to properly manage fha's finances. i think it is time for fha to face facts. first, the capital reserve ratio of the federal housing administration is dangerously low and every year since 2006, second, the fund's capital ratios have been below fha statutory obligations every year since 2008. third, every year since then, future growth is a capital ratio has underperformed in relation to fha's prevention. hopefully the shot produced by these latest projections will finally be a wake-up call to everyone. our choice, we talked about it, fha leadership must fully realized existing authority to shore up the values of this fund. additionally congress must consider reductions in permissible risk waring and further underwriting reforms can be examined structures -- before it needed taxpayer bailout. i wish you well, mr. secretary. you have a real challenge here. we do. thank you. >> thank you, senator shelby. are there any other members who wish to make a statement? >> thanks, mr. chairman. just briefly, i want to agree with t

fha is a neat program. it has an extremely high mortgage insurance premium applied every single mortgage that can support -- and it is a terrible way of putting it, but it is a fact -- it can help prevent teen delinquency rates. this country was on a housing bubble the was promulgated by bay crisis. you create an unsustainable and farm for anybody participating in that market. it impacted the housing market and a whole bunch of other markets that were impacted in a significantly adverse way. i find it really interesting, when you look at the fha portfolio compared to all of the other mortgage portfolios that existed, it is the one that has survived in the most healthy manner compared to any of them, with the worst credit attributes. as recently as 2012, the past both years have caused strain. even beyond that, it is still going to go positive with the future premium. there is no doubt that a bigger down payment is better. no doubt that more private capital engaged in the market is better for housing. this i

the willingness to properly managed fha's financing. i think it's time for fha to face the facts. we have to. first, the capital reserve ratio, the federal housing administration fund is dangerously low. you know that. and it shrunk nearly every year since 2006. the capital rushes up and go fha statutory obligations every year since 2008. third, every year since been future growth in the capital ratio has underperformed in relation to fha's predictions. hopefully the shot produced by these latest projections will finally be a wakeup call for everyone. hard choices lie ahead for this program we've talked about. fha leadership i believe most fully realized its existing authority to sure of the value of this fund. additionally, congress must consider permissible risk layering and further underwriting reforms that are be examined, re-examination of structures but it's time i believe to get serious reform of fha before it needs a taxpayer bailout, if it isn't too late already. >> are there any other members who wish to make a brief statement? >> thanks, mr. chairman. just briefly i wan

fha is a unique program.it has an extremely high premiums applied to every single mortgage that can support and this is a terrible way of putting it, but mathematically can support mid to high teens to literacy rates. when you go through an experiment, built on a housing bubble is quite frankly promulgated by private capital, not public capital. this option are become the sub prime and no-doc loans equate the bubble, not these kinds of products. then you couldn't unsustainable environment for anyone participating in that market. impact did a whole bunch of market that were impacted in a significantly adverse way. but i find it really interesting when you look at the fha portfolio compared to other portfolios that existed in the past decade, it's the one that survived in many ways than the most healthy manner compared to many with the worst credit only until finally 2012 that those past berkshires have caused dream defense even beyond that so going to go positive that the future premium depends on the balance

there are several ways that fha has much laxer standards. as a result, you are creating a huge magnet to the worst problems because of that. one of those is the maximum loan limit. another is the issue he brought up of allowing a borrower to re-borrow. on those two things and anything else like that, why would you not aligned fha with fannie and freddie to stop this negative election? >> it is not that the fund remaining positive last year was because of the settlement. if it had not happened, we still would have been positive. i do not see it as unrelated to the policy changes. it is part of what we need to do to make sure we hold lenders accountable and that we minimize losses from those older books of business that are causing distress to the fund. i believe very strongly with the right policy division the right steps would be taken, and even if it happened, we would have remained positive. we do not have the authority without congress acting that administration advocated that loan limits come down. i thought it was perverse to bring fann

