Chris & Shari Vanole, Realtors CalBRE# 01717530 & CalBRE# 01435632
818-257-1744      818-807-8926 Shari                     Chris



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Buying Your First Home

Finding the right first home starts with a price range and a short list of desirable neighborhoods. But there are many other factors you'll need to consider before investing in what may be your biggest asset.

Before You Start

  • Grab your current household budget so you can consider your financial situation and your ability to make mortgage payments.
  • Ask family and friends if they can recommend experts, like a lawyer and an inspector, who can help with the home buying process.
  • Think about your lifestyle and how it might affect your choice of home and neighborhood.
  • Do a little research on current home prices in the neighborhoods you plan to target. 
 
1

Buying Your First Home

Home ownership is the cornerstone of the American Dream. But before you start looking, there are a number of things you need to consider. First, you should determine what your needs are and whether owning your own home will meet those needs. Do you picture yourself mowing the lawn on Saturday, or leaving your urban condo for the beach? The best advice is to look at buying a home as a lifestyle investment, and only secondly as a financial investment.

Even if housing prices don't continue to increase at the torrid pace seen in recent years in many areas, buying a home can be a good financial investment. Making mortgage payments forces you to save, and after 15 to 30 years you will own a substantial asset that can be converted into cash to help fund retirement or a child's education. There are also tax benefits.

Like many other investments, however, real estate prices can fluctuate considerably. If you aren't ready to settle down in one spot for a few years, you probably should defer buying a home until you are. If you are ready to take the plunge, you'll need to determine how much you can spend and where you want to live.

2

How Much Mortgage Can You Afford?

Many mortgages today are being resold in the secondary markets. The Federal National Mortgage Association (Fannie Mae) is a government-sponsored organization that purchases mortgages from lenders and sells them to investors. Mortgages that conform to Fannie Mae's standards may carry lower interest rates or smaller down payments. To qualify, the mortgage borrower needs to meet two ratio requirements that are industry standards.

The housing expense ratio compares basic monthly housing costs to the buyer's gross (before taxes and other deductions) monthly income. Basic costs include monthly mortgage, insurance, and property taxes. Income includes any steady cash flow, including salary, self-employment income, pensions, child support, or alimony payments. For a conventional loan, your monthly housing cost should not exceed 28% of your monthly gross income.

The total obligations to income ratio is the percentage of all income required to service your total monthly payments. Monthly payments on student loans, installment loans, and credit card balances older than 10 months are added to basic housing costs and then divided by gross income. Your total monthly debt payments, including basic housing costs, should not exceed 36%.

Many home buyers choose to arrange financing before shopping for a home and most lenders will "prequalify" you for a certain amount. Prequalification helps you focus on homes you can afford. It also makes you a more attractive buyer and can help you negotiate a lower purchase price. Nothing is more disheartening for buyers or sellers than a deal that falls through due to a lack of financing.

In addition to qualifying for a mortgage, you will probably need a down payment. The 28% to 36% debt ratios assume a 10% down payment. In practice, down payment requirements vary from more than 20% to as low as 0% for some Veterans Administration (VA) loans. Down payments greater than 20% generally buy a better rate. Lowering the down payment increases leverage (the opportunity to make a profit using borrowed money) but also increases monthly payments.

How Much Home Can You Afford?

Bob and Janet's combined income is $50,000 a year, or $4,166 a month. Their housing expense ratio of 28% yields a monthly maximum of $1,166 for mortgage, insurance, and taxes ($4,166 x 0.28 = $1,166).

Their total debt ceiling of 36% is $1,583 (4,166 x 0.36 = $1,500). Their monthly debt payments include a $200 car payment, credit card payments of $100, and student loan payments of $200. Subtracting this total of $500 from the $1,500 permitted leaves $1,000 in monthly housing payments.

3

Costs of Buying a Home

Many home buyers are surprised (shocked might be a better word) to find that a down payment is not the only cash requirement. A home inspection can cost $200 or more. Closing costs may include loan origination fees, up-front "points" (prepaid interest), application fees, appraisal fee, survey, title search and title insurance, first month's homeowners insurance, recording fees and attorney's fees. In many locales, transfer taxes are assessed. Finally, adjustments for heating oil or property taxes already paid by the sellers will be included in your final costs. All this will probably add up to be between 3% and 8% of your purchase price.

4

Ongoing Costs

In addition to mortgage payments, there are other costs associated with home ownership. Utilities, heat, property taxes, repairs, insurance, services such as trash or snow removal, landscaping, assessments, and replacement of appliances are the major costs incurred. Make sure you understand how much you are willing and able to spend on such items.

Condominiums may not have the same costs as a house, but they do have association fees. Older homes are often less expensive to buy, but repairs may be greater than those in a newer home. When looking for a home, be sure to check the actual expenses of the previous owners, or expenses for a comparable home in the neighborhood.

5

Choosing a Neighborhood

Before you start looking at homes, look at neighborhoods. Schools and other services play a large part in making a neighborhood attractive. Even if you don't have children, your future buyer may. Crime rates, taxes, transportation, and town services are other things to look at. Finally, learn the local zoning laws. A new pizza shop next door might alter your property's future value. On the other hand, you may want to run a business out of your home.

Look for a neighborhood where prices are increasing. As the prices of the better homes increase, values of the lesser homes may rise as well. If you find a less expensive home in a good neighborhood, make sure you factor in the cost of repairs or upgrades that such a house may need.

6

Finding a Broker

If you are a first-time home buyer, you will probably want to work with a broker. Brokers know the market and can be a valuable source of information concerning the home buying process. Ask lots of questions, but remember that most brokers are working for the seller, and in the end, their primary obligation is to the seller and not to you. An alternative is a so-called buyer's broker. This individual does work for you, and therefore is paid by you. Seller's brokers are paid by the seller.

Make sure that the broker has access to the Multiple Listing Service (MLS). This service lists all the properties for sale by most major brokers across the country. Brokerage commissions average 5% to 7% and are split between the listing broker and the broker that eventually sells the home. Don't be surprised if your broker is eager to sell you their own listing since they would then earn the entire commission.

 

Home Buying Costs
 
Down Payment 0% - 20% of purchase price
Home Inspection $200 - $500
Points $1,000 and up for 1% - 3%
Adjustments 3% - 8% of purchase price

 

Once you've determined a price range and location, you're ready to look at individual homes. Remember that much of a home's value is derived from the values of those surrounding it. Since the average residency in a house is seven years, consider the qualities that will be attractive to future buyers as well as those attractive to you.

Although it can be difficult, try to remember that you will probably want to sell this home someday. The more research you do today, the better your decision will look in the years to come.
How has the sub-prime meltdown hit the low-income borrowers your organization works with?

These are the communities that are most impacted by bad and predatory lending that has occurred over the last couple of years especially in California. In the beginning of CRC’s efforts, groups like ours were worried about redlining – the fact that communities and borrowers in traditionally underserved areas didn’t have access to credit. Now in the last couple of years, that paradigm has flipped. So neighborhoods that formerly didn’t have access to credit are now flooded with credit. But its bad credit, high cost credit, confusing, complicated loans that in many cases set up people to fail.

What kind of loans are you talking about?

An example might be a pre-payment penalty. So if you pay your loan off early you might have to pay thousands of dollars. Another kind of loan sold aggressively are option ARM loans or interest-only loans. These are complicated loans devised for very sophisticated borrowers who knew they were going to sell their house in a few years. But with housing prices so high the lending industry started to refer to these products as “affordability products.” Brokers would qualify (borrowers) based on artificially low monthly payments. What that means is every month you are making your payment, you are adding to the money you actually owe. Now we are seeing the effects of people who got high cost loans they couldn’t sustain or option ARM rates that are now adjusting.

I read that 20 percent of people whose homes are being foreclosed don’t speak English. How big of an issue is language?

It’s a huge issue. Spanish speaking borrowers are sold loans by Spanish speaking brokers but the documents are all in English. It’s a bait and switch.

Is it legal?

We say no. But the lending industry seems to think it is legal in certain circumstances. We have a state law provision that speaks to this but possibly not in the clearest way. So there is no agreement about what is required. There was a bill in the legislature this year, AB 512 by Sally Lieber that advocates hoped would be a way of clarifying the obligation. The bill met industry opposition and was held off to next year.

What about communities where language is not the issue for example African Americans who traditionally have had a high rate of home ownership?

At the risk of over-simplifying I would say that Latino borrowers are vulnerable on the front-end because of language issues and they lack of understanding about the home loan process especially when it’s a first home and perhaps several families are pooling resources to buy it. African Americans on the other hand are often long-term homeowners whose accumulated equity made them very vulnerable to predatory lending. Many of them, including many seniors, have refinanced themselves into bad loans.

What’s been the effect on neighborhoods?

Foreclosures are devastating for the homeowner. But they are just as hard on the neighborhood. It drives other property prices down. It becomes a blight on the community. People are complaining about foreclosed properties being badly maintained. We’ve heard reports about tenants living in foreclosed homes who find their utilities shut off.

Will the president’s proposal to help people facing foreclosure help those with bad credit?

The president’s proposals provide some relief for some people in trouble. That’s good. The president’s proposal is carving out a small segment of borrowers who would qualify for an FHA loan through the government. If you didn’t have good credit you wouldn’t be able to take advantage of that kind of a loan product.

What are the options then for someone facing foreclosure?

Practically speaking the best thing borrowers can do is find a qualified housing counseling agency that’s in the business of understanding this stuff. Find a HUD-certified home loan counseling agency that can give them advice and maybe negotiate with the lender. One of our main points of focus at CRC is to advocate with the lenders to modify loan terms. But housing values have gone down in California so dramatically most refinance loans are not available to people who most need the help. A borrower can also contact their lender and say I would like a loan modification. I’ll keep my loan with you but I won’t be able to make the payment as the rates go up. HUD is also talking about expanding its FHA loan program to reach more borrowers.

Are there legal options?

Anybody who believes anything untoward occurred in their loan should find someone to help them. The reality is there are only so many lawyers willing to take these cases, like the Fair Housing Law Project. You can also call the county bar association.

Do you think this is going to change how we view the American Dream with home ownership at its center?

A lot of people are realizing that home ownership is not for everyone, at least not for now. The not-so-great California law says you shouldn’t pay more than 50-55 percent of your income on housing. But the reality in California is it is hard to buy a house. This results in option ARM loans and interest-only loans. The best advice for people, before buying a home, is to find a counseling agency on the front end to help them understand what they are signing.

Is this going to get worse before it gets better?

It is going to get worse. Over the next two years, about two million loans are facing interest rate resets. There’s tightened credit now. Most sub-prime loans were financed by investors. Investors don’t want to touch them now. So people are finding it hard to refinance. It was a Wild West out there – not enough regulations and lots of bad loans. We will need more regulations before investors feel comfortable again. But for now foreclosures will continue, wreaking havoc on borrowers and the neighborhood.


Analysis: White House, Congress, Fed Are Scrambling to Deal With Unfolding Mortgage Crisis

 After a slow and stumbling start, official Washington is scrambling to try to prevent the unfolding mortgage crisis from pushing the country into recession during an election year. There is a strong feeling, though, that the government will need to do more to avert a financial disaster.

