Wednesday, May 13, 2009

FHA Pushes Subprime-Style Risky Lending, Car Loans Continue Easy Credit, Producing Underwater Borrowers

FHA uses Obama's home-buying $8k tax credit to push DAP money-laundering scheme to resume risky, lax lending that leads to higher rates of default and foreclosure.

The FHA previously complained that Downpayment Assistance Programs (DAP) circumvented downpayment requirements (often surreptitiously seller-financed through a shell non-profit organization), so the borrower had no skin in the game and was more likely to default.

Now, the FHA is evading its own downpayment requirements to keep the housing/credit bubble going at all costs.

I warned about FHA's risky lending in June 2007:

Congress Christens FHA Our New National Casino

Government's New Housing Math: Seller Pays the Buyer

The American Recovery and Reinvestment Act of 2009 will PREVENT recovery because it DISCOURAGES investment (downpayment on asset) . . .

. . . not to mention that non-rented, owner-occupied residential housing is not a productive investment in the economic sense, it is consumption.


Desperate retailers push easy credit in face of higher inventory/supply and lower demand.

General Motors (GM) announces plans to close 40% of GM dealerships (2,600 by the end of 2010). ("GM Cuts Worry Minority-Owned ealers," Sarah Hulett for Michigan Radio, NPR, 5/13/09)

Michael Johnson's Chevrolet dealership cut staff in half (50%).

Michael Johnson's Chevrolet dealership has an 8-month backlog of vehicle inventory (part of a global supply glut of automobiles warehoused in lots and ports).

Easy credit means car buyers are underwater the second they drive off the lot.

The Chevy dealership was accepting a $1k downpayment on a new $24k Chevy Trailblazer, which is less than 5% downpayment, but a brand new car loses 20% of value the moment you drive it off the lot, leaving the buyer immediately underwater (owing more than the asset is worth, a condition associated with high default and repossession/foreclosure rates).

Continued insufficient, zero, or even negative downpayments shows that the so-called "credit crunch" actually perpetuates risky, lax lending and set the highest US consumer-credit level in history.

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