The FHA failed a recent audit

Reckless lending practices are part of what got us into the current financial crisis, and the government's response has been...

The Federal Housing Administration may be under-equipped to manage its exploding market share, according to an internal audit released last week. The report gave the FHA poor marks for its steps to screen lenders that are allowed to sell loans backed by the federal agency.

The FHA’s market share has grown sharply as the private mortgage market collapsed over the past two years, and the FHA now insures around one-quarter of all U.S. mortgages, up from around 2% in 2006. ...

The audit, by the inspector general for the Department of Housing and Urban Development, found that the agency was under-equipped to manage a big inflow in applications by lenders to make FHA-backed loans. ...

The agency’s management of its affiliated lenders remains a top concern because the FHA’s financial reserves have dropped below mandatory levels for the first time in its 75-year history. Critics warn that rising defaults on FHA-backed loans could require a taxpayer bailout, but agency officials insist taxpayer money won’t be needed. Fraud remains a top concern as defaults rise on loans backed by the agency. ...

Some in Congress want the agency to do more by increasing minimum down payments to 5%, up from the current 3.5%. The agency says that such a move would kill any nascent housing recovery.

Things are really messed up when 5% down payments would "kill any nascent housing recovery." 20% down payments used to be the norm. Is America really that addicted to debt?

Breakin' the law in D.C.!

This is not exactly on topic, but:

The Heenes may have violated FAA regulations barring people from flying balloons or kites within 5 miles of an airport, an FAA official said.

Has anyone ever noticed the annual kite festival on the National Mall? That's only 2 miles from Reagan National Airport by my measurement. Somebody please arrest the Smithsonian Institution! Have FAA officials never been to D.C.?

It turns out that there's a qualification:

"…within 5 miles of the boundary of any airport…No person may operate an unshielded moored balloon or kite more than 150 feet above the surface of the earth unless…"

So, if you let go of your kite at the festival and it flies up 150 feet above the earth, then you're a malefactor.

Fiserv: Home prices to resume decline

Home prices are predicted to fall 11% by mid-2010:

If you thought home prices were bottoming out, you may be wrong. They're expected to head a lot lower. ...

Overall, the national median home price is predicted to drop 11.3% by June 30, 2010, according to Fiserv, a financial information and analysis firm. For the following year, the firm anticipates some stabilization with prices rising 3.6%.

In the past, Fiserv anticipated the rapid decline in home-sale prices over the past few years — though it underestimated the scope.

Mark Zandi, chief economist with Moody's Economy.com, agreed with Fiserv's current assessments. "I think more price declines are coming because the foreclosure crisis is not over," he said. ...

If Fiserv's forecast holds, Miami real median home price will tumble to $142,000 by June 2011. ...

Brad Hunter, chief economist for Metrostudy, which provides housing market information to the industry, ... pointed out that the tax credit for first-time home buyers helped support prices during the three months of Case-Shiller gains. ... But the market assistance ends when the credit expires on Dec. 1. Hunter also sees a new wave of foreclosure problems coming from higher priced loans and prime mortgages.

With winter coming, Miami is about to start looking better and better.

Commercial vs. residential real estate prices

From the CalculatedRisk blog, commercial real estate prices vs. residential real estate prices since 2001:

Note that commercial real estate prices aren't getting subsidized via the first-time home buyer tax credit. As far as I'm aware, they don't qualify for FHA loans either.

BubbleSpere Roundup

• Where the Hell is the Outrage? (Mish's Global Economic Analysis)
• Will a new law mean better home valuations? (OC Register)
• Alook at another job market number (Macroblog)
• U.S. Bank v. Ibanez: More fun with foreclosures (Calculated Risk)

Lawrence Yun's Arlington condo

Here are photos of the Arlington, Virginia, condominium where Lawrence Yun lives. Lawrence Yun, as you recall, is the chief economist for the National Association of Realtors. He has repeatedly mislead the public by making overly-rosy housing market forecasts. His misleading forecasts are often quoted by the press and presented as coming from an authoritative source.


Previously, I have posted a photo of Lawrence Yun's house in Centreville, Virginia, which he and his wife rent out. I have also posted a photo of the house of his predecessor, David Lereah.

More stimulus, but no more bubbles

Washington Post business columnist Steven Pearlstein gives his recommendations for strengthening the economy:

...More money for extended unemployment benefits; more aid to the states so that they can maintain the most vital public services; and more money to expand mass transit, state college and university systems, efficient energy production and basic scientific research. The economist Paul Krugman estimates that for every dollar in extra debt that will be required to finance this fiscal stimulus, about 40 cents will be repaid almost immediately in the form of tax revenues from higher short-term economic growth. And if the money is invested wisely in quality projects with high returns, the other 60 cents could wind up being a boon to future generations, rather than a burden.

What would surely not be good policy, by the way, is to extend and expand the current tax break for first-time home buyers that is set to expire at the end of the year, as many in Congress are now advocating. Home buyers are already getting a huge benefit from the dramatic drop in house prices, along with the lowest mortgage rates in a generation, thanks to massive government infusions into Fannie and Freddie. For the government to go beyond those efforts and try to induce home sales that otherwise wouldn't have happened — at an estimated $75,000 a pop — would surely be cheered by home builders, real estate agents and the analysts at Goldman Sachs. But in truth it would be nothing more than a misguided attempt to reinflate another bubble.

As I said yesterday, Congress seems intent on reinflating the housing bubble.

Those dang mortgages!

Gee, I wonder why Ken Lewis announced two weeks ago that he was retiring as CEO of Bank of America?

A decade after the stock bubble

The Dow Jones Industrial Average has just hit 10,000, which is where it was a decade ago. Likewise, I predict housing prices will be at roughly today's level a decade from now, although the Democratically-controlled Congress seems intent on having another housing bubble in the interim.

Things don't look quite so rosy for the S&P 500—a better measure of the stock market—which is below its October 1999 level:

But don't worry. Some things have kept going up over the past decade. For example, the national debt:

• $5.656 trillion in 1999
• $11.909 trillion in 2009
  

What happens in Vegas...

Wow!