How You Are Subsidizing the Rich Now!
This one's so strange and disturbing, I was almost going to skip it. But here is is: A government agency is now subsidizing rich folks.
And it's not just any agency. It's the FHA. Not sure what the FHA is? Well, it's the Federal Housing Administration. It was set up in 1934, in the midst of the Great Depression. The point then was to help stimulate the housing industry.
In the 1950's, 1960's and 1970's, it focused on helping to build apartment buildings for the elderly, the handicapped, and lower-income Americans.
Basically, it insures mortgages, so that mortgage issuers will feel free to issue mortgages to these under-privileged or under-served Americans. Or something like that.
Ever since the sub-prime crisis, the FHA, along with Fannie Mae and Freddie Mad, have continued to buy up or insure mortgages issued by banks. They've been the one reason that the mortgage market continued to function in the face of all those bad mortgages that were issued prior to the mortgage crisis that started around 2006-2007. Supposedly, they've prevented an even bigger collapse in housing.
Fannie Mae and Freddie Mac are now basically bankrupt - although no one actually calls them that. They only exist because the US Treasury subsidizes their gargantuan losses - losses generated by all the bad mortgages (sub-prime, Alt-A, Option Arm, etc.) they hold, many of which are in default and foreclosure. So far, taxpayers have contributed about $149 billion to keep them breathing.
FHA isn't far behind. Some say they're bankrupt too, maybe even in worse shape than Fannie Mae and Freddie Mac.
But if you look at their website, they still claim they're not costing the taxpayer anything. They say they fund their operations out of the mortgage insurance payments they receive - that they're basically self-funded.
Of course, many of the mortgages they've insured are going belly-up. So I'm not sure how they're managing to fund themselves, except that they're probably not recognizing the defaulting mortgages yet. And as they continue to insure new mortgages, they take in new premiums that provides fresh cash flow - new blood - to keep them running.
How long can that game go on? How long will the new money coming in pays off the losses from previous mortgages they held. That sort of "business model" doesn't work long-term. Something's got to give. They won't be funding themselves too much longer if they keep this up.
(You can think of it as something like a life insurance company that takes in premium, except a huge chunk of its current insureds are dying. The premiums bring in new money, but paying off all those death benefits means their paying out a lot more. That doesn't work. That's why insurance companies "underwrite" - i.e., check out who they're going to insure to make sure they live for a while.)
Then again, maybe FHA just hasn't updated their website in a while. (Who can blame them?)
Anyway, it turns out that the FHA will now insure the mortgages of folks looking to buy luxury apartments in New York City. You can read the Bloomberg article that describes the deal here.
Read it and weep, that is.
Isn't it sad that it's come to this? An agency that was designed to help an industry in trouble, then re-designed to help people of lesser means, now helping the wealthy to buy luxury apartments? Then again, why should any of this surprise us.
So now we watch this "self-funding" government agency as more and more of the mortgages they insure default and go into foreclosure. Where will they get the money to back up those mortgages? Where will the insurance payments come from? From new insurance premiums they collect by insuring the mortgages of even more wealthy people buying luxury apartments?
Is this insane or is it just me?
Well, we all know who's going to be on the hook in the end, don't we? Yep, it's us again!
So add the rich to that list of folks you'll be supporting with your hard-earned pay. What the heck, they've got to live too, don't they?
And it's not just any agency. It's the FHA. Not sure what the FHA is? Well, it's the Federal Housing Administration. It was set up in 1934, in the midst of the Great Depression. The point then was to help stimulate the housing industry.
In the 1950's, 1960's and 1970's, it focused on helping to build apartment buildings for the elderly, the handicapped, and lower-income Americans.
Basically, it insures mortgages, so that mortgage issuers will feel free to issue mortgages to these under-privileged or under-served Americans. Or something like that.
Ever since the sub-prime crisis, the FHA, along with Fannie Mae and Freddie Mad, have continued to buy up or insure mortgages issued by banks. They've been the one reason that the mortgage market continued to function in the face of all those bad mortgages that were issued prior to the mortgage crisis that started around 2006-2007. Supposedly, they've prevented an even bigger collapse in housing.
Fannie Mae and Freddie Mac are now basically bankrupt - although no one actually calls them that. They only exist because the US Treasury subsidizes their gargantuan losses - losses generated by all the bad mortgages (sub-prime, Alt-A, Option Arm, etc.) they hold, many of which are in default and foreclosure. So far, taxpayers have contributed about $149 billion to keep them breathing.
FHA isn't far behind. Some say they're bankrupt too, maybe even in worse shape than Fannie Mae and Freddie Mac.
But if you look at their website, they still claim they're not costing the taxpayer anything. They say they fund their operations out of the mortgage insurance payments they receive - that they're basically self-funded.
Of course, many of the mortgages they've insured are going belly-up. So I'm not sure how they're managing to fund themselves, except that they're probably not recognizing the defaulting mortgages yet. And as they continue to insure new mortgages, they take in new premiums that provides fresh cash flow - new blood - to keep them running.
How long can that game go on? How long will the new money coming in pays off the losses from previous mortgages they held. That sort of "business model" doesn't work long-term. Something's got to give. They won't be funding themselves too much longer if they keep this up.
(You can think of it as something like a life insurance company that takes in premium, except a huge chunk of its current insureds are dying. The premiums bring in new money, but paying off all those death benefits means their paying out a lot more. That doesn't work. That's why insurance companies "underwrite" - i.e., check out who they're going to insure to make sure they live for a while.)
Then again, maybe FHA just hasn't updated their website in a while. (Who can blame them?)
Anyway, it turns out that the FHA will now insure the mortgages of folks looking to buy luxury apartments in New York City. You can read the Bloomberg article that describes the deal here.
Read it and weep, that is.
Isn't it sad that it's come to this? An agency that was designed to help an industry in trouble, then re-designed to help people of lesser means, now helping the wealthy to buy luxury apartments? Then again, why should any of this surprise us.
So now we watch this "self-funding" government agency as more and more of the mortgages they insure default and go into foreclosure. Where will they get the money to back up those mortgages? Where will the insurance payments come from? From new insurance premiums they collect by insuring the mortgages of even more wealthy people buying luxury apartments?
Is this insane or is it just me?
Well, we all know who's going to be on the hook in the end, don't we? Yep, it's us again!
So add the rich to that list of folks you'll be supporting with your hard-earned pay. What the heck, they've got to live too, don't they?
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