 

 
One former Treasury secretary advocates temporary tax cuts and emergency spending on the order of $50 billion to $75 billion. Such action could help the U.S. from slipping into what Lawrence Summers, who served under President Clinton, fears could become the worst downturn since the steep 1981-82 recession.

 

Some Republicans are worried, too.

From both Martin Feldstein, who was President Reagan's top economic adviser, and former Federal Reserve Chairman Alan Greenspan have come calls for deeper government intervention to deal with the threat.

Before it is all over, the government may have to resort to measures last used in the savings and loan crisis of the 1990s. Back then, it was a new agency to take over failing thrifts sunk by bad loans. Today, it could mean a government agency to buy up billions of dollars of mortgage-backed securities that investors are shunning.

The Bush administration thus far has opted for less dramatic measures. In fact, the administration came reluctantly to the biggest step taken to date -- the "teaser freezer" announced two weeks ago.

A deal with the mortgage industry will freeze the low introductory "teaser" rates for five years on some subprime mortgages -- loans to people with spotty credit histories. The rates were to climb much higher, making the mortgages unaffordable for many people and putting their homes at risk of foreclosure.

The hope is that this agreement will buy time for the housing market to rebound. That would make it easier for these homeowners to refinance to more affordable fixed-rate loans.

But estimates are that only about 250,000 people will end up getting a rate freeze -- a fraction of the 3.5 million home loans that could go into default over the next 2 1/2 years.

The administration also is working with Congress to increase the $417,000 cap on the size of loans that the big mortgage companies Fannie Mae and Freddie Mac can handle. This step could help in high-cost housing areas such as California.

In addition, the administration is supporting legislation that would boost aid to lower-income homeowners by increasing the scope of mortgage insurance programs handled by the Federal Housing Administration.

These efforts may help at the margins. They do not, however, address one of the biggest threats to the economy: a spreading credit crisis triggered by the soaring defaults on subprime mortgages.

Some of the biggest names in finance have suffered multibillion-dollar losses as a result, and critical segments of the credit markets have frozen up. Banks and investors fear making further loans or buying securities backed by debt because they do not know how many more loans might go into default.

Ben Bernanke, facing his first major test as Fed chairman, is getting mixed reviews. The Fed was embarrassed when the credit crisis hit in August. That happened only two days after the central bank had decided to keep interest rates unchanged and declared that inflation was a bigger risk than weak economic growth.

The Fed has cut interest rates by a full percentage point since that time. But only the September cut -- a bigger-than-expected one-half of a percentage point -- elicited cheers on Wall Street. The two quarter-point moves brought about market declines as investors worried the Fed did not recognize the severity of the problem.

The trouble is that the credit crisis is occurring at the same time that a run-up in energy prices is increasing inflationary pressures.

And that is the dilemma.

If the Fed cuts interest rates to keep the economy out of a recession, it could sow the seeds for higher inflation and perhaps give the country the worst of both worlds, bringing back that 1970s bugaboo, "stagflation," in which growth is stagnant and inflation is getting worse.

In a novel approach, the Fed is auctioning off money to the banks in an attempt to get them to open up their loan spigots. The first two auctions, for a total of $40 billion last week, went well. But the amount of the cash provided to the banks paled in comparison with the $500 billion from the European Central Bank.

Many economists believe the Fed will have to cut its federal funds rate, the interest that banks charge each other, at least three more times and strengthen the wording of its statements. In that way, the markets would know the Fed will do whatever is needed to fight economic weakness in spite of its lingering worries about inflation.

"The difference between a soft economy and a recession is confidence. If the Fed appears reticent to do what is needed, like they did at their last meeting, that does not help confidence," says Mark Zandi, chief economist at Moody's Economy.com.

As for the administration and Congress, a tax cut possibly in the form of a rebate probably will be debated in the coming year. President Bush told reporters at the White House on Thursday that "we're constantly analyzing options available to us." He insisted that the economy's underlying fundamentals remained strong.

Summers, however, in a speech last week, urged bolder action. "For the last year, the economic consensus, and the policy actions that have flowed from it, has been consistently behind the curve," he said.

Gaining some currency is the idea of a government agency modeled after the Resolution Trust Corp. of the S&L days that would buy up mortgage-backed securities as a way of dealing with bad loans. About $100 billion in such loans have surfaced and an additional $200 billion are likely, according to market estimates.

If the government spent $150 billion to $200 billion to purchase mortgage-backed securities, the thinking goes, it would prevent a fire-sale that would drive prices of these securities even lower.

When the housing market stabilizes, the price of the government-held securities would begin to rise, allowing the government to sell them back to investors.

Whatever approach the government decides to take, economists said it will take time for the current problems to resolve themselves. They expect this housing downturn, which followed a five-year boom, to last through most of next year even under a best-case scenario in which the country avoids a full-blown recession.

"We have the fundamental problem that we built too many houses and we charged too high a price for them," says David Wyss, chief economist at Standard & Poor's in New York. "We have to stop building houses for a while and the prices have to come down. We are trying to make sure that process doesn't derail the rest of the economy."

S&P: US Home Prices Fall by a Record in October for 23rd Straight Month of Deceleration

 U.S. home prices fell in October for the 10th consecutive month, posting their largest monthly drop since early 1991, a widely watched index showed on Wednesday.

The record 6.7 percent drop in the Standard & Poor's/Case-Shiller home price index also marked the 23rd consecutive month prices either grew more slowly or declined.

 

"No matter how you look at these data, it is obvious that the current state of the single-family housing market remains grim," said Robert Shiller, who helped create the index, in a statement.

 

The previous record decline was 6.3 percent, recorded in April 1991. The S&P/Case-Shiller home price index tracks prices of existing single-family homes in 10 metropolitan areas compared to a year earlier. The index is considered a strong measure of home prices because it examines price changes of the same property over time, instead of calculating a median price of homes sold during the month.

The broader Case-Shiller index of 20 metropolitan areas fell 6.1 percent. Among the 20 metropolitan areas used in the broader index, 11 posted record monthly declines and all 20 declined in October compared to September.

Miami posted the largest decline among those 20 markets. Home prices in the Miami metropolitan area fell 12.4 percent in October compared to the same month last year, surpassing Tampa, Fla. as the worst-performing city. Tampa posted a year-over-year loss of 11.8 percent.

Besides those two cities, Detroit, Las Vegas, Phoenix and San Diego also posted double-digit year-over-year declines.

Atlanta and Dallas, which had previously posted price appreciation, fell in October. Prices fell 0.7 percent in Atlanta and 0.1 percent in Dallas compared to a year earlier.

Only three areas -- Charlotte, N.C., Portland, Ore. and Seattle -- posted year-over-year home price appreciation in October. Charlotte posted the largest gains at 4.3 percent.

Bob Morgan, president of the Charlotte Chamber of Commerce, said the area's economy continues to create jobs at record levels. While the numbers are preliminary, more than 14,000 jobs were created in the Charlotte area in 2007, he said, compared with more than 12,000 jobs in 2006.

The job growth is coming from a "pretty healthy" variety of sectors, including the financial industry, Morgan said. Charlotte is home to two of the nation's four largest banks, Bank of America Corp. and Wachovia Corp.

Carole Brake, the sales manager at Bissell Hayes Realtors SouthPark Office in Charlotte, said prices are still up despite an increase in inventory.

"Sellers are not in a mode to reduce their prices. They want a fair market price for their home," Brake said.
Bank of America Corp is in advanced talks to buy struggling Countrywide Financial Corp, the largest U.S. mortgage lender, several people familiar with the matter said on Thursday.

 

 
Countrywide shares soared 51.4 percent, recovering losses posted in the prior two days, when investors were speculating the company could go bankrupt, even after the company's specific rejection of that prospect on Tuesday.

 

Bank of America spokesman Scott Silvestri declined to comment. Countrywide did not immediately return requests for comment, but declined to discuss market activity in its stock, according to the New York Stock Exchange. The Wall Street Journal earlier reported the possible merger.

"From Countrywide's perspective, it is their best chance for salvation," said Sean Egan, managing director of credit rating agency Egan-Jones Ratings Co. "At the end of the chaos that is going to transpire over the next two years, it gives Bank of America a terrific position in mortgage financing."

Countrywide shares closed up $2.63 at $7.75. Bank of America shares closed up 56 cents at $39.30. Both companies' shares trade on the New York Stock Exchange.

Even after Thursday's gains, Countrywide's market value is still only about $4.8 billion. That is far below the roughly $26 billion it was worth last February, just as the housing crisis was about to explode.

LEWIS STRIKES AGAIN

A purchase would constitute another major acquisition for Kenneth Lewis, Bank of America's chief executive.

He has spent more than $100 billion in the last four years on FleetBoston Financial Corp, credit card issuer MBNA Corp, LaSalle Bank Corp and the U.S. Trust wealth management firm.

The purchases helped Charlotte, North Carolina-based Bank of America become the nation's second-largest bank, a direct rival to Citigroup Inc and JPMorgan Chase & Co.

A merger would also end Calabasas, California-based Countrywide's more than 38 years as an independent company, since its founding in 1969.

Angelo Mozilo, its co-founder and chief executive, has been a lightning rod for critics who say he encouraged loose lending practices that contributed heavily to the housing crisis.

Mozilo has also been faulted for collecting hundreds of millions of dollars in compensation this decade from pay, bonuses, awards and stock options, including millions of dollars after it was clear the housing crisis had begun. In July, he called the slump the worst since the Great Depression.

Bank of America in August bought $2 billion of Countrywide preferred shares convertible into a roughly one-sixth stake in the lender.

That investment has lost money on paper, but analysts said it made Bank of America -- whose own profitability is suffering from rising credit losses -- an obvious candidate to buy Countrywide, eventually.

STRUGGLES

Countrywide overhauled its lending practices this summer, essentially ending subprime and other riskier home loans, after being forced to draw down an $11.5 billion credit line because investors would not buy its mortgages or offer credit.

The mounting problems led to a $1.2 billion third-quarter loss, and led to 11,000 job cuts since the end of July. Countrywide now primarily makes smaller home loans considered less likely to default.

Still, credit problems linger. On Wednesday, Countrywide said December foreclosures and late payments among home loans on which it collects payments rose to the highest on record.

While Countrywide has repeatedly said it has sufficient liquidity to operate, investors have not been convinced.

"Obviously a purchase of Countrywide by Bank of America would solve the company's funding and liquidity problems with a stroke of the pen," wrote Kathleen Shanley, an analyst at Gimme Credit, in independent bond research service.

"The big issue is whether Bank of America can get comfortable enough with the credit quality issues to move forward without any commitments of support from bank regulators."

The cost of protecting debt of Countrywide's home loans unit against default plummeted on Thursday.

Investors demanded $600,000 a year for five years to protect $10 million of debt against default, according to Phoenix Partners. They had earlier Thursday been demanding 31 percent up front, plus $500,000 a year, to protect the debt.

Construction of New Homes Falls 24.8 Percent in 2007, the Largest Amount in 27 Years

The prolonged slump in housing pushed construction of new homes in 2007 down by the largest amount in 27 years with the expectation that the downturn has further to go.

