This transcript is automatically generated
Thank you very much let's now go to our all star panel -- -- -- -- start with you.
It -- FHA on its way to needing a bailout your opinion.
Most likely it is -- and the reason being is -- Mae and Freddie Mac.
FHA for all these years adopted those same underwriting policies that Fannie Mae and Freddie Mac cast.
And so that.
Are created the demise of FHA and yes we're -- down on the same path.
For three reasons one the FHA in.
-- -- excuse me won the Fannie and Freddie underwriting guidelines too because they get a lot of nonprofit organization loans would down payment assistance.
And number three.
What they created was the new sub prime years ago when sub prime one away.
They created a new sub prime market that's what lenders felt.
But those have been correct and we can't go backwards we need to look forwards Cheryl and I believe FHA is moving in the right steps are.
Very heavy what bothers me about this is that these are not the loans from the meltdown of a late these -- the new things the government decide we're safe enough to right.
That thirteen billion I've seen -- about as a gonna get much bigger.
Well you know the funny thing about it is.
It's not that's bad because they have money in their financing account which is the reserve account for bad loans and in fact since 2008 the amount of bad loans.
Able to even use this reserve that they have set up so they have excess reserves.
The problem is in their capital account this fall below that 2% requirement and that's why -- on this threshold of asking for bailout.
If they would remove some of this money that they happen reserve.
Back into their capital account because it hasn't been used to pay it off they would actually be fine.
Out the bad news is that they do get this bailout and if you do you follow through and see what would happen that Fannie Mae and Freddie Mac the requirements for credit scores have gone way up.
Right now FHA is an important cog in the housing market which as you know drives a lot of the economy if we taken this important piece -- make it more restrictive.
It's going to be difficult.
For housing it's going to be difficult for the overall economy I think is very critical.
Jerry Howard let me take that question to you because obviously you're membership.
Is -- crucial stake in this game this could be at an incredibly negative effect on your members Gerri what are they saying.
Well our members are saying first and foremost -- the FHA has done its job.
Without the FH AB in the market right now -- -- would be worse the housing sector would be worse off.
I agree with the previous speakers when they say that the FHA -- taken the appropriate steps.
To ensure that they don't need a bail out and more importantly they're taking the appropriate steps to ensure that their book of business going forward is a book of business that will perform.
FHA has done a great job it is help minimize the devastation of the housing downturn and I think that -- they'd be managers of FHA deserve a great deal of credit.
Alright Ed -- don't American Enterprise Institute -- -- zoom out to the bigger picture here.
What troubles me is I feel like we're doing the hangover cure known as the hair of the dog that bit me it was government subsidies of housing that help contribute to the meltdown and now we're doing it again and we hear these housing guys say -- we need this to prop up the housing market.
Maybe we should let it fall.
That's a good point an -- say you have regarding -- Howard's point.
The FA AA dead national association -- homeowners on record as wanting FHA to.
Loosen its standards and start doing more sub prime lending loans to people -- very -- credit so that certain number one number two FHA was really the the Indy pace car of the whole sub prime mess they started in the early ninety's and Fannie Freddie -- them.
Where where the situation is today it's actually worse then what you're saying.
FHA today has a negative economic value that's approaching thirty to 35 billion dollars why.
The assumptions that they used to get to this fifteen billion dollar number are based on interest rates that were determined in July.
Well they're ignoring something that happened in September when the Fed announced.
And so when you look at where there today there's they're really a lot deeper hole.
What we really know about FHA today is wind.
GAAP net worth is negative 25 billion dollars to.
They have about 25 billion dollars in cash that's all committed to pay for future losses and they'll probably come close to running out of money in the next 45 quarters.
And 31 out of six loans that out of seven and a half million are delinquent today that we -- today congress is got to address that.
Okay good good -- this -- -- because he -- evidence in point about the economy.
If you look at what housing is done and the -- that is actually given to the economy and the stock market Sam over the last few months it's been a net net positive -- -- stocks have gone crazy.