and put fha on the long term on a good track. graph that we updated from last year's annual report. different statistics that essentially are saying that in the bubble-bust years of the economic value of the fund was down significantly, and the new books of business are quite profitable, given both the pricing increases and the credit quality of these loans. so, i want to take just a minute very high level to talk about the results of the actuaries, and some people have spent a lot of time understanding this and others have probably not dug in nearly as deeply into what the fha actuary is, what it does and what it doesn't do. and i think that this is important baseline to understand, at least for that near term of what we're dealing with in fha. so the first thing is this is a point in time look at the economic value of the books of business that fha has done to date. and what -- as julia said, what this actuarial is doing, it's an independent look into the fha business and uses commercially available house price indexes, and int

fha is really a tale of two neighborhoods. it makes low risk loans relatively speaking in certain neighborhoods and it makes high risk loans in other neighborhoods. it calls the average okay although as you indicated it's actually has the substantial negative net worth. it calls it on the average that it's okay. the average doesn't work for the 9 nourks neighborhoods that we studied where the average foreclosure rate for the 2009 and 2010 originations, which were well after the financial collapse, where those originations are expected to have about a 10% foreclosure rate minimum and an average foreclosure rate of about 15%. so it's really putting borrowers in these neighborhoods on a tight rope without a safety net and they're literally a water heater or a roof leak away from disaster. >> so to paraphrase, let's say you have a house with eight streets on it. a couple people are doing well. somebody is given a loan they should never have gotten. they will not pay it back. they abandon their home. in your study then, that one ab

it wasn't just fha.a: of course it was everybody. >> but fha today, at least the one benefit they have, they have a legislative obligation to break even and actually have a capital reserve which they're below right now. melissa: yeah. >> the law demands that the secretary get it above. so they have put fico floors in place for example. but that is recent history. doesn't protect the fact that you still have hundreds of billions of dollars of mortgages originated over the past many years that will plague this fund for several years to come. and the question is can they outrun it? can they bring in enough good loans? melissa: i want to ask you before we run out of time because i'm very worried about my tax dollars. on a scale of one to money, how is likely to bail out fha. >> i say two. between two or three. there are variables that could allow this thing to go through. melissa: you're a good sport. >> thank you, melissa. melissa: i feel better with a two. that is better. >>> next on money, syria on the br

barely fha loans were written. today it is a very big percentage of the market. we need to prophet fha up short term and then reform the lending standards and the expense of those loans. otherwise, we will be propping up the fha every three to four years. someone buys a property with 3.5% down. the cost of the sale is eight to 10% on the day they buy the property, they are locked in, they are upside down. you will not cover that for a number of months or years. connell: all right, alex, good to have you on, by the way. thank you. >> thank you, connell. dagen: his friends in hollywood will take quite the hit if we go over that fiscal cliff. connell: apples chief executive says he is ready to bring some manufacturing.com. back to america. we are talking about a lots about apple apple the past few days. talking about cliffs. apples chart looks like one lately. why do you like what bad things happen to, well, anyone? dagen: rhetorical question. ♪ want to try to crack it? yeah, that's the way to do it! now we need a ltl

. >> fha is insolvent. we need to bring the private sector back where you will have real money backing this, backing this market. earning real returns. and that's why it's so important having these guarantee fees being raised. tracy: you know, ed, we have run out of time. this is fodder for another day. we have to talk about how we'll unwind this. to me that will be really ugly, fha, between fannie and freddie and all that. that could take years. >> it could take years but you have journey of a thousand miles starts with a single step. tracy: i agree. ed pinto, thank you very much. >> thank you, tracy. always a pleasure. happy new year. tracy: happy new year, ed. what a guy. he is so great. he is right, if all goes well it will be great but we've got to get the government out of the housing market. >> all right, i know. 34 tornados hit the south. at this point, why not. so look at these pictures. looking at them right now. 34 tornados the south while

we have to wait and see. >> fha, a mess. thank you. >>> the number of immigrants coming into the united states and living here illegally is dropping. and it has been for years. also most new immigrants are not from latin america at all. the new numbers from the census bureau. we have them for you and we will bring them to you next. odds are anytime you log on to the internet they are tracking every search you make. every one. surprised? that's because the companies don't mention they do it. >>> john mcafee is at it again. he is the guy wanted in belize in connection with the murder of his neighbor. and he is about to go to guatemala. but john mcafee's lawyers confirms that he has been sent to the hospital a half an hour ago. they describe that he had some sort of convulsion and had to be taken by ambulance to the hospital. there have been reports all over the place about what he has done. abc and routers have been reporting he had a couple of heart attacks. we were told that's not true. we are waiting for more information. f