The Commerce Department reported Thursday that construction was started on 1.353 million new homes and apartments last year, down 24.8 percent from 2006. It was the second biggest annual decline on record, exceeded only by a 26 percent plunge in 1980, a period when the Federal Reserve was pushing interest rates to post-World War II records in an effort to combat an entrenched inflation problem.

 

 
Many economists believe that the current slump in housing will rival the dive in the late 1970s and early 1980s when housing construction fell for four straight years before beginning to recover after the severe 1981-82 recession. For December, construction fell by a bigger-than-expected 14.2 percent.

 

In other economic news, the Labor Department said the number of newly laid off workers filing applications for unemployment benefits dropped by 21,000 last week to 301,000. That marked the third consecutive weekly decline and occurred even though the government reported that the unemployment rate increased sharply in December.

Some economists believe the current housing troubles will push the country into another recession as consumers are staggered by the steep drop in housing -- which has pushed home values down in many parts of the country. Consumers also have been faced with rising mortgage defaults and a severe credit crunch which has made loans harder to obtain.

Various recent reports have increased those worries including news that unemployment in December shot up to 5 percent, rising by the largest amount in one months since the country was reeling from the 2001 terrorist attacks. Many large financial institutions have announced billions of dollars of losses due to the meltdown in subprime mortgages.

The drop in construction in December was bigger than economists had been expecting and reflected weakness in all parts of the country. Housing construction fell by 30.8 percent in the Midwest and was down 25.8 percent in the Northeast and 19.6 percent in the West. The decline in the South was a smaller 3.3 percent.

Economists said the weakness showed that the housing correction was getting worse since the turmoil in financial markets hit in August.

"Builders have finally thrown in the towel," said Ian Shepherdson, chief U.S. economist at High Frequency Economics. "This is a precondition for recovery as it will eventually reduce the inventory overhang. But there is a long way to go."

For December, housing starts totaled 1.006 million units at an annual rate. In an ominous sign for the future, applications for building permits fell by 8.1 percent to an annual rate of 1.068 million units. That marked the seventh consecutive monthly decline and reflected the fact that builders have been slashing production plans in an effort to deal with a glut of unsold homes.

A survey of builder sentiment prepared by the National Association of Home Builders came in at the second-lowest level on record in January at a reading of 19. That was up slightly from the record low of 18 set in December. The index has been below 20 since October as builders struggle to deal with slumping demand, rising housing defaults and tighter lending standards.

Last week, KB Home, one of the nation's largest homebuilders, said losses in the fourth quarter had ballooned to more than $770 million.

Many economists believe the housing sector will remain weak through this year before starting to stage a rebound in 2009.


Sales of Existing Single-Family Homes Drop in 2007 by Largest Amount in 25 Years

 Sales of existing homes fell in December, closing out a horrible year for housing in which sales of single-family homes plunged by the largest amount in 25 years. The median home price dropped for the entire year, the first time that has occurred in four decades.

 

 
The National Association of Realtors reported that sales of single-family homes and condominiums dropped by 2.2 percent in December to a seasonally adjusted annual rate of 4.89 million units.

 

For the year, sales of single-family homes were down by 13 percent, the biggest drop since a 17.7 percent plunge in 1982. The median price for a single-family home dropped 1.8 percent to $217,000.

That was the first annual price decline on records going back to 1968. Lawrence Yun, the Realtors' chief economist, said it was likely that the country has not experienced a decline in housing prices for an entire year since the Great Depression of the 1930s.

The new figures underscored the severity of the slump in housing, which has been battered for the past two years after enjoying a boom in which sales set records for five consecutive years.

The housing bust has sent shock waves through the entire economy as defaults have risen, resulting in multibillion-dollar loses for big financial firms whose investments in subprime mortgages have gone sour.

There is a concern that the housing and credit troubles could be enough to push the country into a full-blown recession. After global stock markets experienced a sharp sell-off earlier this week, the Federal Reserve announced a bold three-quarter point cut in a key interest rate and held out the promise of more rate cuts to follow.

The Bush administration and congressional leaders are trying to quickly wrap up negotiations on a stimulus package in an effort to boost consumer and business confidence.

For December, sales were down in all regions of the country. Sales fell by 4.6 percent in the Northeast, 1.7 percent in the Midwest, 1 percent in the South and 2.1 percent in the West.

The inventory of unsold homes dropped by 7.4 percent, raising hopes that backlogs that had hit record levels were starting to be reduced, a key factor necessary to prompt a rebound in the market.

While Yun said he expected sales to start to rebound this spring, other analysts said housing is likely to remain in the doldrums throughout most of 2008, reflecting in part the credit crunch, which has caused lenders to tighten their standards, making it harder for prospective buyers to qualify for loans.

In other economic news, the Labor Department said Thursday that the number of laid off workers filing claims for unemployment benefits fell for a fourth straight week, dropping by 1,000 to 301,000.

Many economists cautioned that they still expected layoffs to start rising in coming weeks, reflecting the sharp economic slowdown that has taken place.

The economy, after racing ahead at an annual rate of 4.9 percent in the July-September quarter, probably slowed to a weak 1 percent rate in the final three months of 2007 and may even fall into negative territory in the current January-March quarter.

A recession is often defined as two consecutive quarters of falling economic output. Many economists believe the risks of a full-blown downturn are roughly 50-50.

The growing worries about the economy in an election year have captured the attention of President Bush and congressional leaders who are working to put together a $150 billion economic stimulus package that will include tax relief for households and businesses in an effort to bolster economic activity.

The drop in unemployment applications to 301,000 for the week ending Jan. 19 left total claims at the lowest level since 300,000 were recorded during the week of Sept. 22.

For the week of Jan. 19, 36 states and territories had increases in claims while 17 had declines.

The biggest increase occurred in California, up 27,194, an upsurge blamed on higher layoffs in construction and service industries, and Florida, with an increase in layoffs of 8,496, which was attributed in part to higher layoffs in construction. California and Florida have been particularly hard hit by the housing slump.

 Number of US Homes in Some Stage of Foreclosure Soared 79 Percent in 2007, Data Show

 The number of U.S. homes that slipped into some stage of foreclosure in 2007 was 79 percent higher than in the previous year, a real estate tracking company said Tuesday. Many homeowners started to fall behind on mortgage payments in the last three months, setting the stage for more foreclosures this year.

 

 
About 1.3 million homes received foreclosure-related warnings last year, up from 717,522 in 2006, Irvine-based RealtyTrac Inc. said. Foreclosure filings rose 75 percent from the previous year to 2.2 million.

 

More than 1 percent of all U.S. households were in some phase of the foreclosure process last year, up from about half a percent in 2006, RealtyTrac said.

Nevada, Florida, Michigan and California posted the highest foreclosure rates, the company said.

The filings included notices warning owners that they were in default, or that their home was slated for auction or for repossession by a bank. Some properties may have received more than one notice if the owners had multiple mortgages.

A late-year surge in the number of properties reporting foreclosure filings suggests that many are in the initial stages of the foreclosure process and could end up lost to foreclosure this year unless lenders or the government steps in, RealtyTrac said.

"It does appear that we're seeing a new batch of properties enter the process," said Rick Sharga, RealtyTrac's vice president of marketing.

RealtyTrac is forecasting that the pace of foreclosure filings will remain steady, rather than accelerate during the first half of 2008.

"Assuming nothing else bad happens economically ... we will have exhausted the bulk of the worst-performing loans by the end of June," Sharga said, referring to adjustable-rate mortgage loans made to borrowers with poor credit.

Many of these subprime loans defaulted last year, triggering a credit crisis and saddling major financial institutions with losses.

More than 1.8 million subprime mortgages are scheduled to reset to higher interest rates this year and next.

Last year's explosion in foreclosure activity came amid a worsening housing downturn, as falling home values ate into homeowners' equity, making it harder for many to refinance into more affordable loans or to find buyers. Those options had helped keep troubled homeowners from sliding into foreclosure.

"We went from a sort of buying frenzy to a foreclosure frenzy in the last two years," Sharga said.

Recent efforts by government and mortgage lenders to help homeowners at risk of falling seriously behind on mortgage payments have had a marginal impact on the U.S. foreclosure rate so far, Sharga added.

In December alone, foreclosure filings soared 97 percent from the same month a year earlier to 215,749. It was the fifth consecutive month in which foreclosure filings topped more than 200,000, RealtyTrac said.

In the fourth quarter, filings rose 86 percent from the prior-year quarter but only 1 percent from the third quarter.

Nevada had the highest foreclosure rate in the nation last year, with 3.4 percent of its households receiving foreclosure filings. That was more than three times the national average, RealtyTrac said.

The state had 66,316 filings on 34,417 properties in 2007, up more than 200 percent from 2006's total.

Florida had more than 2 percent of its properties in some stage of foreclosure last year. The state reported 279,325 filings on 165,291 homes, more than twice the previous year's total.

In Michigan, where job losses are pressuring many homeowners, 1.9 percent of all households received a foreclosure filing last year. In all, 136,205 filings were issued on 87,210 properties, up 68 percent versus filings in 2006.

California led the nation in total foreclosure filings and the number of homes in some stage of foreclosure last year.

A total of 481,392 filings were issued on 249,513 properties, more than triple the number of filings in 2006, RealtyTrac said.

In all, 1.9 percent of households in California received foreclosure filings.

Many of the homes receiving foreclosure filings in the state were in the inland markets, where new construction and more affordable prices helped fuel a spike in sales toward the end of the housing boom.

Other states in the 2007 foreclusure top 10 were Colorado, Ohio, Georgia, Arizona, Illinois and Indiana.

Existing Home Sales Fall to Lowest Level in Nearly a Decade

 Sales of existing homes fell to the lowest level in nearly a decade in January while the median price for a home dropped for the fifth straight month.

The National Association of Realtors said Monday that sales of single-family homes and condominiums dropped by 0.4 percent last month to a seasonally adjusted annual rate of 4.89 million units, the slowest sales pace on records going back to 1999.

 

The median price of a home sold in January slid to $201,100, a drop of 4.6 percent from a year ago.

 

The drop in sales and the fifth consecutive decline in prices underscored the continued pressure facing housing, which is struggling to emerge from its worst slump in a quarter-century.

Sales were weak in all parts of the country except the Midwest, where sales posted an increase of 3.4 percent. Sales dropped by 3.6 percent in the Northeast, 2.1 percent in the West and 0.5 percent in the West.

Sales of both existing homes and new homes tumbled for a second straight year in 2007 as the housing industry was battered by a severe credit crunch that hit in August as major financial institutions began reporting multibillion-dollar losses on their investments in risky subprime mortgages, loans made to homeowners with weak credit.

The market for subprime mortgages has essentially dried up and other types of loans have become harder to obtain as lenders have tightened their standards.

Lawrence Yun, chief economist for the Realtors, said he believed the housing market may be on the verge of bottoming out with a rebound expected to start toward the end of this year.

"Subprime loans and other risky mortgage products have virtually disappeared from the marketplace, and over the past five months, this has been reflected in soft but fairly stable home sales," he said.

