Chart of the day: FHA delinquencies

By Felix Salmon
October 9, 2009
this chart, showing delinquencies at the FHA.

" data-share-img="" data-share="twitter,facebook,linkedin,reddit,google" data-share-count="true">

FHA-delinq-&-Mother-of-All-.jpg

Whitney Tilson passes on this chart, showing delinquencies at the FHA. He notes that the FHA is a crucial source of support for the housing market right now, providing a whopping 23% of all mortgages. If you have a subprime credit rating of 600, you only need to put 3.5% down to get an FHA loan; even if you have a positively wrecked credit rating of 500, you can still get a mortgage with only a 10% downpayment. And the people brokering a lot of these loans are often the selfsame shady characters who represented the worst face of the subprime bubble.

How high will the 2008-vintage delinquency rates eventually go? That’s the crucial question, since those mortgages represent more than 20% of the entire FHA portfolio. They’re already high, at 19.4%, but they could go much higher, given that the 2007-vintage loans are over 30%.

We’ve seen this movie before; we know how it ends. There’s going to be an FHA bailout, and it’s going to be big. The only question at this point is just how big it’s going to be.

Comments
5 comments so far

how much does FHA pay for financing? treasury rates? well, then their net interest margin is probably around 5% now, meaning that they could probably handle a yearly 6% or 7% default rate (with conservative recovery assumptions) and keep sufficient reserves. looking at the above data, there will probably need to be a small, not a large, bailout.

Posted by q | Report as abusive

That’s a pretty lame graph – percentages on both axes make 2008 and the total seem like non-events. Better to graph absolutes per year, then the real damage would be clear for all to see immediately.

Posted by Mr. Bunched Undies | Report as abusive

I agree with Mr. Wedgie; the graph is horrible.

Posted by bosuncookie | Report as abusive

I think this graph might be a little more “graphic” if you will. At least it was for me:

http://www.nytimes.com/imagepages/2009/1 0/09/business/1009-
biz-graph.html

It came from this artice:

http://www.nytimes.com/2009/10/09/busine ss/09fha.html?_r=1&hp

The info presented below the graph in the pdf document Mr. Salmon linked to, however, is rather interesting. It notes the temporary nature of much of the government props currently holding up the real estate market.

For instance:

http://blogs.reuters.com/felix-salmon/fi les/2009/10/fha-delinq-mother-of-all-hea d-fakes.pdf

4. The $8,000 tax credit for first-time homebuyers
– This expires on November 30th, but will likely be renewed and perhaps expanded to all new home buyers
– Current cost: $30 billion/month

———–

That’s a lot of cash. At that rate, it would only take a little over 3 months to equal the collective bailout given to Fannie Mae and Freddie Mac, if the aforementioned Times article is accurate:

“In the year since the government stepped in to rescue them, the companies have taken $96 billion from the Treasury, and may need more.”

It’s not the graph so much as it is need to look at the TRIPPLING in the NUMBER OF FHA INSURED LOANS.

The problem is that the verticle axis is a percentage, and it doesn’t convey that though the percentage of defaults may be down, the NUMBER of defaults is exploding

Posted by mredstriumph | Report as abusive
Post Your Comment

We welcome comments that advance the story through relevant opinion, anecdotes, links and data. If you see a comment that you believe is irrelevant or inappropriate, you can flag it to our editors by using the report abuse links. Views expressed in the comments do not represent those of Reuters. For more information on our comment policy, see http://blogs.reuters.com/fulldisclosure/2010/09/27/toward-a-more-thoughtful-conversation-on-stories/