On December 14, 2013, Scott Reckard writes in the Los Angeles Times:
The Federal Housing Administration, fresh from a $1.7-billion bailout, now projects that it will replenish its financial reserves to required levels in 2015, two years faster than it had predicted a year ago.
The agency said its net worth remains in the red, by $1.3 billion, despite the recovering housing markets. But that is a $15-billion improvement from a year ago at FHA, which insures low down-payment mortgages and provided the only significant source of home loans for borrowers of modest means after the financial crisis.
The U.S. Department of Housing and Urban Development made the projections Friday in its annual report to Congress on FHA, saying its efforts to improve the agency’s finances were paying off.
The steps include raising insurance premiums and tightening credit requirements, making FHA loans less attractive to borrowers. The FHA also is lowering the maximum size of loans it insures in regions with expensive housing, such as California; the limits had been raised during the housing crisis.
The FHA is now “on a sustainable path to fulfill its dual mission of supporting access to homeownership for underserved and low-wealth borrowers as well as supporting and stabilizing the housing market,” HUD Secretary Shaun Donovan said.
The FHA had been self-funded throughout its 79-year history until it tapped the U.S. Treasury on Sept. 30 to cover potential losses. It had greatly increased its role in the housing markets after the subprime mortgage meltdown — and suffered large losses as a result.
“Today’s numbers show crucial improvements in its solvency and stability,” Maxine Waters said. “We must remember that during the worst of the crisis, when the private sector virtually fled the struggling market, FHA provided the liquidity that helped restore confidence.”
The shortfall at the FHA is in the capital reserves that it is required to maintain against potential losses in the future. It said it has $48 billion in liquid assets on hand to handle claims in the short term.
What is important to understand, besides the fact that the Federal Housing Authority (FHA) has served to empower millions of Americans over the years to purchase a home with bank-insured mortgage loans, is that the principle of insurance can work effectively to stimulate economic growth.
While a home’s purpose and use represents consumption (people live in homes) and not wealth-creating, income-producting capital assets, we can use the Federal Housing Administration concept that provides banks insurance against loan default, to finance broad ownership by EVERY citizen in multiple company diversifications facilitated with private capital credit insurance or a government reinsurance agency (ala the FHA concept). But unlike purchasing a home that does not produce income to repay the loan and requires a source of income to secure the loan, wealth-creating productive capital produces income for its owners and thus can serve as the income source to repay the capital credit loan.
Under such a plan, the promissory note attached to each capital credit loan can be offset to the government’s central Federal Reserve Bank in return for the cash equivalent of the amount of the loan, less an administrative fee. The only cost to the direct lending bank in making a loan to any of the successful corporations qualified under this program would be the administrative fee, or about 2 percent of the loan’s principal and then another 2 percent for capital credit insurance, with an additional quarter of a percent paid to the Federal Reserve Bank to monetize the loan and give the lender the same cash as they would have had if they had actually loaned money to a corporation. The lender’s cash loaned to an Employee Stock Ownership Plan (ESOP) trust or a super-IRA Capital Homestead Account (CHA) would be replenished with the Federal Reserve Bank cash. When the company pays the ESOP or CHA trusts enough money to enable the trusts to repay the lenders, the lenders would have to retrieve the note and pay back the Federal Reserve Bank. Thus, the loan cost would be essentially not more than 5 percent to allow ownership broadening financial capital to be invested in ownership broadening ESOP and CHA trusts (among other similar-in-principle trusts) to create new capitalists. Thus, national capital credit insurance replaces the requirement for the current corporate owners to pledge security and risk default.
Other innovations could include the Consumer Stock Ownership Plan (CSOP) and the General Stock Ownership Plan (GTOP), a plan designed to build capital ownership into politically designated classes of consumers within the jurisdiction of the authorizing government––state, local or federal. The CHA, ESOP, CSOP and GSOP are credit mechanisms that give corporate employees and others (non-corporate employees) access to stock ownership in future capital formation growth. without the requirement of “past” savings, the pledging of personal assets, or reduction in personal income.
Such proposals are included in the Agenda of The Just Third Way Movement at http://foreconomicjustice.org/?p=5797 and the proposed Capital Homestead Act at http://www.cesj.org/homestead/index.htm and http://www.cesj.org/homestead/summary-cha.htm.
http://www.latimes.com/business/money/la-fi-mo-fha-finances-20131213,0,1269327.story#axzz2nUvhW5za