He said he expected demand to be bolstered in coming months by the action of Congress in the economic stimulus bill to raise the caps on the size of loans that can be backed by Fannie Mae and Freddie Mac and the Federal Housing Administration.

The slump in housing that began in 2006 followed a boom period in which sales and prices had soared to record levels. Many economists believe that the sharp turnaround has severely depressed economic growth and boosted the odds that the country could fall into a full-blown recession.

 Home Sales Rise Unexpectedly but Prices Keep Tumbling

 Sales of existing homes increased unexpectedly in February after six months of decline, but private economists said it was too soon to say that the prolonged slide in housing is coming to an end.

 

The National Association of Realtors said that sales of existing homes rose by 2.9 percent in February to a seasonally adjusted annual rate of 5.03 million units. It marked the first sales increase since last July, but even with the gain sales were still 23.8 percent below where they were a year ago.

 

Prices continued to slide. The median sales price for single-family homes homes and condomiums dropped to $195,900, a fall of 8.2 percent from a year ago, the biggest slide in the current housing slump. The median price for just single-family homes was down 8.7 percent from a year ago, the biggest decline in four decades.

Wall Street, which had been expecting another decline in sales, was encouraged by the February increase. But economists said they still believed any sustained rebound was many months away.

"The hemorrhaging has stopped but the recovery will be long, slow and painful," said Bernard Baumohl, managing director of the Economic Outlook Group. "It's unlikely that we will see any sustained jump in home purchases, must less higher prices, until mid 2009 at the earliest."

Brian Bethune, an economist at Global Insight, said, "A quick bounce back in the housing markets is simply not in the cards."

White House press secretary Dana Perino said the increase in sales and a decline in the inventory of unsold homes was encouraging but "we can't put a lot of stock in just one report."

Lawrence Yun, chief economist for the Realtors, said that some formerly hot markets in California and Florida were seeing significant price declines now as sellers are cutting prices to attract buyers.

"We are not expecting a notable gain in existing-home sales until the second half of this year," he said.

He said that sales should be helped in coming months by recent moves to boost the loan limits on mortgages that can be insured by the Federal Housing Administration and purchased by Fannie Mae and Freddie Mac.

By region of the country, sales surged by 11.3 percent in the Northeast and were up 2.5 percent in the Midwest and 2.1 percent in the South. The only region of the country to see a sales decline was the West, where sales dropped by 1.1 percent.

The inventory of unsold homes dipped to 4.03 million units in February. That meant it would take 9.6 months to exhaust the supply of homes for sale at the February sales pace. That was down from January's level of 10.2 months but still about double what the months' supply had been during the peak of the housing boom.

Sales of existing homes fell by 12.8 percent in 2007, the biggest decline in 25 years, following an 8.5 percent drop in 2006. After a five-year boom, the steep downturn in housing over the past two years has been made worse by a severe credit crunch as financial institutions tightened their lending standards in reaction to multibillion-dollar losses on mortgages that have gone into default.

The steep slump in housing has raised concerns about a possible recession. Democrats are pushing for greater efforts to stem a tidal wave of mortgage foreclosures to keep more unsold homes from being dumped on an already glutted market.

Sen. Hillary Clinton, campaigning for the Democratic presidential nomination in Pennsylvania on Monday, called on President Bush to appoint an emergency working group on foreclosures to recommend new ways to confront the housing crisis.

"Over the past week, we've seen unprecedented action to maintain confidence in our credit markets and head off a crisis for Wall Street banks," Clinton said in a campaign speech. "It's now time for equally aggressive action to help families avoid foreclosure and keep communities across this country from spiraling into recession."

 Foreclosure Filings Against US Homeowners Soar 57 Percent in March; Bank Repossessions Surge

 The onslaught of homes facing foreclosures has yet to ebb, a research report showed Tuesday, with bank repossessions skyrocketing last month as more troubled homeowners mailed in their keys and walked away.

 

 
And the worst isn't over: the wave of adjustable-rate loans resetting to higher rates will crest in May and June. And that's expected to push more homeowners into default and foreclosure in the third and fourth quarters of this year, according to RealtyTrac Inc. of Irvine, Calif.

 

"Once we're through that batch of loans, the worst will have been worked through the system," said Rick Sharga, RealtyTrac's vice president of marketing.

The number of U.S. homes receiving at least one foreclosure filing jumped 57 percent in March to 234,685, compared with 149,150 properties a year earlier. Filings include default notices, auction sale notices and bank repossessions.

The overall foreclosure rate is 5 percent higher than in February, which saw an unexpected month-to-month decline over January. March marked the 27th consecutive month of year-over-year increases in national foreclosure filings.

That meant one in every 538 households received a filing during the month. Forty-four percent were households that slipped into default for the first time and more than a fifth were homes banks took back.

Lenders took possession of homes at a sharply higher rate, up 129 percent over last year, as more homeowners relinquished their homes, said Sharga. Banks repossessed 51,393 properties nationwide, many of them without a public foreclosure auction.

"In a lot of cases, banks worked something out with the owner in advance and took back the keys and deed. For a homeowner, it's not as embarrassing and it's a little less of a blemish on their credit record compared to a foreclosure," Sharga said.

He estimates between 750,000 and 1 million bank-owned properties will hit the market this year, or about a quarter of the homes up for sale. In some areas, these properties will continue to slow sales and depress prices further.

Declining home prices and stricter lending requirements have exacerbated the foreclosure environment. Homeowners stuck in unmanageable mortgages aren't able to sell their homes or refinance into cheaper loans before their mortgage payments reset higher.

Nevada clocked in the worst foreclosure rate for the 15th straight month. Last month, one in every 139 households received a foreclosure-related notice, nearly four times the national rate. The number of properties with a filing increased 24 percent over February and 62 percent over the previous March.

California had the second-highest foreclosure rate in the country. One in every 204 California households received a foreclosure-related notice. The state had 64,711 properties facing foreclosure, the most of any state and more than double last year's total.

In Florida, 30,254 homes reported at least one filing, down nearly 7 percent from February, but up 112 percent from the year before.

Rounding out the states with the highest foreclosure rates were Arizona, Colorado, Georgia, Ohio, Michigan, Massachusetts and Maryland.

Existing home sales decline in March as housing slump continues

 Sales of existing homes fell in March as a severe slump in housing showed no signs of abating. The median price of a home fell compared with the price a year ago.

The National Association of Realtors said sales of existing single-family homes and condominiums dropped by 2 percent in March to a seasonally adjusted annual rate of 4.93 million units.

 

 
The median price of a home sold last month was $200,700, a decline of 7.7 percent from the median price a year ago. That was the second-biggest year-over-year price decline following a record 8.4 percent drop in February. The records go back to 1999.

 

It marked the seventh consecutive year-over-year drop in prices, although the March sales price was up slightly from a February median price of $195,600. Economists prefer to compare the prices on a year-over-year basis because, unlike sales, the monthly prices are not adjusted for normal seasonal variations.

The March sales decline, which was in line with expectations, followed a 2.9 percent increase in sales in February. The February rise, which followed six straight monthly declines, had raised hopes that the steep housing correction could be hitting bottom.

However, many private analysts said they do not expect a rebound for a number of months, given the problems weighing on housing from a severe glut of unsold homes to tighter credit standards for prospective buyers and a rising tide of mortgage foreclosures.

Sales were down 19.3 percent compared with a year ago, reflecting the depth of the housing bust, which is coming after sales set records for five consecutive years.

For March, sales were down 6.5 percent in the Midwest and 3.5 percent in the South but increased by 2.2 percent in the Northeast and 2.2 percent in the West.

The Northeast was the country's only region to experience a rise in median prices, which were up 4.6 percent compared with a year ago. Prices were down in all other regions of the country, dropping by 14.7 percent in the West, 7.1 percent in the South and 5.3 percent in the Midwest.

Lawrence Yun, chief economist for the Realtors, said he expected sales would begin to show improvements in the second half of this year, helped by an improved availability of mortgage-backed insurance from the Federal Housing Administration and higher limits for jumbo mortgages, loans that are critically important in high-priced areas of the country such as California.

 US home prices fall 3.1 percent in first quarter in largest drop on record

 U.S. home prices posted their sharpest first-quarter decline since the government began tracking the data 17 years ago.

The Washington-based Office of Federal Housing Enterprise Oversight said Thursday that home prices fell 3.1 percent in the first quarter compared with last year. The index also fell 1.7 percent from the fourth quarter of 2007 to the first quarter of 2008, the largest quarterly price drop on record.

 

 
"The large overhang of real estate inventory awaiting sale continues to force price declines in many areas, but particularly in places that had seen very sharp appreciation," Patrick Lawler, the agency's chief economist, said in a prepared statement.

 

Prices fell in 43 states, with California and Nevada showing the biggest declines. Home prices dropped by more than 8 percent in those states.

The government index is calculated by tracking mortgage loans of $417,000 or less that are bought or backed by the government-sponsored mortgage-finance companies Fannie Mae and Freddie Mac. Legislation enacted in February temporarily raised the limit to as much as $729,750 in high-cost areas.

The government index focuses on less expensive properties and includes fewer houses bought with risky home loans that have gone sour over the past year.

Another reading that includes such properties and focuses on major U.S. cities, the Standard & Poor's/Case-Shiller has shown larger declines.

 Home foreclosures and late payments set records over the first three months of the year and are expected to keep rising, stark signs of the housing crisis' mounting damage to homeowners and the economy.

 

The latest snapshot of the mortgage market, released Thursday, showed that the proportion of mortgages that fell into foreclosure soared to 0.99 percent in the January-through-March period. That surpassed the previous high of 0.83 percent over the last three months in 2007.

The report by the Mortgage Bankers Association also found that more homeowners slipped behind on their monthly payments.

The delinquency rate jumped to 6.35 percent in the first quarter, compared with 5.82 percent for the three months earlier. Payments are considered delinquent if they are 30 or more days past due.

Both the rate of new foreclosures and late payments were the highest on record going back to 1979.

Jay Brinkmann, the association's vice president of research and economics, told The Associated Press that the slump in house prices was the biggest factor for rising foreclosures and late payments.

With prices expected to keep dropping, foreclosures and late payments "are going to continue to go up" in the months ahead, he said.

Homeowners with tarnished credit who have subprime adjustable-rate loans took the hardest hits. Foreclosures and late payments for these borrowers also swelled to all-time highs in the first quarter.

The percentage of subprime adjustable-rate mortgages that started the foreclosure process climbed to 6.35 percent. The rate was 5.29 percent in fourth quarter, the previous high. Late payments rose to 22.07 percent from 20.02 percent, the previous high.

The association's survey covers just over 45 million home loans.

More problems also cropped up with loans to more creditworthy borrowers.

The percentage of such loans falling into foreclosure was 0.54 percent, compared with 0.41 percent at the end of last year. Late payment rose to 3.71 percent, compared with 3.24 percent.

The numbers were higher for prime borrowers with adjustable rate mortgages. The proportion of those loans falling into foreclosures jumped to 1.55 percent from 1.06 percent. The delinquency rate rose to 6.78 percent, compared with 5.51 percent.

"The number one problem is the drop in home prices," Brinkmann said. Declining prices, especially in newer built areas, "are hurting people's ability to recover when they run into trouble — a divorce or loss of job," he said. "In other days, you could sell the home. But because home prices have fallen so much, in many of those cases, the homes are going into foreclosure."

