F.H.A. Faces $4.6 Billion in Losses

[moh malekpour]

http://www.nytimes.com/2008/06/10/business/10housing.html?_r=1&ref=business&oref=slogin

I watched Brian D. Montgomery, the F.H.A. commissioner on C-Span yesterday during his speech in the national press club. He talked the sub prime mess and why FHA can save the housing problem. He named the causes of housing bust and flaw in lending such as 100% financing, sellers financing, no income verification but he never mentioned anything about the appraisal problem as if it didn't exist. He didn't mention that FHA like any other lender became more lax on their appraisals and needs to get back to its tradition in their appraisal selection and procedure if he wants to rescue the housing problem.

 

[Lloyd Bonafide]

I think that in some ways, FHA is saving the housing problem, or at least making the situation better. Without FHA loans being available right now, including their increased loan limits, the situation would be much worse. That being said, FHA loan losses are going to be going up steeply in the next 2-3 years, due mainly to their huge increase in loan volume.

 

[Crunch Hardtack]

I think that in some ways, FHA is saving the housing problem, or at least making the situation better. Without FHA loans being available right now, including their increased loan limits, the situation would be much worse. That being said, FHA loan losses are going to be going up steeply in the next 2-3 years, due mainly to their huge increase in loan volume.

That's a big 10-4. FHA will definately be dealing with some major league bad paper. It just prolongs the agony.

 

[Lloyd Bonafide]

http://www.bloomberg.com/apps/news?pid=newsarchive&sid=aSFWLa_.kpnI

July 8 (Bloomberg) -- Federal Housing Administration Commissioner Brian Montgomery criticized legislation being considered by the Senate this week that would expand the agency's role in curbing foreclosures.

``Some in Congress want to turn it into a mega-mortgage agency, in effect federalizing the mortgage market,'' Montgomery said at a conference today hosted by the Federal Deposit Insurance Corp. in Arlington, Virginia. ``Some want to dump bad loans on us, many that never should have been made in the first place.''

The Washington-based agency, which insures mortgages for low-income homeowners, has been a central element in proposals to prevent foreclosures introduced in Congress and by the Bush administration. The Senate this week is debating a bill to create an FHA program to insure as much as $300 billion in refinanced mortgages after lenders cut the loan balances.

Montgomery said the FHA should be split from the U.S. Department of Housing and Urban Development to bolster its ability to recruit and retain staff.

 

[timd354]

July 8 (Bloomberg) -- Federal Housing Administration Commissioner Brian Montgomery criticized legislation being considered by the Senate this week that would expand the agency's role in curbing foreclosures.

``Some in Congress want to turn it into a mega-mortgage agency, in effect federalizing the mortgage market,'' Montgomery said at a conference today hosted by the Federal Deposit Insurance Corp. in Arlington, Virginia. ``Some want to dump bad loans on us, many that never should have been made in the first place.''

The Washington-based agency, which insures mortgages for low-income homeowners, has been a central element in proposals to prevent foreclosures introduced in Congress and by the Bush administration. The Senate this week is debating a bill to create an FHA program to insure as much as $300 billion in refinanced mortgages after lenders cut the loan balances.

Mr. Montgomery is absolutely correct....this plan is just a huge scam to bail out BOA, Countrywide, and other bad actors who made bad loans, by allowing these companies to essentially dump their bad loans onto the FHA and, ultimately, the American taxpayer.........once again, Congress is going to take care of their friends, the big bankers, and screw over the rest of us.

 

[Mystery man3]

Your tax dollars at work

Your tax dollars at work:

In So Cal been seing inflated FHA appraisals.

Have seen an increase in mortgage brokers "shopping appraisers" for values for FHA appraisals.

Emailed the FHA hotline with a copy of the inflated appraisal. They ignored me.

Disaster is coming for the FHA! They are loaning at 97% and getting inflated appraisals. They are really loaning at over 100%!

Contact your congressman and let them know what is going on.

Here is a letter to a congressman. Feel free to modify it if you want.

https://forms.house.gov/wyr/welcome.shtml


Dear (your representative),

My name is (your name) and I am a FHA appraiser and wanted to alert you to the fact I have seen an increase FHA fraud recently as FHA loans become prominent. I believe this may turn into a significant loss for the United States government.

The fraud occurs as follows loan officers who have a vested interest in seeing a loan go through select the FHA appraiser who they know will bring in the value the highest and ignore problems (like a leaky roof. etc.) with the house. Although this is illegal sometimes loan officers are as flagrant as calling or emailing different appraisers until they find one that will bring in the house at the "right" value. Hence the way the system is set up right now those appraisers who cheat will receive the most work and honest appraisers will not be reused as loan officers will use the appraiser that makes their loan work.

Why this should concern you is that as the FHA makes loans, it is using the appraisals to determine how much money to loan the borrower.

For example, if a house is really worth $250,000 and cheating appraisers appraises the property for $350,000 the FHA will loan up to 97% of the appraised value which is $339,500. If the homeowner never makes a payment the loss to the United States government would be $89,500 which is the difference between what was loaned $339,500 and what the house would sell for $250,000.

Although $89,500 may not sound for a lot of money think of how many houses are out there and how many times this scam could be repeated.

The way to stop this is an appraiser selection process like what the Department of Veterans affairs has in which appraisers are randomly selected by the VA office and not the lender. In this way appraiser independence is restored.

In addition more resources should be devoted to taking unethical appraisers out of the system. Appraisal fraud I believe to be rampant and the source of the problems in the banking system.

If these steps are not taken I fear the United States Government may take a significant loss on these loans like many of the banks in our country are suffering at this time.

Thanks for your time,

(your name here)