Government’s Master Plan For The Mortgage Industy: More Cowbell

Posted: November 20, 2008 in Economy

mcb5598Giving FHA lending privileges to the same folks who dolts that practically handing out loans to whoever wanted them is just plain insanity.

From BusinessWeek

FHA-Backed Loans: The New Subprime

Some excerpts~

Lend America in Melville, N.Y., uses cable television infomercials and a toll-free number (1-800-FHA-FIXED) to encourage borrowers in trouble with adjustable-rate mortgages to refinance with fixed-rate loans guaranteed by the FHA. Anticipating the real estate crash, the Long Island firm switched its strategy in 2005 from subprime to FHA-backed mortgages, says Michael Ashley, Lend America’s chief business strategist. This year, the company will make 7,500 FHA loans, worth $1.5 billion, he says. “FHA is a big part of the future,” Ashley adds. “It’s the major vehicle for the government to bail out the housing industry.”


During the subprime boom, the FHA atrophied as borrowers migrated to the too-good-to-be-true deals that featured terms such as extremely low introductory interest rates that later jumped skyward. But since the subprime market vaporized in 2007, FHA-backed loans have become all that’s available for many borrowers. By fall 2008, FHA loans accounted for 26% of all new mortgages being issued nationwide, up from only 4% a year earlier. As of Sept. 30, the most recent date for which data are publicly available, the FHA had 4.4 million single-family mortgages under guarantee, worth a total of $475 billion.


Like the Cugnos, Hector J. Hernandez lately has shifted his mortgage business away from subprime and toward FHA loans. The Coral Gables (Fla.) lender has a different twist on the business: He uses FHA-backed loans to help hard-pressed borrowers buy condominiums in buildings he owns.

Sascha Pierson was an unlikely borrower. She had no employment income when she bought a three-bedroom condo in Palmetto Towers, a Hernandez property in Miami, in July 2007 for $318,000. She borrowed almost the entire purchase price from Great Country Mortgage Bankers, Hernandez’s loan company. Pierson, 29, says she is pursuing a psychology degree online from Kaplan University. She lives on a $42,000 annual educational grant from the government of the Cayman Islands, where she is a citizen. But the grant ends this year, and even with two roommates, she doesn’t know how she’s going to pay the $2,600 monthly bill for her mortgage and condo fee. “I am seriously worried about defaulting on my loan,” she says.

  1. Cowbells. So easy, even a caveman could do it.

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