The Mortgage Banker’s Association is reporting that the availability of mortgage credit is rising but there are so many caveats to this story is is almost the entire story.
So terms for conforming products seems to be coming down but this isn’t echoed by all sectors, as one builder noted fewer buyers using FHA due to their increased g-fees but those buyers ran into stringent underwriting standards from banks for non-government insured loans.
The MBA notes that the loosened credit will just be for the buyers with pristine credit on home purchases in the <80% LTV range.
This means the changes don’t matter to the vast majority of first time buyer and minority borrowers, thus the title of the piece above.
All of which makes last night’s House Financial Services Committee grilling of FHA commissioner Carol Galante even more absurd. House GOPers led by Rep Hensarling blasted the FHA for underestimating the severity of the housing crash, a housing crash prolonged by Congressional intransigence on economic recovery. Thus another chapter in the ill-fated scorched earth mission to discredit Obama before Romney’s defeat by sabotaging the economic recovery made an existing issue worse. Now we are expected to blame the FHA for not accounting for the political tactics of the Soviet army?
The FHA needs $16 billion dollars. That sucks, not because they have to draw the money from the Treasury but because that shortfall in their required reserves indicates their balance sheet outgrew their ability to insure it due to the depth of the housing crash and the generally chickenhearted nature of prime lenders.
Lets be real clear,this can’t be about the money. After all, Ally bank still owes $15 billion in TARP money and the House isn’t apoplectic over that 6 years later. The money doesn’t need to be paid back either, so taxpayers aren’t “on the hook” for anything. The Treasury will simply credit the FHA with $16,000,000,000 and the problem is resolved. Since the funds don’t ever enter circulation there is no inflationary issue and since the FHA loan programs are not risk driven the loan standards won’t fall, thus there is no bubble risk nor expanded credit (default) risk.
Alternately, the FHA could simply be allowed to use existing funds they have to reinforce the reserve with Congressional approval and there wouldn’t be a problem either.
However, taking a swipe at the primary source of housing credit for voters who overwhelmingly go for the other guy is smart, if also vicious and mean, politics. There is zero chance that for the 40 years that FHA loans were how the white American middle class was building itself that a shortfall would have triggered the slightest hiccup.