T Nation

So Called Recovery Real or Gov't Smoke and Mirrors

Clipped from zero hedge. I had a conversation about this with a couple of real estate and development buddies. Seems to confirm out group thought.

Guest Post: The FHA Is Blowing Up: Bad News For The Housing Market
Submitted by Tyler Durden on 11/15/2012 14:02 -0500

Fannie Mae Freddie Mac Guest Post Housing Market Wall Street Journal

Submitted by Mike Krieger of Liberty Blitzkrieg blog,

A very important article came out from the Wall Street Journal yesterday titled â??FHA Nears Need for Taxpayer Funds,â?? and it outlines the serious financial problems facing the Federal Housing Administration. For those that are unaware or need a refresher, the FHA has been the key element to the phony â??housing recoveryâ?? the government has been trying to create. In the wake of the collapse of 2008, Fannie Mae and Freddie Mac blew up and what was left to pick up the pieces was the FHA. No private player would issue loans with down payments of 3%, but this was no problem for the FHA!

Interestingly enough, a lot of the subprime borrowers that blew up the housing market the last time became the primary customers of the FHA. Letâ??s see, 3% down and subprime borrowersâ?¦what could possibly go wrong?! From the WSJ:

The Federal Housing Administration is expected to report this week it could exhaust its reserves because of rising mortgage delinquencies, according to people familiar with the agencyâ??s finances, a development that could result in the agency needing to draw on taxpayer funding for the first time in its 78-year history.

Together with Fannie and Freddie, federal agencies are backing nearly nine in 10 new mortgages.

The FHA accounted for one third of loans used to purchase homes last year among owner occupants.

Though the agency guarantees fewer mortgages than either Fannie or Freddie, it now has more seriously delinquent loans than either of the mortgage-finance giants. Overall, the FHA insured nearly 739,000 loans that were 90 days or more past due or in foreclosure at the end of September, an increase of more than 100,000 loans from a year ago. That represents about 9.6% of its $1.08 trillion in mortgages guaranteed.
This is a big deal.

The FHA is already in trouble despite a miraculous â??housing recoveryâ?? and we havenâ??t even hit a severe cyclical economic slowdown yet, which is almost certain to occur in 2013. What shambles do you think the housing market will be in once that happens and the last backstop to housing is broke? You can kiss this â??housing recoveryâ?? goodbye.

I think home prices nationally could fall 25%+ from here. For more detailed thoughts on housing read my piece from April titled Thought of the Day â?? House Flipping in Colorado.