That would tell me that they do need a bail out -- -- gets this bad in February that that actions gonna have to be taken by the president to -- quite about the economy.
Yeah I think that you it's clear that we need a strong housing market to drive the economy forward I think the challenge in this case I agree with you -- entirely is that.
The FHA can play its role they can continue to extend credit where credit is due -- that in a way that is sound.
But they're very clear guidelines for the FHA around how much it needs to reserve to protect against potential losses.
What we're seeing now it not only it was a perfectly foreseeable it was perceived the American Enterprise Institute professor George -- co chair.
Real state of Wharton -- colleagues as -- doctors you know released a report just a year ago today anticipating exactly this kind of outcome.
So opposite of the energy doesn't have an important role to play it's a there's been a really surprising lack of oversight.
In ensuring that the FHA continues to -- awaited a sound and and reserve appropriately that's what they haven't done and that's why we're here right now.
OK and question for Susan walker how big do you think this could get in terms of they hit that FHA could take and why don't we just get government out of housing of housing can't go along without than what people not buy houses.
I think the one message you've heard across the board is we can't get government out of housing.
At this point in time that would cause a collapse of the housing market and the good news -- the housing market is recovering.
-- it's astonishing that FHA for 78 years never has drawn on treasury.
For assistance now it will have to and there will be hard choices ahead.
Because they will also to avert that and then they -- that they may in fact not need to draw on treasury they will raise standards.
That will harm the housing recovery I don't think it will stop it because in fact we -- Fannie Freddie and the taxpayers behind Fannie Freddie.
But we do need to bring private capital back we need to restructure this market.
Very heavy listen -- what must know where this discussion is going a collapse of potential collapse of the housing market.
And -- about 2008 OK we need banks -- the financial system.
Sounds to me like many people in this -- percent we need the FHA to keep housing stable we definitely do that absolutely what that -- idea Bala well that's that's -- top.
Except that you -- structure that bail -- where you don't make FHA not be able to perform the function that it's doing now -- -- the fight the last war nobody talks about a kid housing clots in the way that.
That financing occurred back in 2006 and 2007.
We had problems in 2000 in 2009.
And you know what FHA while they were a player in this in this space they weren't the key focus they weren't the reason why that this happened this was this was a bubble that.
Encompass many different areas in many different aspects FHA has -- changes FHA has better lending requirements.
Better standards right now -- loans are performing better as they said earlier they're financing reserves.
-- more than adequate in fact they could take some of that back in the capital account.
Moving the numbers around wishing that the -- at the stripped credit let's go to the Rodney Anderson that realizes will be enough good teachers you are a lender.
But the average US household -- 7000 dollars cash.
Around they don't have a down payment for buying a house so why do we want government programs.
To encourage these people to buy -- house when they should just rent I just rent.
Now there's a fundamental flaw within the policies right now and where these flaws happen is we all one qualified borrowers.
But the credit reporting systems and the flaws in these systems are causing the housing market -- to collapse yeah.
So are down payment okay about credit reporting if you have only 7000 dollar for a down payment you should not be able to get into a mortgage I know people look how well.
Let me explain this.
With these policies there's a second part number one.
Weaning this start encouraging fifteen year fixed rate mortgages lower firms because people with less money Gallup.
Should be forced into lower terms to help them build equity faster less risks to the banks.
More money for the government because the last tax write offs and we need to encourage 3% down fifteen year fixed 5% down twenty year fixed we're just make.
Now more pivotal year for more OK OK let me know does around the great discussion let me move those around -- aren't you wanna go back to you because -- is bringing up the issue again of credit and that is something that you've been on this program discussing over and over -- still a lot of credit.
A lack of of of wanting the banks to finance.
Those those let those those home owners does this -- -- -- today change that in your opinion.
No it doesn't change that in my opinion that the fact of the matter is is this country has taken it as a matter of social and economic policy.
To encourage homeownership have we gotten carried away in the past yes but it's in the recent past not since the mid ninety's have people put for example 20% down --