Essentially, the number of homes owned by the government is rising. In November 2009, for example, around 40 percent of all purchases of pre-owned homes were done so with loans that were guaranteed by the FHA. This is a dangerous number when combined with the trends in foreclosures.

As of the end of September, for example, there were 72,000 plus homes for sale by Fannie Mae that had been foreclosed. This comes after a total of more than 98,000 homes that Fannie Mae acquired during the first three quarters of that year. While Fannie has sold many homes, it still has a large number for sale.

The numbers for Freddie Mac are similar. The foreclosure inventory has risen nearly 50 percent, up to over 41,000 units as of September.

The default rate for homes guaranteed by Fannie Mae has been rising, too. Currently, it’s at about five percent. This means that one out of every 20 loans guaranteed by Fannie Mae is going into default. Those are staggering numbers.

Ultimately, these numbers reflect a growing pool of homes owned by the Federal government.

The goal, of course, is to get these homes into the hands of buyers. If the economy turns around, more and more of these government-owned foreclosed homes will go back into the market. In the meantime, however, more and more home loans fail and the holdings of the government grow.

Still, Fannie and Freddie are taking steps to try to speed up sales of foreclosed homes owned by the government. For example, they can now accept purchase offers on repossessed homes without having to notify the loan servicer. This helps to get rid of repossessed homes in a much quicker fashion, and to help buyers into those homes.

Photo via jimbowen0306

Up to this point, the tax credit has cost the taxpayers around $10 billion. Some studies suggest that as few as 20 percent of the people claiming the credit were truly new home buyers. The program was expanded to allow buyers to claim the credit for as long as five years, and it also raised the income threshold set for eligibility.

Still, the home buyer tax credit is the smallest portion of the “cash for clunker homes” mess. Both Fannie Mae and Freddie Mac, the two Government Sponsored Enterprises were ones that promoted subprime home loans as well as the securitization of mortgages, part of what led to the housing mess. Essentially, these two GSEs took bad mortgages and turned them into bad securities.

As of now, Fannie and Freddie are responsible for underwriting $5.4 trillion in home loans. Back in October, the Treasury Secretary Tim Geithner promoted the extension of today’s loan limits to help make more home loans available for working families, and also to help with the recovery of the housing market.

Yet, this hasn’t been a success story by any means. Fannie Mae lost $102 billion over the past two years. Freddie Mac, while they lost less than Fannie Mae in the third quarter of 2009, is down $121 billion in the past 14 months. Freddie Mac has been provided a total of $60 billion in aid from the taxpayers over the past two years.

Still, the FHA is pushing ahead like a bull in a china shop. They’ve issued over $360 million in home loans in 2009, which is around twice the amount they issued in 2008 and as much as four times the amount they loaned in 2007. The FHA only requires a down payment of 3.5 percent, and the limit for an FHA loan is, temporarily, $729,750.

To further illustrate this, look at the FHA’s share of new home loans. In 2006, just 2.7 percent of new home loans were FHA loans. Today, 23 percent of new home loans are FHA loans. In that time, the capital reserves of the FHA dropped to around half a percent, which is well below the two percent mandated by congress.

Time will tell what all of this messing with the markets will do. Fannie Mae and Freddie Mac are again in a risky position, and it would seem that Washington politicians are bound and determined to repeat their mistakes.

Photo via Bob Jagendorf

The government has recent introduced the newest FHA home loan, Ginnie Mae, which is now taking over where Fannie Mae and Freddie Mac left off.

We certainly have come to know Fannie Mae and Freddie Mac – probably more than anyone of us would have ever wanted to know – over the last year, so now it’s time to meet their partner in crime: Ginnie Mae.

Who is Ginnie Mae?

Ginnie Mae, also known as the Government National Mortgage Association, will be owned by taxpayers, just like its earlier counterparts, and its recent growth has put this new program in the spotlight.

Just recently, Ginnie Mae’s President, Joseph Murin, announced a monthly record of a whopping $43 billion in mortgage backed securities for June. And, if records keep getting broken by this new FHA loan, Ginnie Mae is poised to produce a mortgage exposure of more than $1 trillion by the end of 2010 – yes, that’s $1 trillion.

Given everything that has gone wrong in the past year with Fannie Mae’s subprime home loans, Ginnie Mae has essentially taken over the top position in terms of loan volume. It’s important to understand, however, that Ginnie Mae’s growth is directly related to the phenomenal growth of the FHA which, as of now, insures more than $560 billion in home loans. To give you a better idea of this number, about nine out of ten home loans are backed by the FHA.

What’s The Catch?

As we can all attest to from the past, the insurance programs of the FHA are not exactly known for being strict when it comes to its standards, which is why we all found ourselves essentially “buying” Freddie Mac and Fannie Mae – and their $400 billion debt – this past year.

The problem is that it appears that Ginnie Mae is following in the same footsteps as its cousins, Freddie Mac and Fannie Mae, regarding its standard insurance program, which includes backing home loans to buyers with little or no down payments and questionable credit ratings.

In fact, HUD recently issued a report detailing the lax insurance practices of the FHA. To give you an idea, HUD found that the FHA’s default rate has jumped to nearly 7%, which is nearly double the acceptable rate for lenders. In addition, it found that more than 13% of those were delinquent on their home loans by at least 30 days.

What does that mean for taxpayers?  If home values continue to plummet and a good majority of FHA home loans end up in default, we could, once again, find ourselves paying more nearly $60 billion in mortgage losses.