tom: fha, we got into the mortgage mess because people had no skin in the game to a greatic tent, no money down, little money down, 1% be 3%, that is what the fha is still doing, making loans with almost no money down. why do you not expect a problem? >> we have got a problem. in my opinion, we got into housing crisis because of government, and as the administration takes laps about their successful bailout of general motors, that we lost billions of dollars on as taxpayers, we still have fharc, ha and fannie and freddie. tom: it is both of them are amazing. when it comes to fha, how -- this could take years to work this without, like you said, fannie and freddie, they are one big giant cousin. >> tom. it will take as long as it takes for the american electorate and people to learn their lesson. as long as we assume that every element of economic private life has to have a government safety net, backstop erin tervention, the problems be not go away. tom: back to the pension thing, they require the private sector, you better be fully funded on your pension plan or else but they do not

fha insures all mortgages in the country. more and more homeowners are defaulting on those loans.y has planned to announce fees next year. the housing secretary says that probably won't be enough. taxpayers have already spent more than $135 billion. bailing out fannie mae and freddie mac. mortgage companies the government controls. by the way, the feds have now or now have a hand in almost 90% of home loans in the united states. peter barnes from fox business is in d.c. tonight. how much could this new bailout cost if it happens, pete? >> well, shep, the fha ensures more than a trillion dollars in riskier mortgages with low down payments. typically 3.5%. so many of its older loans are going bad that one critic, ed pinto of the american enterprise institute estimates that a full blown recappization could cost taxpayers $25 billion if combined with major reforms. that does not appear likely right now, especially with budget cuts coming in the battle over the fiscal cliff but the agency has an unlimited line of credit with the treasury department. today, the housing secretary could n

and mortgages that can be insured by the fha. >> it is time i believe to get serious reform of fha beforeaxpayer bailout, if it isn't too late already. gerri: and donovan agreed the changes would be helpful but pointed out it is up to congress to make those changes, not the fha. so in order to avoid another massive taxpayer bailout we need congress to act? they're so good at that aren't they? i doubt it. as the future of housing hangs in the balance our gridlocked congress is doing nothing at all. the fiscal cliff already taking its toll. rich homeowners in the pants hamptons. millionaires are dumping digs at discount prices before capital-gains tax rates are expected to jump january 1st. for more let's bring in real estate mogul barbara corcoran, founder of the corcoran group. welcome back to the show. >> thank you, gerri. gerri: always great to have you here. do you think people out there dumping properties in advance of december 31st? >> first off, they don't have very much time left. it usually takes more than two or three weeks to sell a house. what is more the truth people are using

you have fha making bad or high risk loans. 40% are subprime. were they have debt ratio in excess of 50%. that is the bad amount. they are using the good to average out the bad. the problem is i just released a study that shows that in working-class neighborhoods, with incomes below the median, these neighborhoods are suffering from extraordinarily high if all levels for the 2009 and 2010 year. tracy: they need the bad loans to cover the good ones? >> they should not be doing the bad ones. they need to make responsible that once top. fha is a financing failure in these working-class neighborhoods. tracy: i hope we can figure out a way to wrap this up. it's a pleasure to have you been i think you. tracy: here is our question tonight. should executives of bailed out companies make six-figure salaries? logon and vote on the right-hand side sure the results of your the end of tonight's show. a lot more still to come, including the cost to consumers because of obamacare. it just keeps rising. one of the biggest blunders in apple history. iphone users

there are several ways that fha has much laxer standards. as a result, you are creating a huge magnet to the worst problems because of that. one of those is the maximum loan limit. another is the issue he brought up of allowing a borrower to re- borrow. on those two things and anything else like that, why would you not aligned fha with fannie and freddie to n stop freddieegative -- to stop this negative election? >> it is not that the fund remaining positive last year was because of the senate -- settlement. if it had not happened, we still would have been positive. i do not see it as unrelated to the policy changes. it is part of what we need to do to make sure we hold lenders accountable and that we minimize losses from those older boat -- older books of business that are causing distress to the fund. i believe very strongly with the right policy division the right steps would be taken, and even if it happened, we would have remained positive. we do not have the authority without congress acting that administration advocated that loan limi