California, Florida, Nevada and Arizona accounted for 89 percent of the total increase in new home foreclosures, he said. Those are places where prices have fallen sharply and there was a lot of home building, creating too much supply, Brinkmann said.

After a five-year boom, the housing market fell into a deep slump two years ago. That dragged down sales, and prices with it. As the value of homes plummeted, many newer homeowners found themselves owing more on their mortgages than their homes were worth.

Homeowners with adjustable-rate mortgages were clobbered when their initially low rates reset to much higher ones. That made it difficult, if not impossible, to keep up with monthly mortgage payments.

As foreclosures and late payments climbed, financial companies took multibillion losses when their investments in mortgage-backed securities soured. A credit crisis erupted and spread, crimping other types of financing. The fallout plunged Wall Street in turmoil, disrupting the normal functioning of markets.

All those troubles have pushed the economy to the brink of a recession, if the country isn't already in one. Consumers and business have tightened their spending. Employers have cut more than a quarter-million jobs in the first four months of this year.

To bolster the economy, the Federal Reserve made aggressive interest rate cuts. That has helped homeowners facing rate resets on their adjustable-rate mortgages. But with inflation on the rise, Fed Chairman Ben Bernanke this week sent his strongest signal yet that the central bank's rate-cutting campaign started that started in September is coming to an end.

The Bush administration has taken steps to help distressed homeowners. It has urged lenders to freeze rates for some homeowners and encouraged lenders to rework mortgage terms so troubled borrowers can stay in their homes.

A congressional plan that includes a foreclosure prevention program has stalled as lawmakers figure out how to pay for it.

The government would back as much as $300 billion in new loans to help certain borrowers refinance into cheaper, fixed-rate loans. Mortgage holders would have to agree to take a substantial loss on the existing loans; borrowers would have to show they could afford the new mortgage and share future proceeds with the government.

The House passed its version last month. Senate leaders say they want to vote by July.

Groups representing builders and real estate agents want incentives, such as a $7,500 temporary tax credit for first-time home buyers, to support the market.

"Policies that stimulate home purchases in the immediate future can pay huge dividends and a temporary home buyer tax credit provides the most bang for the buck," Joe Robson, a home builder from Tulsa, Okla., said in prepared remarks at a House hearing. 
 

Housing crisis worsens as number of US homes facing foreclosure in May up 48 percent

 Soaring foreclosures are continuing to raise questions about the mortgage industry's claims that lenders are making a dent in the housing crisis.

Foreclosure filings last month were up nearly 50 percent compared with a year earlier. Nationwide, 261,255 homes received at least one foreclosure-related filing in May, up 48 percent from 176,137 in the same month last year and up 7 percent from April, foreclosure listing service RealtyTrac Inc. said Friday.

 

 
The latest grim foreclosure news comes as criticism mounts that efforts by government and the mortgage industry to stem the tide of foreclosures aren't keeping up with the rising number of troubled homeowners. Critics say a Bush administration-backed mortgage industry coalition, dubbed Hope Now, is falling far short.

 

"It's clear that these voluntary efforts in and of themselves cannot really make a dent," said Allen Fishbein, director of credit and housing policy at the Consumer Federation of America. "Government intervention is going to be necessary."

Mark Zandi, chief economist of Moody's Economy.com and an adviser to Republican John McCain's presidential campaign, wrote earlier this week that "the Bush administration's efforts to encourage loan modifications and delay foreclosures are being completely overwhelmed."

A Credit Suisse report from this spring predicted that 6.5 million loans will fall into foreclosure over the next five years, reaching more than 8 percent of all U.S. homes.

Sobering statistics like these are leading to more calls for government intervention, especially from lawmakers pushing a plan for the government to guarantee as much as $300 billion in new loans to help borrowers refinance into cheaper, fixed-rate mortgages.

A new government report released Wednesday found that among mortgages held by nine large banks, including Bank of America and Citigroup Inc., foreclosures climbed to 1.23 percent of all loans in March from 0.9 percent in October.

In a speech, Comptroller of the Currency John Dugan said the federal agency conducted its own examination of foreclosures and loan modifications after finding "significant limitations" with data collected by trade groups like Hope Now.

"Virtually none of the data had been subjected to a rigorous process to check for consistency and completeness," Dugan said. "They were typically responses to surveys that produced aggregate, unverified results from individual firms."

The comptroller's report found that 2.7 percent of seriously delinquent mortgages had been modified as of March, up from 1.8 percent in November 2007.

The industry has continued to favor repayment plans, which help borrowers get back on track after missing a few payments, rather than permanent loan modifications, such as lower interest rates.

Faith Schwartz, executive director of Hope Now, said in an e-mailed statement that the group's statistics "encompass more member data and provide a broader view of the range of solutions delivered by a larger number of mortgage servicers."

Rep. Barney Frank, D-Mass., said this week that Dugan' analysis shows that "much more aggressive action is needed."

The combination of weak housing sales, falling home values, tighter mortgage lending criteria and a slowing U.S. economy has left financially strapped homeowners with few options to avoid foreclosure. Many can't find buyers or owe more than their home is worth and can't get refinanced into an affordable loan.

Making matters worse, mortgage rates have been rising, reflecting increased concerns about what the Federal Reserve might do to battle inflation. Freddie Mac, the mortgage company, reported Thursday that 30-year fixed-rate mortgages averaged 6.32 percent this week, the highest level in nearly eight months and up sharply from 6.09 percent last week.

According to the RealtyTrac report, one in every 483 U.S. households received a foreclosure filing in May, the highest number since RealtyTrac started the report in 2005 and the second-straight monthly record.

Foreclosure filings increased from a year earlier in all but 10 states. Nevada, California, Arizona, Florida and Michigan had the highest statewide foreclosure rates.

Metropolitan areas in California and Florida accounted for nine of the top 10 areas with the highest rate of foreclosure. That list was led by Stockton, Calif. and the Cape Coral-Fort Myers area in Florida.

Irvine, Calif.-based RealtyTrac monitors default notices, auction sale notices and bank repossessions. Nearly 74,000 properties were repossessed by lenders nationwide in May, while more than 58,000 received default notices, the company said.

In Nevada, one in every 118 households received a foreclosure-related notice last month, more than four times the national rate. In California, one in every 183 households faced foreclosure.

Rick Sharga, RealtyTrac's vice president of marketing, said foreclosures are unlikely to peak until sometime this fall, as more loans made to borrowers with poor credit records reset at higher levels. "I don't think we've seen the high point," he said.

About 50 to 60 percent of borrowers who receive foreclosure filings are likely to lose their homes, Sharga said. The rest are likely to be able to sell or refinance.

As foreclosed properties pile up, they add to the inventory of homes on the market and drag down home prices. The trend is most dramatic in many parts of California, Florida, Nevada and Arizona, where prices skyrocketed during the housing boom and are now falling precipitously.

Nationwide, one out of every four sales between January and March was a distressed sale, and that figure jumps to more than 50 percent in the hardest-hit areas like Las Vegas, Detroit and distant suburbs of Los Angeles, according to Moody's Economy.com.

In some neighborhoods, lenders are slashing prices dramatically to rid themselves of an unprecedented number of foreclosed properties, sparking bidding wars and multiple offers. While that's a positive for the real estate market, buyers in other parts of the country are still holding back.

"I think a lot of people are waiting to see if we really have hit the bottom," Sharga said.

Lehman Brothers economist Michelle Meyer said in a report Thursday that U.S. home sales are likely to hit bottom at the end of this summer, but said a recovery in sales is likely to be "feeble."

Home prices, sales plunged in May across SoCal compared to last year

 

Median home prices dropped 26.7 percent in May across Southern California's six most populous counties compared with last year, a real estate research firm said Monday.

DataQuick Information Systems said it marked the steepest annual drop since the firm began keeping records in 1988.

 

 
The drop was driven by fewer sales of high-end homes, steeper discounting by home sellers and by lenders trying to unload foreclosed properties, DataQuick said.

 

Median home prices fell to $370,000 in Los Angeles, Orange, San Diego, Riverside, San Bernardino and Ventura counties last month. It was the lowest median price reported since March 2004.

Sales volumes for the region climbed about 8 percent from April but were down nearly 15 percent from May 2007.

In all, 16,917 new and preowned homes were sold in May, down from 19,874 in the same month last year, the firm said.

Nearly 38 percent of all the homes sold in the region last month were in foreclosure at some point over the past 12 months.

 

Sales of existing homes edged up slightly in May although median home prices continued to fall.

The National Association of Realtors reported that sales of existing single-family homes and condominiums rose by 2 percent to 4.99 million units last month

It was only the second sales increase in the past 10 months, but it was not viewed as a sustained rebound. Many economists believe that prices will have to decline more before the housing industry can mount a sustained recovery.

The median price of an existing home sold in May dropped to $208,600, a fall of 6.3 percent from a year go. That was the fifth biggest year-over-year price decline on records that go back to 1999.

The strength in sales reflected gains in all parts of the country except the South, where sales dropped by 0.5 percent. Sales were up 5.5 percent in the Midwest, 4.6 percent in the Northeast and 2 percent in the West.

Paul Bishop, senior economist for the Realtors, said that for the past few months sales have been rebounding in parts of the country that had been hardest-hit by the housing bust, while sales have weakened in some areas that formerly had been immune from the overall downturn.

Distressed areas that now are seeing sales gains included Sacramento, the San Fernando Valley and Monterey in California; Sarasota, Fla.; and Battle Creek, Mich.

The inventory of unsold homes dropped by 1.4 percent to 4.49 million units, which represents a 10.8-month supply at the May sales pace, down from a 11.2-month supply in April. That's still about double the inventory level that existed during the five-year housing boom.

"Stabilization in home prices can only occur with buyers returning to the market, so we are encouraged by rising home sales, particularly in distressed markets," said Lawrence Yun, the Realtors' chief economist.

However, rising mortgage foreclosures are dumping even more homes onto the already glutted housing market.

Many economists predict sales will keep falling through the summer and prices will not start to rebound until the spring of next year.
 

Nearly a year into the credit crunch, the mortgage and housing markets remain confusing and difficult for many consumers.

 

Now is a good time to check in with an old hand at home lending.

Jeff Altman, a mortgage broker and partner with WestCal Mortgage Corp. in Orange, Calif., has been in the business for 16 years. He fielded questions on the market, mortgage rates, mortgage bailouts and more.

Q. Mortgage rates have risen over the past month. Where do you see them headed?

A. Depending on what the Federal Reserve does, I see them getting a bit higher and then stabilizing.

Q. Speaking of the Fed, they did nothing at their meeting June 25. What's your best guess for what they will do next and when?

A. I think inevitably they will raise the federal funds rate, and I don't see anything sooner than August.

Q. It sounds like you think anyone waiting for rates to improve could be disappointed ...

A. Yes. I don't foresee rates getting to where they were in early May. Back then, they were in the mid- to high-5s.

Q. Let's talk about mortgage aid. The Senate has been going back and forth on a major home lending overhaul, including the creation of a multibillion-dollar fund to help hundreds of thousands of struggling homeowners refinance into more affordable loans backed by the government.

