Home Loan Scamming Is Still Going Strong — and Now You’re Paying for It

AlterNet:

Everyone knows how loose mortgage underwriting led to the go-go days of multitrillion-dollar subprime lending. What isn’t well known is that a parallel subprime market has emerged over the past year — all made possible by the Federal Housing Administration. This also won’t end happily for taxpayers or the housing market.

Last year, banks issued $180 billion of new mortgages insured by the FHA, which means they carry a 100 percent taxpayer guarantee. Many of these have the same characteristics as subprime loans: low down payment requirements, high-risk borrowers, and in many cases, shady mortgage originators. FHA now insures nearly 1 of every 3 new mortgages, up from 2 percent in 2006.

The financial results so far are not as dire as those created by the subprime frenzy of 2004-2007, but taxpayer losses are mounting on its $562 billion portfolio. According to Mortgage Bankers Association data, more than 1 in 8 FHA loans is now delinquent — nearly triple the rate on conventional, non-subprime loan portfolios. Another 7.5 percent of recent FHA loans are in “serious delinquency,” which means at least three months overdue.

The FHA is almost certainly going to need a taxpayer bailout in the months ahead. The only debate is how much it will cost. By law, FHA must carry a 2 percent reserve (or a 50-to-1 leverage rate), and it is now 3 percent and falling. Some experts see bailout costs from $50 billion to $100 billion or more, depending on how long the recession lasts.

http://www.alternet.org/workplace/140683/home_loan_scamming_is_still_going_strong_–_and_now_you%27re_paying_for_it

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