lending to non-credit worthy individuals has finally ended. Well, think again.

According to a Washington Times article I read this morning (Easy Money Still Provided by the Feds), the Federal Housing Administration is picking up where Fannie Mae and Feddie Mac left off.

"I find it hard to distinguish between the actions of FHA and the self-denominated subprime lenders," said Edward Pinto, a former chief credit officer at Fannie Mae who recently testified before a House panel on FHA's growing default problems. "The results are the same - unsustainable loans that prolong and perpetuate our nightmare of foreclosures."
Mr. Pinto estimates that 20 percent of the FHA's entire portfolio of $725 billion mortgages will end up in foreclosure - a rate recently borne out by estimates FHA provided to Congress. He predicts that the agency will require a taxpayer bailout within two to three years.
One reason defaults are soaring is that the agency is attracting nearly all of the business of homebuyers who haven't saved enough to make down payments, he said. Loans with little or no down payments have high rates of default because the borrowers have little financial stake in losing their homes to foreclosure.
Presiding over these hearings was none other than House Financial Services Committee Chairman Barney Frank, the same person who pig-headedly refused to heed similar warnings about Fannie Mae and Freddie Mac. Based on what I read in the article, he doesn't have much of a problem with what FHA is doing, believing that they must extend affordable housing to prop up the housing market.

Words fail me.

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