What do you think of the plan?

A. (The government) needs to work with individual lenders servicing the loans. They need to put stricter guidelines on the servicers. A lot of lenders can't help you until you are late 30, 60, 90 days on your payments.

That's where I think the government needs to intervene. Help them now. I don't think it needs to be all situations. If it's an investor that got greedy, I have a tough time feeling sorry for him, but if you have a legitimate borrower that is having trouble paying, he should be helped. But I am hearing more and more that borrowers need to start missing payments to get help, which is absolutely ridiculous.

Q. Getting back to the issue of government buying up distressed mortgages,

I've heard of several private investment funds buying up troubled mortgages and cutting deals with borrowers to get them paying again on plans they can afford. If the private sector is buying distressed mortgages, why do we need a government program to do the same thing?

A. I am against government intervention, unless it's on a case-by-case basis. The majority of people are against a government bailout at this point.

Q. But how could the large federal government get involved on a case-by-case basis? Or do you mean, the government should lean on loan servicers to do that?

A. The government should lean on servicers to do it on a case-by-case basis but not wait until a consumer's credit is affected.

Q. What's your prediction for a housing market rebound?

A. Personally, I think we will see a rebound in the beginning to mid-2009.

Q. How about a lending market rebound? When will the market to sell home loans, what some experts call the secondary market, come back?

A. I will have to say the same thing. You will not see the market come back for lenders until the beginning or middle of next year. I don't think we are finished with banks in trouble yet.
 

The number of homes under sales contracts fell more than expected in May after a surprising spike the month before, a real estate trade group said Tuesday.

The report by the National Association of Realtors was another sign that the nation's housing problems are not abating.

 

The Realtors' Pending Home Sales Index fell to 84.7 in May, down 4.7% from an upwardly revised reading of 88.9 in April. The index was 14% below its level in May 2007.

 

The recent decline was steeper than the 2.8% fall that economists had forecast, according to a consensus of estimates compiled by Briefing.com.

"The overall decline in contract signings suggests we are not out of the woods by any means," said Lawrence Yun, NAR chief economist.

Yun said that some pullback had been expected after April's surprise increase. The index jumped more than 7% in April as falling home prices sparked a bout of bargain shopping.

"The housing market had a nice bounce in April - too bad it doesn't appear to have carried through into May and June," said Mike Larson, real estate analyst at Weiss Research.

Larson says the May decline was caused by falling consumer confidence, rising unemployment, tight credit conditions and high energy and food costs straining household budgets.

"Unless and until the economic clouds part, we'll likely see the housing market continue to struggle," Larson said.

In the report, the NAR lowered its existing-home sales outlook for 2008, saying it now expects sales of 5.31 million, down from the 5.39 million forecast in April.

The NAR said existing home prices are also expected to fall. The aggregate median existing-home price is projected to fall 6.2% this year to $205,300, and then rise by 4.3% in 2009 to $214,100, the report indicated.

The outlook for new-home sales was also revised lower to 525,000 from the 529,000 prediction a month ago. And the median new-home price was expected to decline 3.2% to $239,300 this year.

Pending home sales declined in all regions. In the West, they declined 1.3% during May but remain 2% above year-ago levels.

Declines were steepest in the South, where May pending home sales declined 7.1%. They fell 2.9% in the Northeast and 6% in the Midwest.

Still, the NAR found double-digit pending sales gains in May from a year ago in Colorado Springs, Colo.; Sacramento, Calif.; and Spartanburg, S.C.

"Some markets have seen a doubling in home sales from a year ago, while others are seeing contract signings cut in half," said Yun.

In some cases, the differences in home prices, and consequently home sales, can be attributed to the ongoing fallout from the subprime crisis.

"Price conditions vary tremendously, even within a locality, depending upon a neighborhood's exposure to subprime loans," Yun added.

 

Fed offers to lend to mortgage companies, Treasury plans possible equity investment

 

Scrambling to bolster eroding investor confidence, the Federal Reserve and the Treasury Department announced unprecedented steps to brace slumping mortgage giants Fannie Mae and Freddie Mac.

 

 
The companies' shares, which have plunged as losses from their mortgage holdings threatened their financial survival, opened higher Monday. Fannie Mae rose 27 cents to $10.53, while Freddie Mac climbed 34 cents to $8.08.

 

The plan, unveiled Sunday, is intended to signal the government is prepared to take all necessary steps to prevent the credit market troubles that erupted last year with losses from subprime mortgages from engulfing financial markets.

The Fed said it granted the Federal Reserve Bank of New York authority to lend to the two companies "should such lending prove necessary." They would pay 2.25 percent for any borrowed funds -- the same rate given to commercial banks and big Wall Street firms.

The Fed said this should help the companies' ability to "promote the availability of home mortgage credit during a period of stress in financial markets."

Secretary Henry Paulson said the Treasury is seeking expedited authority from Congress to expand its current line of credit to the two companies and buy shares of the companies -- if needed.

"Fannie Mae and Freddie Mac play a central role in our housing finance system and must continue to do so in their current form as shareholder-owned companies," Paulson said Sunday. "Their support for the housing market is particularly important as we work through the current housing correction."

The Treasury's plan also seeks a "consultative role" for the Fed in any new regulatory framework eventually decided by Congress for Fannie and Freddie. The Fed's role would be to weigh in on setting capital requirements for the companies.

Rep. Barney Frank, D-Mass., the Financial Services Committee chairman, said the House would move by the end of the week to fold "the essence" of Treasury's proposal into a sweeping housing package, with the goal of clearing it for President Bush by the end of next week.

That package includes a foreclosure rescue to help strapped homeowners get new, more affordable government-backed mortgages through the Federal Housing Administration, and creates a new regulator and tighter controls for Fannie Mae and Freddie Mac.

Frank said he expected only minor changes, if any, to Treasury's proposal, and said Congress would not seek to impose monetary limits on the government's line of credit.

Sen. Christopher Dodd, chairman of the Senate Banking Committee, on Monday called the Bush administration's actions Sunday "probably the right steps" and said he will summon Paulson, Fed Chairman Ben Bernanke and Securities and Exchange Commission chairman Christopher Cox to a committee hearing to answer questions.

"What's important here as well is to calm people's fears," Dodd said in an interview on CBS' "The Early Show."

He also drew a distinction between last week's failure of IndyMac -- which engaged in originating riskier mortgages than traditional community and regional banks -- and the two mortgage giants.

"There's a big difference between IndyMac and Fannie and Freddie," Dodd said. "IndyMac engaged in very bad mortgages, luring people into deals they could never afford. That's not the case with Fannie and Freddie." Dodd said that while there may be more bank failures, "I'm more optimistic about Fannie and Freddie than I am about these banks."

The White House, in a statement, said President Bush directed Paulson to "immediately work with Congress" to get the plan enacted. It also said it believed the steps outlined by Paulson "will help add stability during this period."

Investors may not be as sanguine, however, according to Chris Johnson, an investment manager and president of Johnson Research Group in Cleveland. Stocks of financial institutions "are going to get clobbered," he predicted. "It is a situation where regulators and the government are trying to play catch up, and that means everything is not discounted in the stock prices yet."

The Dow Jones industrials on Friday briefly fell below 11,000 for the first time in two years and Johnson said shares of investment banks and regional banks could move even lower as investors react to this weekend's developments.

Fannie Mae and Freddie Mac hold or back $5.3 trillion of mortgage debt, about half the outstanding mortgages in the United States.

The government denied it, but what has been seen by investors as an implicit guarantee of support has allowed Fannie and Freddie over the years to borrow at rates only slightly higher than the Treasury -- and lower than what their banking competitors had to pay.

"This really blows away the notion of an implicit guarantee," independent banking consultant Bert Ely said of the Treasury's plan to ask Congress to allow it to make equity investments in Fannie Mae and Freddie Mac. "It suggests a greater concern about how these companies are doing. It says the problems are deeper. It gets to the solvency of the companies, not just the liquidity."

A critical test of confidence will come Monday morning, when Freddie Mac is slated to auction a combined $3 billion in three- and six-month securities.

Senate Majority Leader Harry Reid, D-Nev., said "Senate Democrats stand ready to work with the administration to quickly and effectively address the situation currently facing these institution."

House GOP leader John Boehner, R-Ohio, and Republican Whip Roy Blunt, R-Mo., said they "stand ready to work with Secretary Paulson and congressional Democrats to take appropriate steps to ensure the soundness of our mortgage markets."

Democratic presidential contender Barack Obama said the government's main concern should be "to make sure that home ownership remains attainable and affordable for American families. Second, any measures should protect taxpayers and not bailout the shareholders and management of Fannie Mae and Freddie Mac."

Republican rival John McCain believes the measures announced Sunday "are consistent with the goal of providing support for a path through the current duress toward steps that include regulatory reform, market discipline and mission focus," said Douglas Holtz-Eakin, senior policy adviser.
 

7/17/2008 Mortgage rates fell this week with 30-year mortgage rates dropping to the lowest level in six weeks as investors became less worried that the Federal Reserve would soon tighten credit policy to stall inflation.

Freddie Mac, the mortgage company, reported today that 30-year fixed-rate mortgages averaged 6.26 percent this week.

That was down from 6.37 percent last week. It marked only the second weekly decline in the past eight weeks and left the 30-year rate at the lowest point since it averaged 6.09 percent the week of June 5.

Analysts attributed the decline in part to comments made this week by Federal Reserve Chairman Ben Bernanke. He indicated in his mid-year economic report to Congress that the central bank was poised between concerns about rising inflation pressures and the weakening economy.

Many analysts viewed Bernanke's comments as a signal that the central bank will delay tightening rates to give the fragile economy and banking system time to recover. The Fed is hoping that the sluggish economy will help dampen inflation on its own.

"Mortgage rates fell this week amid market speculation that the Federal Reserve may not raise the overnight bank lending rate this year after all," said Frank Nothaft, chief economist for Freddie Mac.

Other rates dropped as well, according to Freddie Mac's nationwide survey.

Rates on 15-year fixed-rate mortgages, a popular option for refinancing, dipped to 5.78 percent, down from 5.91 percent last week.

Rates on five-year adjustable-rate mortgages fell to 5.80 percent, down slightly from 5.82 percent last week, while rates on one-year ARMs dropped to 5.10 percent, down from 5.17 percent last week.

The mortgage rates do not include add-on fees known as points. The nationwide fee for 30-year, 15-year, five-year and one-year mortgages all averaged 0.6 point this week.

A year ago, rates on 30-year mortgages stood at 6.73 percent, 15-year mortgage rates averaged 6.38 percent, five-year adjustable-rate mortgages were at 6.35 percent and one-year adjustable-rate mortgages averaged 5.72 percent.

Home foreclosures have hit record highs as sagging home values have left some borrowers owing more on their mortgages than their homes are worth. With more empty homes being dumped on an already glutted market, prices are being pulled lower. Buyers, however, have become harder to find as credit has gotten harder to secure.
 

New home sales drop less than expected in June, raising faint hopes for less bleak future

 

Sales of new homes fell in June for the seventh time in the past eight months, but the decline was less than had been expected, raising faint hopes that the nation's severe housing recession could be approaching a bottom.

