Crash ...!!!

Driving Off Another Mortgage Cliff

As a ‘learning experience,' the current recession and its associated housing bust haven't produced many enlightening moments for our policy makers in Washington. Nothing makes that more obvious than the news that delinquencies and foreclosures are rising rapidly among mortgages insured by the Federal Housing Administration, whose reserves have fallen below acceptable levels. The agency's losses, which are almost entirely on loans made after problems with Fannie Mae and Freddie Mac were already apparent in the current bust, may require (guess what) a new taxpayer bailout.

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Faced with these troubling signs, the FHA is banking on optimistic projections of rising home prices, which would help to clear up problems with its portfolio in the next few years. But as the economist Robert Shiller observed last week in a New York Times column, a recent uptick in home prices could represent little more than a new wave of short-term speculative buying, what Shiller called "short-run price volatility" that may well be just the equivalent of a brief bear-market rally. If housing market bears are correct, prices could start declining again, and the FHA would be in for a mess of trouble.

Not surprisingly, FHA's backers in Washington, the very same people who defended Fannie and Freddie when critics warned of their increasingly dangerous lending practices, are quick to accept the optimistic view. [Maxine] Waters proclaimed in recent hearings that, "I am feeling very confident about FHA." This is the same Waters who in 2004 told a Congressional hearing that, "We do not have a crisis at Freddie Mac, and particularly at Fannie Mae."

Despite signs of broader economic recovery, number of foreclosure filings hit a record high in the third quarter - a sign the plague is still spreading.

NEW YORK (CNNMoney.com) -- Despite concerted government-led and lender-supported efforts to prevent foreclosures, the number of filings hit a record high in the third quarter, according to a report issued Thursday.

"They were the worst three months of all time," said Rick Sharga, spokesman for RealtyTrac, an online marketer of foreclosed homes.

During that time, 937,840 homes received a foreclosure letter -- whether a default notice, auction notice or bank repossession, the RealtyTrac report said. That means one in every 136 U.S. homes were in foreclosure, which is a 5% increase from the second quarter and a 23% jump over the third quarter of 2008.