knows is coming out of fannie or freddie or fha. this provides a backdrop of global securitization around the world. the u.s. is a heavy user of credit products. europe is a distant second. it gives you a backdrop of the credit availability. this gives you some backdrop that the markets in the united states have come back to an extent if you look at the various asset classes. not as many people buying cars. the market is functioning. most of the student loans are going under the government's balance sheet. different loan obligations -- this data is a little bit old. $50 billion and that market is rapidly returning. this is the slide that everybody talks about, the dramatic change in how mortgage credit is made in the united states over the past six years. securitization of volumes have gone up by $300 billion in the past six years. private credit is a huge volume. $700 billion put through the private label security system. $22 billion is overstating it. of all the slides i have, this is the most telling about where the credit is com

how do you feel about the fha? >> if i look at your list, your full list, melissa, it is the post office that is the next on the list. melissa: yeah. >> but eventually, you know, one of the things that's happened in the economy over the last few years is that the only people making long-term fixed-rate mortgages at such low interest rates is the government. melissa: yeah. >> and i believe this is, this, we're going to have the s&l industry all over again. the taxpayers are going to be on the hook for billions, hundreds of billions of dollars of losses because you won't be able to fund 3.25, 3.50, 30-year fixed rate mortgages when interest rates and inflation are a lot higher than that. melissa: i'm unclear, who are you voting for here? are you voting for anyone on our list? for our audience we're talking about the fha, which is independent audit last month said it was facing $16 billion deficit. the post office we love to talk about them. they're always in troublee $16 billion net loss for 2012. we have fema. they

housing secretary donovan branding how he hopes to avoid a government bailout for the fha. it seems like more dollar signs out there to me, peter. >> that is right. the housing secretary cannot rule it out. washington is certainly closer to one after the latest audit of the fha fund has a capital reserve shortfall of $16.3 billion. the administration says it is too soon to say whether the fha will need treasury funding. >> can you assure us and the american people today as the secretary of hud and fha will not do that, or you don't know yet? >> senator, i wish i had a crystal ball and i could tell you we won't at the end of the year given the reports. obviously i am highly concerned about that possibility. >> to avoid a bailout agency is increasing fees and making other reforms. the administration says it will signal its intentions on the treasury bailout when it releases the 2014 budget in february and will actually decide to pull the trigger or not next september. lori: okay, peter, thank you. all of this heated discussion debate dying down by then. melissa: think your ki

i showed you at fha date, the private sector moved out also. so to safety and he ended up the best and the other worse to say and obvious. of course they did. not only did they have the prime, but they got the best of the worst. i'll leave it at that. >> last question over here. >> john henry, dry stone capital. do any of you or does anyone have a detailed plan on how to put fannie mae and freddy back into my mouse clicks how do you take a $5 trillion enterprise included in discontinued operations over time. there would be politically acceptable. >> we will at pop stardom that, but afterwards if you want to catch me we can talk about that informally and i'll share a few ideas with you. >> i certainly don't have a plan. i think alex and ed do have suggestions and very interesting ones. >> do have a moment just to read the conclusion that mr. johnson spoke quite >> just one minute. >> my ultimate vision is of a housing finance system that is flexible to the capability of every individual family. we should defend a system that shows people able to

