FHA And Student Loans Defaulting – When Will The Bubble Burst?

Mandeville, LA – Exclusive Transcript – Of course, ladies and gentlemen, there is no FHA, there’s you.  You and me are the FHA.  If somebody goes belly up on an FHA-guaranteed loan, guess who gets to pay it?  Are you looking in your rearview mirror as you drive right now, friend?  Give yourself a gold star and a pat on the back.  Take another swig of coffee.  Yes, that’s you.  Happy?  Check out today’s transcript for the rest…

 

Begin Mike Church Show Transcript

Mike:  I mentioned the effect of the Federal Reserve and its quantitative easing and that it’s felt all over the world.  I have this story here from my buddy Mish Shedlock at Mish’s Global Economic Trend Analysis.   He posted this yesterday, “FHA Swamped by Defaults.”  There’s another story out there today about student loans that are defaulting.  Did you know there is over $1 trillion in student loans outstanding, and that the number of defaults rises every single day, to the point where let’s just say a third of them are in default.  What is the mechanism that Congress is going to use to enforce that?  How are they going to collect the money, especially if young people aren’t working or won’t?  That’s another thing, they won’t do the jobs that are actually out there.  We have a last train to Brokesville news segment here.  “FHA Swamped by Defaults; Congressional Report Shows FHA Could Suffer Losses as High as $115 Billion; Shut Down Fannie, Freddie, FHA.”  I’m interested.

[reading]

An alleged “worst case scenario” shows the FHA could lose as much as $115 Billion. Since these worst case scenarios are always famously optimistic, the best course of action would be to shut the agency down.

[end reading]

Mike Church Show Transcript – The Student Loan Bubble Is Not What Jefferson Had In Mind

Mike:  That’s not gonna happen.  Could you imagine banks and people with gold and silver and Krugerrands and assets and what have you actually loaning money to people for mortgages?  Shudder the thought.  That will never work.  That has never worked in the history of — wait, it did.  Why don’t we just print the money and have the Fed loan it out under various non-governmental organizations, NGOs?

[reading]

I was quoted as saying just that by the Heartland in Congressional Report Raises Spectre of FHA Bailout. [Mike: I thought the housing industry was boomtown.  I thought they were kicking butt.]

The Federal Housing Administration’s (FHA) losses over the next 30 years could be much higher than originally projected, according to the findings of a congressional committee.

[end reading]

Mike:  Of course, ladies and gentlemen, there is no FHA, there’s you.  You and me are the FHA.  If somebody goes belly up on an FHA-guaranteed loan, guess who gets to pay it?  Are you looking in your rearview mirror as you drive right now, friend?  Give yourself a gold star and a pat on the back.  Take another swig of coffee.  Yes, that’s you.  Happy…

For the rest of today’s transcript please sign up for a Founders Pass or if you’re already a member, make sure you are logged in!
[private FP-Yearly|FP-Monthly|FP-Yearly-WLK]

[reading]

The dismal forecast has some bracing for another taxpayer-financed bailout.

[end reading]

Mike:  So they loan the money out and the sheeple take advantage of it because they’re told that’s what they should do and they don’t have any alternative.  There is no private mortgage industry left in this country.  That’s been eviscerated, thank you very much almighty federal overlords.  Then when people decide, [mocking] “That ATM machine I was going to make out of my house where I was going to go every five years when it doubled in value and take the cash out and go buy myself another jet ski to cavort about the river on a Sunday afternoon, that’s not working out.  I’m having to do maintenance and it’s actually losing its value and it’s not such a good deal.  I think I’m just going to walk away.” — “Are you going to default?” — “No, I’m just not going to pay it anymore.” — “Well, won’t they . . .” — “I’m just not going to pay it anymore.”

Mike Church Show Transcript – University Is Unnecessary For The Majority

What would happen?  Someone would repossess it, wouldn’t they?  What happens if it sells for less than what the mortgage is owed on it?  Who eats the difference?  There’s a small chance that the previous owner might eat some of it, but there’s a greater chance that the bank will be allowed to write it off and send the bill back to Uncle Sucker, back to the Federal Reserve System.  The debt will ultimately be paid by guess who?  Again, move rearview mirror down and look in it, especially if you’re on your way to work today.  Congratulations, not only do you get to pay your mortgage, you get to pay someone else’s.

[reading]

The House Oversight and Government Reform Committee, chaired by Rep. Darrell Issa (R-Calif.) is reporting that a worst-case scenario stress test conducted last year estimated the FHA could suffer losses as high as $115 billion. [Mike: A mere drop in the bucket, folks. Nothing to worry about here. Move along, citizen, nothing for you to see here. Just keep paying your taxes and your neighbor’s mortgage.] That forecast is significantly worse than the one reported by independent auditor Integrated Financial Engineering Inc., which projected losses of $65 billion for the 79-year old agency.

The primary cause of the FHA’s troubles is the plague of underwater mortgages that has struck the housing sector in recent years. [Mike: Gee, I wonder who caused that.] During the late housing bubble, [Mike: Again, I wonder who caused that.] the FHA lost market share as more private lenders sold “subprime” loans to home buyers. But with the collapse of the housing market in 2007-08, much of that business returned to the FHA. While the agency has played a major role in propping up home prices, [Mike: No, that means that you and I, the American sheeple taxpayer, have played a major role in propping up home prices.] it has also been overwhelmed by defaults.

John Ligon, senior policy analyst at the conservative Heritage Foundation, writes:

The FHA has a core mission of providing targeted support to creditworthy low- and moderate-income, minority, and first-time homebuyers. The FHA cannot responsibly achieve these intended objectives when it is expanding its market share and competing with the conventional market for high-cost mortgage loans.

Mike Church Show Transcript – Student Loans – Bad Economic Policy But Big Business

According to Ligon, the only way the FHA can avoid a bailout is to reduce its market share by lowering maximum loan limits to $325,000 over the next four years, raise credit requirements for borrowers, and institute “burden sharing” with loan originators by reducing insurance coverage from the current 100 percent to 50 percent by 2016.

[end reading]

Mike:  In other words, all the things that someone that actually made the loans for profit would have to do.  Isn’t that a laugh?  Isn’t that a hoot?  The only way out of this mess, it seems to me readily apparent, is to get the government out of the mortgage business.  That’s the way out of it.  But no, people who don’t qualify for mortgages must have them.  Why?  They don’t qualify.  But they’re American citizens, Mike.  The same rationale is used, [mocking] “They don’t have a health insurance policy.  But they’re American citizens.  We must give them these things.”  Really?  The story concludes:

[reading]

“I would shut down Fannie Mae, Freddie Mac, the FHA, HUD, and such similar programs and agencies,” says Mike “Mish” Shedlock, a market analyst and host of the Web site Mish’s Global Economic Trend Analysis. “The more money government threw at housing, the less affordable housing became until the bubble popped.”

He says numerous government agencies and programs “should be shut down and things would be far better off because government can never allocate money better than the free market.”

[end reading]

Mike:  Bingo.  That is exactly correct.  And ditto that for student loans.  That’s why the student loan bubble is there and that’s why it is going to explode.  When it does, brother, be ready for the market crashes of all market crashes.  That’s coming anyway, this will just add to it.  Maybe we get to have two in a very short period of time.  Won’t that be a joy to go through?

End Mike Church Show Transcript

[/private]