A Fisking of Eisinger on FHA
January 9, 2013 4 Comments
Hey, remember ‘Fisking’? Do people still ‘Fisk’?
New Target in Finger-Pointing Over Housing Bubble, Jesse Eisinger
No matter how many times people debunk the notion that government policy created the housing bubble, it doesn’t die.
You see, notions are supposed to just die the moment Jesse Eisinger asserts in passing that they have been debunked (or links to a Barry Ritholtz thing in which Barry Ritholtz asserts that it has been debunked ).
Also, again with the excluded-middle of talking about whether government policy ‘created’ or ‘didn’t create’ the housing bubble. Please! What about contributed some nonzero amount to?
If I could ask Jesse Eisinger – who I know has visited this blog – one question, it might be: do you think government involvement in the housing market has no effect on the housing market and the associated prices therein?
It’s part of what the blogger Barry Ritholtz has called the “big lie” of the financial crisis.
Well, case closed then! He put “big lie” in quotes and everything. Need he say more? I think not.
Now, we are having another argument about whether the government is creating a new housing disaster for taxpayers.
In other words: ‘this post has nothing to do with the government-caused-the-housing-bubble thing, I just wanted to throw that in there, now here’s an awkward segue to the real topic of this post’.
Late last year, the F.H.A. issued its annual report to Congress. According to estimates, over its lifetime the agency will have to pay more out on the mortgages it has insured than it has taken in. The report estimated the potential shortfall at $16 billion, which is a lot in absolute terms, but minuscule in relation to the federal budget and the $1.1 trillion F.H.A. portfolio.
It’s a lot of money, and a cost to taxpayers, but if you divide it by some other humongous number, it looks small by comparison. Got it.
Critics, like Edward J. Pinto of the American Enterprise Institute, argue that the agency has not only failed to help low-income communities, but is actually destroying them with reckless loans.
Ah, okay. And so, the argument that those critics are wrong, will presumably address this point and demonstrate that the agency doesn’t harm low-income communities. I’m sure it’s coming somewhere in the remainder of the column, so I’ll hold my breath till I see it.
So is the F.H.A. in trouble and in need of an imminent bailout?
Not really. According to the actuarial analysis, if the agency stopped backing mortgages right now, it would have a deficit after 30 years. But even by that analysis, it has enough cash for many years. And it will not stop insuring mortgages. In fact, it’s backing what are probably going to be very safe and profitable home loans right now, so even if it drew money from the United States Treasury, it would almost certainly be able to pay it back eventually.
Phew, a lot to unpack, what does this mean really? I think it means it’s in trouble and in need of an eventual (not imminent) bailout. Like, it’s only a little bit underwater, and undercapitalized, but not egregiously so and it could fund itself for a while if it had to, but will go (the equivalent of) bankrupt eventually, unless some bad event happens (but of course bad events never happen) to make it go bankrupt sooner, but maybe a market turnaround and/or savvy loans will magically save it?, so there’s that.
Was that Jesse’s point?
Without the agency’s lending, mortgage rates would have doubled and home prices would have dropped another 25 percent, estimates Mark Zandi, chief economist of Moody’s Analytics.
Wait what? In other words, government policy propped up home prices? Kept them…inflated? Like – one might say – a bubble?
What was all that at the beginning of this article about government policy-creating-a-bubble being ‘debunked’? Big liar, indeed.
Yes, the agency faces a high rate of delinquencies, but they pale when compared with private sector subprime loans.
Lower delinquency than subprime loans. Such a high hurdle to be passing! Is that really the benchmark we’re supposed to expect of taxpayer-funded mortgage loans?
Why are taxpayers funding a near-subprime loan portfolio? Is this a compulsory hedge fund?
And its history isn’t pure. One of its more disastrous policies was to allow something called seller-financed loans, where a nonprofit organization would broker a deal for a low-income borrower. In truth, someone else, like a developer, would front the costs and this would inflate the cost of house itself. Low-income borrowers could find themselves underwater almost immediately.
Hmm. Sounds pretty bad and damaging to the low-income communities in question. What was that above about what critics are saying?
Mr. Pinto’s study cites high rates of delinquencies in many neighborhoods, but that’s no surprise. The housing market crashed in many cities. To have high default rates in those areas is hardly a sign of out-of-control government lending.
What is, Jesse Eisinger?
After all, you can say the same thing about subprime loans: there were high rates of delinquencies in many neighborhoods, ‘but the housing market crashed in many cities’. (Especially those cities with a high concentration of subprime loans, methinks!)
So that’s…hardly a sign of out-of-control subprime lending?
What the hell is?
“I respect Ed, but he’s dead wrong,” Mr. Zandi of Moody’s said. “He’s got it absolutely backward.” The private sector, not government, led us into the bubble.
Interesting paragraph. Notice the final sentence was not put in quotes. Was that (1) inadvertent, or (2) because the final sentence is Eisinger’s (not Zandi’s) statement?
The debate has important consequences. If the F.H.A. does turn out to be a disaster, it undermines the idea that the government can serve a valuable role in financing loans to deserving and responsible people who can’t afford traditional mortgages.
Okay, so let’s get real then, Jesse. You have been making the wrong kind of argument. After all, the FHA is a government program, a government program is supposed to have some benefits, at some cost. If this FHA thing is a good government program, it’s not because it’s making great loans nowadays and will make a lot of money on them. It’s not supposed to be a moneymaking mortgage REIT for taxpayers in the first place. And it’s not a good program because it doesn’t have a lot of defaults (compared to what?). It’s because the costs that it knowingly and intentionally does have, says you, are outweighed by the benefits.
An intelligent discussion along these lines, of course, would have to proceed by defining and measuring those benefits, and then weighing them against the costs. I don’t know what sort of discussion Eisinger intended to create here, but he certainly didn’t do that, and indeed I find myself no further enlightened than before as to whether the benefits of FHA – whatever the hell they are – outweigh the costs that – you only infer by reading between the lines of Eisinger’s piece – it’s been incurring and will continue to incur.