Any mortgage guru out there? Trying to get my head around something

[Motown_Johnny]

I admit up front, I am ignorant on this subject. Please excuse me if I demonstrate it with this post.



As I understand FHA mortgages, the federal government insures all of these loans. So the taxpayers are already "on the hook" if/when some of these default.

Wikipedia tells me that (snip)

Currently, the FHA has 4.8 million insured single family mortgages and 13,000 insured multifamily projects in its portfolio


I have no idea what the dollar value of these mortgages might be so I won't even try to guess. But.....

Wouldn't it make sense to help the "clogged arteries" of our banking system by first buying back ALL of the FHA loans (no exceptions, we get both the good and bad paper)? It seems to me that this would inject cash into the system and possibly get some of the blood flowing again. It would also keep the taxpayers from getting stuck with all the bad paper out there like the current proposal suggests. Since the government already insures these loans it does not increase our liability. It will still affect our debt and the value of the dollar, but anything we do to try and fix this problem will do that.


This idea popped into my head a few days ago and it has been bothering me. I guess since nobody else has mentioned it (that I know of) it doesn't really make any sense. I am kinda curious why not.

[unblock]

1. the problem is not insufficient capital. there's plenty of capital out there

there's no trust.

injecting capital by buying up good loans doesn't do anything for trust, it just throws money at the problem when there's already plenty of that.


capital is looking for safe places to invest in, and because they don't trust the financial system, they stick it in commodities, which is one of the reasons why food and energy prices have been going crazy lately.

the BAD loans and derivatives of them are at the root of the trust issue and that must be addressed, or let it just play itself out over a painfully long period of time.

[Motown_Johnny]

2. OK, I am using a BB gun on a elephant, when I should be hunting Rhinos

I guess the FHA loans may already be considered "good paper" since the government backs it up.

So it does not address the bad paper situation, and the 4.8 million single family and 13,000 multi family properties is such a small percentage of homes in the country it would have little to no impact.



I told you I was ignorant and that this couldn't be a good idea, at least I got those right!!!

Thanks for your time

[DCKit]

3. They only want to sell their bad paper.

It's a scam.

[On the Road]

4. It is a Single-Digit Percentage of the Market

but it might make sense.

I disagree that it is all about trust. It is partly about liquidity and solvency. Buying the mortgages the government is required to stand behind anyway ultimately doesn't cost anything and could improve the situation.

I do think that it needs a broader solution. No reason this couldn't be a part of it.