Arguments Versus Evidence
June 25th, 2008
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FHALoanAdvice.com has a very sharp analysis of a recent editorial in the Wall Street Journal entitled The FHA Time Bomb
Written by industry veteran and FHA expert Carl Pruitt, FHA Mortgage Hysteria From The Wall Street Journal takes a careful look at announced FHA numbers and how they add up.
As Pruitt shows, a number of FHA claims simply conflict with prior FHA statements or with common sense. For instance:
“Commissioner Montgomery uses the present tense to describe FHA’s reserve fund of $21 billion,” notes Pruitt. “Then he says a ‘re-estimate’ is responsible for FHA having to “book” an additional $4.6 billion in unanticipated long term losses.
“Does this mean that FHA has $21 billion after deducting $4.6 billion? Maybe some astute commenter can clue me in on exactly what this means, but it does not appear to say that FHA lost $4.6 billion last year. In fact, it seems to closely resemble the recent losses ‘booked’ by many lenders which are simply predictions on how much a particular loan portfolio might end up losing.”
The Wall Street Journal editorial includes a chart showing FHA delinquencies between 2002 and the first quarter of 2008. However, delinquencies are NOT foreclosures. Delinquencies are late and missed payments that can be made up, resulting in no loss to the lender.
Pruitt looked into the delinquency issue and found this 2007 congressional testimony from FHA Commissioner Brian Montgomery:
“While not every one of these borrowers will be successful in the long term, historically 89 percent of all borrowers who benefit from loss mitigation still have active loans two years after the assistance. This success is responsible in part for a reduction in both the number and percentage of FHA foreclosures from a high of 1.74 percent in FY 2004 to 1.45 percent in FY 2007.”
According to the latest report from the Mortgage Bankers Association, the FHA foreclosure start rate in the first quarter of 2008 “decreased 4 basis points to 0.87 percent.”
If we have an FHA problem would not the percentage of foreclosure starts be substantially higher rather than declining?
For the full story, please see: FHA Mortgage Hysteria From The Wall Street Journal
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