-- selection toward fha?it is not that the fund remaining positive last year was because of the settlement. if it had not happened, we still would have been positive. i do not see it as unrelated to the policy changes. it is part of what we need to do to make sure we hold lenders accountable and that we minimize losses from those older books of business that are causing distress to the fund. i believe very strongly with the right policy division the right steps would be taken, and even if it happened, we would have remained positive. we do not have the authority without congress acting that administration advocated that loan limits come down. i thought it was perverse to bring fannie and freddie's loan limit down and not lower fha's at the same time for the same reasons you said. we are concerned we would drive business that should go back to the private market. i would urge you and others, i know you are supportive, but to work with your colleagues to do that as quickly as possible. i agree we need to look a

half of it was fha, half of it was the private sector. you had 20% in about 2002, they had a choice, they could either abandon the field, or they could move out the risk curve. as fannie and freddie moved out the risk curve, they had a choice. they moved out the risk curve, i showed you what fha did, the private sector moved out also. so to say that fannie ended up with the best and the other ended up with the worst is saying an obvious. of course they did. not only did they have all the prime, but they got the best of the worst. so leave it at that. >> thank you. this'll be our last question over here. the microphone's there. okay, thank you. >> john henry, drystone capital. does anyone, do any of you or does anyone have a detailed plan on how to put fannie mae and freddie mac into runoff? how do you take a $5 trillion enterprise and put it in discomet canned operations -- discontinued operations over a time period that, you know, would be politically acceptable in terms of disruption? >> we'll let bob start on that, but afterwards if yo

account is half of those folks typically refinanced into a fha loan. by the nature of the actuarial, it takes a snapshot of time assuming you are closing down the fund. there are revenues that will come to the funds that are not built in. all that being said, we will, in the president's budget, include the lower interest rates you describe. we will also include an updated projection of house prices. at that point, we will have a clearer picture of how the offsetting factors play. we would not say the right number today is the $31 billion. >> do you believe the difference in home prices that prevailed today versus the time this was done and the difference in volume you referred to would be enough to offset the value caused by the fact that we are a low interest-rate environment? >> we have not finished those calculations. we are in the midst of doing that for the budget. they are both large effects. we simply do not have an answer to that. >> it is a large effect that comes from the difference in interest rates. you know the low interest-rate environmen

what is the right plan for the fha? >> actually, it is a timely question.e hud secretary before the bankin committee yesterday. fha has over a trillion dollars in its portfolio. it is hemorrhaging billions of dollars. it has a negative worth of value right now. i am afraid it is going to be asking senate and later for a taxpayer bailout. they already have the mechanism in place to tap the treasury. i hope there won't. the secretary, i hope, will -- he has some tools at his discretion. he can run the premium of and bring in more money. he can stop the hemorrhaging that way. he can also, perhaps, what to he makes loans to. some of the loans that were made are just defauing left and right. you can't have that kind of a housing policy. gerri: will be enough simply to raise premiums? they have already one that, already trying to maket these bad loans as quickly as they can. does the situation called for a more radical response? >> oh, i think raising premiums, you are right, alone will not do it. part of it is, it is inherent in the fha progr. people are paying

>> here is what they say, remember, fha insures the loan. so many people think fha is a lendser.tcy, interestingly enough, after two years. why? because they know that a chapter 7 bankruptcy, that you're not going to be able to file for years to come and most of your debt has been wiped out. there has been talk, steve, i saw a few releases a couple weeks ago that fha is actually thinking of maybe even waiving these guidelines so to make it easier to be able to insure because they recognize so many people were in the spot they're in and i hope that happens 'cause it could loosen up the market for people to be able to buy again. >> steve: absolutely, 'cause that's how we dig ourselves out of this market is more people available to buy house. you mentioned fha, what about v.a.? you say that through the veterans administration, their guidelines are actually even better for veterans than through fha. >> they are. two years. two, short sale foreclosure, bankruptcy, two, two, two. chapter 13 bankruptcy, one year. and the whole reason behind this is they look and see, look, here is a sit

part of it is, it is iherent in the fha program.e paying down so few dollars they have not much equity in the game. and a lot of them have lowered some of the chris coor's, you know, to get people. and people in default or have bad credit will continually default again. that is part of the problem on underwriting. gerri: we have to find some kind of solution because there is not a person i knowwho wants to bailout somebody else right now. i think we have had it with the bailouts. >> i hope so. gerri: me, too. senator richard shelby, think you for coming up tonight. an absolute pleasurto have you. >> thank you. ♪ gerri: president obama fliploping on his inauguration he is not going to accept unlimited sums of corporate money to pay for his inauguration. obama had banned corporate donors for is 2009 swearing-in in order to give the present supporters ownership. but now they will accept cash from companies and individuals to underwrite the cost of the festivities next moth. i guess taxpayers will have o foot some much of the bill, but

