The mortgage crisis shifts to the FHA and Congress wants to make the problem permanent

Another of the “emergency” measures enacted to stop of the financial crisis from plunging the economy into a depression looks like it’s on the road to becoming “permanent.”

And this one could really blow up on us taxpayers—again—not so far down the road.

I’m talking about the “emergency” change in the rules for Federal Housing Administration (FHA) qualified loans that let the agency insure housing loans for as much as $729,000. The temporary change went into effect in two stages in March 2008 and in February 2009. Up until then, the FHA could not insure loans of more than $362,790. That lower limit was in line with the agency’s original mission of helping low-income families who couldn’t make the traditional 20% down payment required by private lenders get a mortgage.

The logic of the higher “temporary” limit was that the FHA would now be able to insure loans in the hard-hit, high-priced housing markets of states like California. The higher limits would enable buyers in these markets to get loans to buy houses that would otherwise sit unsold. The loans would thus support housing prices and the home building industry in high-priced real estate markets.

The FHA has certainly insured lots of loans in these markets. So far in 2009, the agency has insured 107,000 loans in California alone. Read more

Some banks struggle as others get back to business as usual

You think the current wisdom that the banking sector is divided into the “have-nots” and the “haves” is an exaggeration?

It’s very, very real—and it should be one of your guiding concepts if you’re thinking of buying any stock in the sector.

There are banks that have emerged from the crisis. And there are banks still stuck in the crisis and hoping that they’ll survive.

The division was on startling display in announcements from two banks on November 2. Read more

Update ING (ING)

When the reason you bought a stock no longer applies, you sell.

Knowing what I know today, I will sell ING (ING) out of the long-term Jubak Picks 50 portfolio on the annual revision of that portfolio in December. (By the rules of this portfolio, I only buy and sell stocks on the list once a year. It is supposed to be long-term, you know.) If you’re following along at home, you don’t need to wait so long, of course. Read more

Roubini, the bear who got it right, predicts another asset bubble bust

Bad times are coming, according to Nouriel Roubini, although they may be a year or two away.

The New York University professor of economics is worth listening to since he called the U.S. housing bust and global financial crisis not only exactly right but in time to do something about it. In 2006, for example, he told the International Monetary Fund that the United States was likely to face a once-in-a-lifetime housing bust, an oil shock, sharply declining consumer confidence, and, ultimately, a deep recession.

Now the problem is what Roubini called “the mother of all carry trades” in a speech delivered via satellite to a conference in South Africa. “The risk is that we are planting the seeds of the next financial crisis.” Read more

Will bad commercial real estate loans set off Banking Crisis II?

It’s going to be an interesting earnings season for bank stocks.

The U.S. Federal Reserve has recently been out banging the pots about a new banking crisis, one in the $3.4 trillion market for commercial real-estate debt, that in size, at least, ranks up there with the original meltdown in residential mortgages.

But this time it won’t be the big boys like Citigroup (C) and Bank of America (BAC) that take the biggest hits. No, the damage will be worst among smaller local and state banks that have loaded up their portfolios with loans to local real-estate developers, builders, and businesses.

The Wall Street Journal calculates that there are more than 800 banks that have at least half of their total loan portfolios committed to commercial real estate loans. In total banks account for about half of the $3.4 trillion in real estate debt.

What’s the big problem? Read more