 

The Commerce Department reported Friday that sales of new single-family homes dropped by 0.6 percent last month to a seasonally adjusted annual rate of 530,000 units. That was less than half the decline that had been expected and the May performance was revised up a bit.

 

Even with the changes, new home sales were down by a sharp 33.2 percent from a year ago, showing how severe the slump in housing has become.

But some analysts said they saw cause for optimism that the worst of the decline could be drawing to a close, especially if a sweeping housing rescue package now pending in Congress can slow a flood of foreclosures and spur sales to first-time home buyers.

Analysts noted that not only was the overall decline in June from May less than expected but sales were up in two of the four regions of the country.

Brian Bethune, chief U.S. financial economist at Global Insight, said the numbers gave a "few positive flickers, but the housing market remains extremely fragile."

The nation is enduring a steep downturn in housing that has pushed the overall economy close to a recession. It has also triggered a severe credit crunch, forcing U.S. financial institutions to cope with billions of dollars of losses from bad mortgage loans.

A separate report Friday showed that the number of households facing the foreclosure process more than doubled in the second quarter compared to a year ago. Nationwide, 739,714 homes received at least one foreclosure-related notice during the quarter, or one in every 171 U.S. households, according to Irvine, Calif.-based RealtyTrac Inc.

Wall Street took a positive view of the housing data with the Dow Jones industrial average up by 7.33 points in afternoon trading.

Investors were also bolstered by some good news about consumers. The Reuters/University of Michigan index of consumer sentiment for the first part of July came in at 61.2, slightly better than the 28-year low of 56.4 hit in June.

The National Association of Realtors reported Thursday that sales of existing homes -- which make up the bulk of the home sales market -- dropped by 2.6 percent in June to a seasonally adjusted annual rate of 4.86 million units, the slowest pace in a decade.

The report on new home sales showed that the median price of a new home sold in June fell by 2 percent compared to a year ago.

Sales were down the most in the South, a drop of 2 percent, with sales falling 0.9 percent in the West. These declines were offset somewhat by sales increases of 5.3 percent in the Northeast and 2.5 percent in the Midwest.

The Commerce Department also reported Friday that orders to factories for big-ticket manufactured goods such as cars, appliances and machinery increased by 0.8 percent in June, the strongest gain in four months and much better than had been expected. But excluding demand for defense equipment, total orders would have been up a much more modest 0.1 percent.

Analysts said that the June performance for durable goods was being propped up by sizable military spending for equipment, reflecting the ongoing wars in Iraq and Afghanistan, and this was offsetting widespread weakness in the rest of the economy. Orders for defense capital goods shot up 15.8 percent in June following a sizable 14.1 percent increase in May.

"With orders excluding defense falling at a 4 percent annualized rate in the second quarter, it is pretty clear manufacturing is hardly thriving," said Ian Shepherdson, chief U.S. economist at High Frequency Economics.

Private economists believe that sales of both new and existing homes will remain depressed for much of the rest of the year with prices continuing to fall into the spring of next year. The problem is that soaring mortgage defaults are dumping more homes on an already glutted market. That's causing banks to tighten up on lending standards, making it difficult for potential buyers to qualify for homes.

The House on Wednesday passed a sweeping rescue package designed to halt the slide in home prices by helping more homeowners avoid mortgage defaults. It also provides a new tax break for first-time homebuyers and throws a lifeline to mortgage giants Fannie Mae and Freddie Mac.

The report on factory orders showed that orders for motor vehicles and parts had a slight rebound in June, rising by 1.8 percent, the best showing in nearly a year. But the increase was only a fraction of the big declines in previous months and was not seen as signaling any kind of sustained rebound from U.S. automakers. Ford, General Motors and Chrysler are being battered by soaring energy prices that have caused buyers to turn away from formerly hot sellers such as trucks and sport utility vehicles.

Overall, demand for transportation goods fell by 2.6 percent as the slight increase in auto demand was offset by a big 25.1 percent plunge in orders for commercial aircraft. Demand for military aircraft was also down, falling by 8.6 percent.

Excluding the volatile transportation sector, orders for durable goods -- items expected to last at least three years -- shot up by 2 percent, the best showing since last December and much better than the 0.2 percent decline that had been expected.

The manufacturing sector has been hurt by the overall slowdown in the economy with industries related to housing and autos particularly hard hit. This has been offset to some extent by continued strong demand for U.S. exports, which have been helped this year by a falling U.S. dollar against many major currencies. A weaker dollar makes U.S. products cheaper on overseas markets.

 

A measurement of pending home sales rose in June in a rare piece of positive news for the beleaguered market.

The National Association of Realtors' seasonally adjusted index of pending sales for existing homes rose 5.3 percent to 89 from May's reading, which was revised downward to 84.5 from an earlier reading of 84.7.

The June index was 12 percent below year-ago levels.

Home sales are considered pending when the seller has accepted an offer, but the deal has not yet closed. Typically there is a one- to two-month lag before a sale is completed.

Wall Street economists surveyed by Thomson/IFR had predicted the index would fall to 84.3. The index, which sunk to a record low of 83 in March, stood at 101.4 in June 2007. A reading of 100 is equal to the average level of sales activity in 2001, when the index started.

Last month, the Realtor group said completed sales of existing homes fell more sharply than expected in June, pushing activity down to the lowest level in more than a decade. Many analysts predict home prices will keep falling until at least next spring as tighter credit, a weaker job market and rising foreclosures scare potential buyers away.

Still, the NAR predicts a package of housing legislation signed by President Bush last week — particularly a $7,500 tax credit for first-time homebuyers — will aid a recovery.

"With a tax credit now available to first-time home buyers, increases in home sales could be sustained with the momentum carrying into 2009," Lawrence Yun, the group's chief economist, said in a statement.

Others are less optimistic about a market embroiled in its worst downturn in decades. Richard Syron, chief executive of mortgage finance company Freddie Mac said Wednesday he expects home prices nationwide to fall 18 percent from peak to trough, according to their measure, and that the market is only halfway through the descent.

 

House prices edged higher in June in another sign the market is clawing back some ground from its worst downturn in decades, according to an early reading of single-family home sales during the month.

 

Home prices rose 1.1 percent on a national level in June from May, though they dropped 11.5 percent over the past year, an index published by Integrated Asset Services said on Tuesday.

 

The IAS360 House Price Index, which was first published in June, shows home prices in the Midwest led the increase with a 4.7 percent rise in June, resulting in a 0.2 percent year-over-year decline. Prices in the West fell 0.5 percent in the month, and were down 16.9 percent from a year ago, IAS said.

The index may be evidence that a bottoming process is underway for the housing market that has been mired in its worst slump since the 1930s. But the index is not "smoothed" or adjusted for seasonal forces, such as the typically stronger spring and summer selling season, according to IAS.

"Strengthening of the market in the summer can occur even when the longer term market trend might be downward," Dave McCarthy, IAS' chief executive officer, said in a statement. Data shows local markets runs from strong and stable to barebones, he said.

IAS last month said home prices nationwide fell a much harsher 20.1 percent year-over-year in May, after a 3.2 percent drop from April.

The IAS360 index appears more volatile than the widely tracked Standard & Poor's/Case Shiller home price indexes, which last month showed U.S. home prices in 20 metropolitan areas fell 0.9 percent in May from April, and 15.8 percent on the year. Prices rose in seven regions in May, S&P said.

Falling home prices have been erasing homeowners' equity, reducing their ability to refinance risky loans and forcing many into foreclosure, which further depresses real estate values. Economists say the impact of sliding home prices has dented U.S. growth to the point where the nation is near, or in, recession.

The second-largest U.S. mortgage finance company, Freddie Mac, widened its forecasts last week for price drops from the market peak to as much as 20 percent, from an earlier estimate of 15 percent, due to an increase in foreclosures.

However, price cuts by banks seeking to unload the glut of unwanted homes on their books has boosted sales in some areas, paving the way for recovery.

An index of U.S. home sales contracts signed in June surprised analysts last week as it rose in June to its highest level since October. The National Association of Realtors said its index of pending home sales was encouraging, and painted a housing market in transition.

Denver-based IAS specializes in residential real estate valuations and the disposition of bank-owned properties.

 

A record number of homeowners thought their homes depreciated in value in August, according to a Reuters/University of Michigan survey published on Friday.

Among all homeowners surveyed, 46 percent reported declines in their home's value, twice the level recorded in August of last year and above the previous record of 41 percent set in July.

There was a considerable disparity across the regions, however, as 60 percent of Western homeowners reported declines compared with 34 percent of Southern residents. A year ago the difference was just as sharp, but at about half the levels, with 33 percent of Western homeowners reporting declines compared with 15 percent of Southern residents.

While consumers more often expected continued declines rather than increases in their home's value during the year ahead, the extent of the expected decline has continued to narrow. Homeowners expected their home to decline in value by 0.3 percent during the year ahead, down from a peak of 0.9 percent in the second quarter of 2008.

"There were sharp differences in year-ahead home price expectations depending on whether home prices had increased or decreased in the past year," the survey said.

Among the 46 percent who reported past home price declines, an additional decline of 2.4 percent was anticipated. Among the 21 percent that reported an increase in their home's price during the past year, an additional gain of 2.7 percent was expected.

"Importantly, home price expectations over the next five years also improved," the survey said.

Homeowners anticipated an annual gain of 3.1 percent during the next five years, up from 2.3 percent in July, returning to the levels recorded in late 2007.

"Given long-term inflation expectations, however, this implied that consumers expected no real gains in home prices over the next five years," the survey said.

Home purchase plans remain quite negative, which is not because of negative views about buying conditions, but because of the most negative views of home selling conditions ever recorded, the survey said.

Among all homeowners, 93 percent viewed the current selling conditions unfavorably in August, unchanged from July, but up 76 percent from a year ago and well above the low of 18 percent recorded in August of 2005.

These negative views are based on their reluctance to sell their home at reduced prices, with more than three-in-four of all homeowners citing this reason.
 

Sales of existing homes rose 3.1 percent in July, easily beating Wall Street's expectations, as buyers snapped up deeply discounted properties in parts of the country hit hardest by the housing bust.


However, the number of unsold properties hit an all-time high, the latest indication that the worst housing market slump in decades is far from over.

The National Association of Realtors reported Monday that sales rose to a seasonally adjusted annual rate of 5 million units. Sales had been expected to rise by only 1.6 percent, according to economists surveyed by Thomson/IFR.

Home sales were 13.2 percent lower than a year ago and prices were down dramatically. The median price for a home sold in July dropped to $212,000, down by 7.1 percent a year ago.

Despite the third monthly sales jump this year, the number of unsold single-family homes and condominiums rose to 4.67 million, the highest number since 1968, when the Realtors group started tracking the data.

That represented a 11.2 month supply at the July sales pace, matching the all-time high set in April.

Sales were up in all regions of the country except the South, which posted a 0.5 percent decline. Sales rose by 5.9 percent in the Northeast, 0.9 percent in the Midwest and 9.7 percent in the West.