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currently the fha stands behind 1.1 trillion in mortgage debt. one one in six of those loans deliquent. one in ten in default. they are facing just a tsunami of bad debt, and once more there is more in the pipeline that we don't even know about. alisyn: i don't have to tell you that the public appetite for bailouts. >> reporter: not high. alisyn: very small. if they don't get a bailout what happens to the country and the housing market? >> reporter: that is not an option i don't think. look, if they aren't able to correct this in some way, fix it in so way they are headed for a bailout situation. alisyn: how do they correct it or fix it, just with an infusion of money. >> reporter: i tell you what they've done so far, they've raised premiums. consumers who get the backing have to pay more money for it. they could raise that again. they are selling offer bad debt as fast as they can to low bidders who want to buy it. we will not know if taxpayers are on the hook until next september when the administration writes its annual budget. then we'll have

to understand why this is so dangerous you have to know what the fha does.t does not provide mortgages directly, it insures mortgages. but it also allows borrowers to qualify for mortgages with putting only minuscule amounts down on the purchase of a home as little as 3.5% on the home's value. compare that too private lenders which require 20% of a home's value. without putting down large down payments borrowers are at real risk. not only are they not building up equity, any economic downturn in the housing market can make their homes worth less than what they owe and could lead to the bursting of a second housing bulb. the fha losses were uncovered by a recent audit and have sent shock waves through the authority. >> even "the washington post," which is not exactly a right-wing think tank said recently, quote, right now the critics are starting to look pretty presentation. affordable possession of one's own home is the american dream. government support for excessive borrowing has turned into a national nightmare, close quote. >> reporter: hud's secretary s

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this senate banking hearing comes after a report projecting a $16 billion deficit in the fha fund. this is one hour and a half. >> i call this hearing to order. thank you for joining us, mr. secretary. i asked you to testify today because i'm deeply concerned about the recent report that the f.h.a. could potentially need taxpayer support for the first time in its 78-year history. i would like you to help the committee gain insight into the fiscal challenges at the f.h.a. and what h.u.d. has done and can do to mitigate losses and address the shortfall in the capital reserve ratio. f.h.a. has been helping save lives of the mortgage market by ensuring that qualified lower to moderate income and first time home buyers have access to credit since 1934. since the beginning of the financial crisis, the f.h.a. has increased its market share from below 5% in 2006 to about 30% at its peak volume in 2009, in pursuant of that mission. this cyclical expansion was essential to the mortgage market, especially for first time home buyers who have comprised 78% of single family loans insured by f.h.

fha's has been a huge expansion.en those facts, what would you say is the right percentage of the market? fha and ghe's. or they have been since 1990? >> if you can get private capital to do it all -- which you want to have private capital -- conceptually, the practical reality is if you look at the mortgage debt outstanding -- i think it is time. five or something like that -- and you think about all of the positives, it is above that number -- you cannot finance this through the banks. banks cannot hold it there easily. you have the investment community and 10 or 15% ownership. i think in the near term there is no practical solution other than to continue to participate again to the governments. with uncertainty about the process and what the asset is, do you think people who do not know a america or outside america can invest? we need liquidity to provide balancing. the private-label market will be there long term. it had nothing to do with private-label security market. had to do with restructuring of engineering

possible when it compound of the government era when you have things like fannie mae, freddie mac, the fha putting the taxpayer guarantees on mortgages that never would have been originated in the free market because in the free market people would have been worried about not getting paid back. but the government basically told the banks you can lend money to people even though you know they are not going to pay you back because the taxpayer will. as we have a bubble based on that moral hazard and based on cheap money, and of course it burst. a lot of people like to blame the market for that. they like to blame wall street. it's not wall street's fault. i'm not saying they are completely innocent. they drank a lot of the alcohol that the fed was pouring and they acted irresponsibly under the influence. but you have to look to the source. you have to look at why were so many people so foolish simultaneously not just on wall street. plenty of people on main street were lying about their income and buying houses they couldn't afford. but unfortunately, instead of learning from its mistakes, t