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Mortgage Industry Faces Looming Concerns October 9, 2009

Posted by John Watch in News Feed.
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Heading into the 4th Quarter of this tumultuous economic year, the mortgage industry faces growing problems ahead. While news of Obama’s HAMP program reaching its 500,000 goal of helping homeowners faster than expected is promising, concerns on possible bailouts and underperforming programs continues to threaten the vision of recovery in the housing market. Mortgage Assistance Programs are needed to curtail these concerns before problems become “too big to fail.” We must always remember that Real estate is Cyclical Seasonal and Emotional.

Will the FHA Need a Taxpayer Bailout?

The question about a possible Federal Housing Administration bailout in the near future is the story circulating news desks today. F.H.A. commissioner David H. Stevens sought to dispel concerns about the mortgage giant’s looming problems.

“Absent any catastrophic home price decline, F.H.A. will not need to ask Congress and the American taxpayer for extraordinary assistance – we will not need a bailout,” Mr. Stevens said in a prepared testimony on Capitol Hill Thursday.

Providing lenders with protection against losses as the result of homeowners defaulting on their mortgage loans, the FHA now insures more than 25% of mortgages in the country, up from 3% in 2006. Critics argue that a future FHA bailout is almost inevitable, as the agency’s capital is dangerously close to dipping below the mandated level of 2%. Independent financial consultant Edward Pinto concurs,

“It appears destined for a taxpayer bailout in the next 24 to 36 months,” Edward said. He estimates that the agency faces losses of $70 billion on loans it has already made, short of its current reserves by $40 billion.

Fed Preparing for Commercial Real Estate Mortgage Crisis?

An unpublished Federal Reserve Report leaked in a recent Wall Street Journal article reporting rising defaults in the commercial real estate sector. The unpublished report concludes that U.S. banks are slow to take losses on their commercial real estate loans. Specific servicers reported having only 11 cents in reserves for every $1 in bad loans in the second quarter. 

The NuWire Investor had this to say; “I don’t know what’s worse, the banks skimping on reserves and holding off on reporting losses in hope of revival or the Fed for knowing about the problem and trying to keep it a secret. Someone at the Fed must feel the same way because the report somehow found its way to the media.”

TARP Oversight Group Says Treasury Mortgage Plan Not Effective

The TARP group indicates that the government needs to increase its efforts to help struggling homeowners in this article. There is doubt that the $50 billion loan-modification program will provide the necessary relief to all homeowners it intended at the start of the program. With rising factors of unemployment, and decreasing property values the task becomes more daunting.

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