Of course, Pinto ignores what he wants to ignore.
The same holds true for home price appreciation. The consultant assumed that housing prices would increase by 1% during 2012, which is why the NPV fell by $10.5 billion. As it wrote:
Moody's July 2012 house price index forecast is very similar to the alternative scenario called "mild second recession in July 2011. Compared to its July 2011 forecast, Moody's Analytics' July 2012 local house price growth rate forecast is more pessimistic in the short run. In fact, The difference is that the 2011 "mild second recession" has a deeper short-term HPA drop in 2012, but rebounded back to exceed the July 2012 forecast by 2014 and stayed higher thereafter.
And once again, home price appreciation in the near term has a much bigger impact on the NPV than price appreciation further out in time. And the impact of price increases and decreases in huge, especially in terms of loss severity on defaulting loans. For instance, in California during in 2005, loss severity subprime defaults was under 2%; in 2008 it was 70%.
As we know, Moody's Analytics was way off in its short term home price forecasts. Home price appreciation, especially in the bubble states, has been quite robust over the past year. As the firm stated in June, "Housing has gone from a major weight on the economy to an important source of growth."
Consequently, if the NPV were calculated today, using the current FHA portfolio and the current projected prices increases from Moody's Analytics, FHA's NPV would be positive.
This is but one part of Pinto's multi-layered smear campaign against a program that has never relied on government support for 78 years. Pinto also cherry picks to pervert history and malign the dead, by deceitfully conflating decades-old examples of poor FHA management and oversight with the agency's underlying business model. More on this later.
In 2011, the head of Moody's Analytics reminded us how the FHA stepped in to help the entire economy:
U.S. home prices have fallen by more than a third; without the FHA, the decline would have been substantially worse. Many more homes would have been foreclosed, and private financial institutions would have faced measurably greater losses. Aggressive intervention by the FHA saved the housing market and the economy from a much darker fate.
Why are Pintos and his AEI cohorts so vitriolic in their attacks on FHA? Because, over the past 18 years, we have seen how private financing of higher-risk mortgages, especially in private label deals, has proved to be an unmitigated failure, whereas FHA's long-term track record, which shows a foreclosure rate less than one-half that of subprime securitizations, has proved to be a self-sustaining success.
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