The FHA is running on empty. The FDIC approves the pre-pay plan to build its Deposit insurance Fund. The Housing and Banking Indices remain a drag on the economy and markets. The US Federal Housing Administration (FHA) will likely join Fannie () and Freddie () as a ward of US tax payers. The FHA's excess reserves available to cover losses have fallen to 0.53% of the agency's book of business at the end of Q3 2009. This is down from 3% year over year. The cushion mandated by Congress is 2%, so the health of the FHA is a huge Red flag for the housing market and tax payers. If the FHA needs an appropriation from Congress it would be the first time in its 75-year history. Since they are an arm of the US government the Treasury would have no choice but to rebuild its reserves. The FHA insures mortgages for eligible borrowers, and its business has increased to meet demand as private-sector lenders have pulled back during the housing downturn. Rising defaults on FHA loans will mean that a taxpayer bailout will be needed. Defaults on FHA backed loans reached 8.24% in September, up from 8.1% in August and 6.1% one year ago. As a result of this stress, the FHA is tightening its lending standards, which is another drag on housing. The FDIC is requiring member banks to pre-pay fees for 2010 through 2012 to rebuild its Deposit insurance Fund The total take from the banking system is $45 billion. This is a bad decision as banks struggle with increasing bad loans. Remember that more than 3,000 banks are overexposed to C&D and CRE loans. Today is Bank Failure Friday and banks are failing at a faster pace of the past seventeen years. In the first half of 2009 the FDIC closed 45 banks, which cost the Deposit Insurance Fund $12.5 billion. In the second half of 2009 through November 6, the FDIC closed 75 banks, which cost the Deposit Insurance Fund another $19.8 billion. As the FDIC awaits the $45 billion in three year prepaid fees due at year end, I estimate that the Deposit...

The purpose of this Announcement is to publish Fannie Mae’s loan limits for 2010 for all conventional mortgage loans. The Federal Housing Finance Agency (FHFA) has issued the loan limits that will apply to conventional loans to be acquired by Fannie Mae in 2010; these first mortgage loan limits are defined in terms of general loan limits and high-cost area loan limits.

I knew it was coming, but I guess I was hoping it wouldn't be quite so tunnel-visioned. The Realtor's chief economist, Lawrence Yun, released his Housing and Economic Forecast this afternoon. The extension and expansion of the first time home buyer tax credit was the lead, as expected, with Yun claiming it would bring not only home sales but home prices back out of the basement in 2010.

Practitioners are apprehensive about rising foreclosures and the problematic process involved with short sales, a new survey from NAR shows.

Governments need to rethink how the financial sector intersects with the broader economy if future crises are to be avoided, economists agreed at a panel discussion at the International Monetary Fund’s recently held Economic Forum.

JP Morgan Chase (JPM) CEO Jamie Dimon, the head of the country’s second-biggest bank, considered by many to be “too big to fail,” said Friday that the term must be excised from our vocabulary. In a WaPo opinion piece, Dimon said that banks like his should be allowed to fail and...

Earlier this week I mentioned a possible "" for GDP in 2010: With unemployment above 10%, there will be significant political pressure for another stimulus package - especially if the economy starts to slow in the first half of 2010. This next package could be several hundred billion (maybe $500 billion) and could increase GDP growth in 2010 above my forecast. From The Hill: Senate Democrats will take up a new job-creation bill in the wake of the 10.2 percent unemployment rate, Majority Leader Harry Reid told his colleagues Tuesday. And from the LA Times: Next month, Obama said he would gather chief executives, small-business owners, economists, labor leaders and others to discuss ways to create jobs and grow the economy. It appears the idea of another stimulus package is gaining momentum ...

The FHA commented on the damage caused by the Downpayment Assistance Programs (DAPs) today. These DAPs circumvented the FHA down payment requirements by having the seller funnel the "down payment" to the buyer through a "charity" (for a small fee of course). The FHA attempted to stop this practice, but thanks to Congress, the DAPs led to billions of losses: FHA was also adversely selected from 2000 through 2008 because it was the only guarantor willing to accept loans using seller-funded downpayments. Such downpayments were channeled through nonprofit organizations in order to meet FHA requirements on direct sources of funds. Those facilities created too many homeowners in the FHA portfolio that were not equipped for the financial responsibilities of home ownership. Indeed, the FY 2009 MMI Fund actuarial study for single-family loans notes that, if FHA had not insured any loans with seller-funded downpayment assistance, the net capital ratio today would still be above the statutory required two percent. FHA’s estimated economic net worth would be $10.4 billion higher today were it not for those loans. ... Their claim rates have consistently been between 2.5 and three times those of other FHA-insured home purchase loans . emphasis added This is still important today. The DAPs have been banned, but the first-time home buyer tax credit has probably created another group of "homeowners not equipped for the financial responsibilities of home ownership". Oh well ... And some FHA stats ... "86 percent of homebuyers relying upon FHA mortgage insurance in FY 2009 had downpayments of less than five percent." "79 percent of FHA’s purchase-loan borrowers were first-time homebuyers." Click on graph for larger image in new window. This graph shows the recent boom in FHA originations. The MBA estimates that there will be about $2 trillion in orginations this year, so the FHA insured loans were probably just under 20% of originations...

submits: Go Fed! In a very CFPA-ish move, the Fed has now that effective July 1, no bank can impose overdraft fees on its customers for ATM or debit card transactions, unless and until they explicitly ask for that “protection”. And they even come with a talking about “an important step forward in consumer protection”, which is not the kind of language we’re used to hearing from Fed chairmen. One weird thing, though: in the the Fed has published as a model for banks to follow, consumers are given two choices at the bottom: the first choice is opting out of overdraft protection on ATM and debit-card transactions, while the second choice is opting in. That’s confusing, because opting out is the default option: if you simply ignore the letter and do nothing, you’re opted out automatically.

Did you know that in 2008 there was a sharp increase in government insured loans and a significant drop in conventional loans?