Analysts say that until the inventory level is reduced to more normal levels, the housing slump is likely to persist. The inventory level is being driven higher by a massive wave of mortgage foreclosures.

Despite the rise in sales, Lawrence Yun, the Realtors' chief economist, was reluctant to conclude that the U.S. housing market has hit bottom.

While buyers are pouncing on lower prices — especially in places like California, Florida and Nevada — sales are sluggish in formerly stable states like Texas.

"People are responding to lower prices," Yun said, but there is "too much uncertainty" about the housing market's future to mark a definite bottom.

One key unknown is the ability of mortgage finance companies Fannie Mae and Freddie Mac to supply money for loans. The two government-sponsored companies have cut back the availability of mortgages significantly as they cope with mounting losses from foreclosures and officials ponder whether to shore up the two struggling companies.

President Bush last month signed sweeping housing legislation that aims to prevent foreclosures by allowing an estimated 400,000 homeowners to swap their mortgages for more affordable loans, but only if their lender agrees to take a loss on the initial loan.

Even with government help, nearly 2.8 million U.S. households will either face foreclosure, turn over their homes to their lender or sell the properties for less than their mortgage's value by the end of next year, predicts Moody's
 

The government is expected to take over Fannie Mae and Freddie Mac as soon as this weekend in a monumental move designed to protect the mortgage market from the failure of the two companies, which together hold or guarantee half of the nation's mortgage debt, a person briefed on the matter said Friday night.

Some of the details of the intervention, which could cost taxpayers billions, were not yet available, but are expected to include the departure of Fannie Mae CEO Daniel Mudd and Freddie Mac CEO Richard Syron, according to the source, who asked not to be named because the plan was yet to be announced.

Federal Reserve Chairman Ben Bernanke, Treasury Secretary Henry Paulson and James Lockhart, the companies' chief regulator, met Friday afternoon with the top executives from the mortgage companies and informed them of the government's plan to put the troubled companies into a conservatorship.

The news, first reported on The Wall Street Journal's Web site, came after stock markets closed. In after-hours trading Fannie Mae's shares plunged $1.54, or 22 percent, to $5.50. Freddie Mac's shares fell $1.06, or almost 21 percent, to $4.04. Common stock in the companies will be worth little to nothing after the government's actions.

The news also followed a report Friday by the Mortgage Bankers Association that more than 4 million American homeowners with a mortgage, a record 9 percent, were either behind on their payments or in foreclosure at the end of June.

That confirmed what investors saw in Fannie and Freddie's recent financial results: trouble in the mortgage market has shifted to homeowners who had solid credit but took out exotic loans with little or no proof of their income and assets.

Fannie Mae and Freddie Mac lost a combined $3.1 billion between April and June. Half of their credit losses came from these types of risky loans with ballooning monthly payments.

While both companies said they had enough resources to withstand the losses, many investors believe their financial cushions could wither away as defaults and foreclosures mount.

Many in Washington and on Wall Street hadn't expected Paulson to intervene unless the companies had trouble issuing debt to fund their operations.

This summer, Congress passed a plan to provide unlimited government loans to Fannie and Freddie and to purchase stock in the two companies if needed.

Critics say the open-ended nature of the rescue package could expose taxpayers to billions of dollars of potential losses.

Supporters, however, argue the Bush administration had little choice but to support Fannie and Freddie, which together hold or guarantee $5 trillion in mortgages — almost half the nation's total.

Representatives of Fannie and Freddie declined to comment on the government assistance plan.

Treasury spokeswoman Brookly McLaughlin said officials "have been in regular communications" with Fannie and Freddie, but refused to comment saying, "We are not going to comment on rumors."

Concern has been growing that a government rescue of Fannie and Freddie could not only wipe out common stockholders, but also be costly for scores of investment, banking and insurance companies that hold billions of dollars in their preferred shares.

Paulson has been in contact in recent weeks with foreign governments that hold billions of dollars of Fannie and Freddie debt to reassure them that the United States recognizes the importance of the two companies.

The two companies had nearly $36 billion in preferred shares outstanding as of June 30, according to filings with the Securities and Exchange Commission.

Mudd, the son of TV anchor Roger Mudd, was elevated to Fannie Mae's top post in December 2004 when chief executive Franklin Raines and chief financial officer Timothy Howard were swept out of office in an accounting scandal. Syron was named Freddie Mac's CEO in 2003, replacing former chief Gregory Parseghian, who was ousted in after being implicated in accounting irregularities.

He formerly was executive chairman of Thermo Electron Corp., a Waltham, Mass.-based maker of scientific equipment, served head of the American Stock Exchange and was president of the Federal Reserve Bank of Boston in the early 1990s.

Fannie Mae was created by the government in 1938, and was turned into a shareholder-owned company 30 years later. Freddie Mac was established in 1970 to provide competition for Fannie.

A government takeover could cost taxpayers up to $25 billion, according to the Congressional Budget Office.

But the epic decision highlights the size of the threats facing the housing market and the economy. On Friday, Nevada regulators shut down Silver State Bank, the 11th failure this year of a federally insured bank. And earlier this year, the government orchestrated the takeover of investment bank Bear Stearns by JP Morgan Chase


Home prices fell in July, but gov't agency says Fannie, Freddie takeover will help loan market

 

Nationwide home prices in July fell a record 5.3 percent compared with a year ago, a government agency said Tuesday, and have now receded to October 2005 levels.

Prices were down 0.6 percent from June on a seasonally adjusted basis, according to the Federal Housing Finance Agency.

The national decline in home values coupled with reckless lending standards during the real estate boom are the driving forces behind rising mortgage defaults and foreclosures. They have spurred a credit crisis that has shaken Wall Street to its core and caused the Bush administration to propose a $700 billion financial industry bailout.

The real estate industry expects more weak news Wednesday when the National Association of Realtors releases existing home sales for August.

The housing agency's director, James Lockhart, suggested Tuesday that mortgage finance companies Fannie Mae and Freddie Mac could loosen lending standards to help more homebuyers qualify for a loan and stabilize the market. The government took control of Fannie and Freddie earlier this month.

"I expect any changes to reflect both safe and sound business strategy and attentiveness to the (companies') mission," Lockhart said Tuesday in testimony prepared for a Senate Banking Committee hearing. He also said that modifying loans for troubled borrowers should be a "high priority."

Over the past year, the companies have tightened requirements and raised fees substantially, making it hard for borrowers with any blemish on their credit reports to qualify for a loan.

Lockhart explained the government had little option but to seize control of Fannie Freddie. Both companies, he said, were unable to raise money to gird against losses without aid from the government.

Without new money, the only other option was to do stop doing new business and shed assets in a weak market. "That would have been disastrous for the mortgage markets ad mortgage rates would have continued to move higher," Lockhart said.

But rates are creeping back up.

The national average rate on a 30-year, fixed rate mortgage rose to 6.26 percent on Monday up from 6.11 percent on Friday as details of the government's rescue plan remained in flux, according to financial publisher HSH Associates. The rate had fallen as low as 5.87 percent last Tuesday.

"The crash of other financial assets has made folks rather uncomfortable," said Keith Gumbinger, a senior vice president with HSH Associates. "It's not about keeping Fannie and Freddie afloat any more."

Higher interest rates and falling home prices are also hurting the building industry.

Lennar Corp., one of the nation's largest homebuilders, said Tuesday its third-quarter loss narrowed as it cut costs, but revenue fell by more than half amid a prolonged housing slump.

The Miami-based company's loss for the quarter ended Aug. 31 was $89 million, or 56 cents a share, compared with a loss of $513.9 million, or $3.25 a share a year ago.

Revenue fell 53 percent to $1.11 billion from $2.34 billion.

Chief Executive Stuart Miller said his management team is not projecting a material improvement in the housing market "for some time to come," adding that the housing market has yet to hit bottom.

 

European and Asian markets plunge as bailouts in US, Europe fail to ease financial fears

 

Asian and European stock markets plunged Monday as government bank bailouts in the U.S. and Europe failed to alleviate fears that the global financial crisis would depress world economic growth.

Investors took scant comfort from Washington's passage of a US$700 billion plan to buy bad assets from banks and other institutions to shore up the financial industry on Friday because of the uncertainty still hanging over the details of the deal and the degree to which it will help.

Britain's benchmark stock index, the FTSE 100, lost 220.11 to 4,760.14 -- a 4.42 percent fall. The declines were led by the banking industry, with the mining and oil industries also suffering drops. HBOS PLC's share price dropped 15.7 percent, while the Royal Bank of Scotland Group PLC fell 13.6 percent.

Germany's DAX index fell 4.22 percent to 5,552.27. France's CAC-40 index dropped 4.85 percent to 3,882.81. In Russia, the RTS stock index tumbled more than 7 percent in first 20 minutes of trading.

Over the weekend, many European governments moved to save troubled banks, and made more promises to protect depositors from the credit crisis.

Germany on Sunday agreed a 50 billion euros (US$68 billion) package to bail out Hypo Real Estate, the country's second-biggest commercial property lender, after a rescue plan by private lenders fell apart.

France's BNP Paribas SA committed to taking a 75-percent stake in troubled European bank Fortis N, and Sweden and Denmark followed Ireland and Britain in raising the amount of savers' deposits guaranteed by the government.

Britain's treasury chief Alistair Darling said he was "ready to do whatever it takes" to get the country through the credit crunch, and was looking at a "range of proposals."

But analysts said that, like the U.S. plan, the lack of detail in many of Europe's moves failed to restore investors' confidence, resulting in the stock market tumbles. "What the markets need are some more details about exactly when and how these plans are going to come in," said Richard Hunter, head of British equities at Hargreaves Lansdown Stockbrokers, "And they need some proof that some of these measures are taking hold."

Across Asia, all markets were also in the red. Tokyo's Nikkei 225 index fell to its lowest level in 4 1/2 years, sinking 4.25 percent to 10,473.09.

Hong Kong's Hang Seng index slid 5 percent to 16,803.76. Markets in mainland China, Australia, South Korea, India, Singapore and Thailand also fell sharply. Indonesia's key index plummeted 10 percent, it's biggest one-day drop ever.

In Russia, the RTS stock index tumbled more than 7 percent in first 20 minutes of trading.

"Everyone is losing confidence," said Mark Tan, who helps manage about $20 billion of equities and bonds at UOB Asset Management in Singapore. "The problem now is that the lack of foreign confidence could affect the Asian consumer, which would lead to a bigger slowdown in Asia than expected."

"This credit crunch looks like it's not going away any time soon," said Alex Tang, head of research at brokerage Core Pacific-Yamaichi in Hong Kong. "Apart from a credit crunch in Europe, investors are quite concerned about the worsening outlook on the U.S. economy."

Investors appeared spooked by a series of developments out of Europe over the weekend.

Belgian Prime Minister Yves Leterme said Sunday that France's BNP Paribas SA had committed to taking a 75-percent stake in troubled European bank Fortis NV. British treasury chief Alistair Darling also said he was ready to take "pretty big steps that we wouldn't take in ordinary times" to help the country weather the credit crunch.

The outlook for the U.S. economy darkened after figures released Friday showed that 159,000 jobs in the U.S. were lost last month, the fastest pace in more than five years.

Such concerns overshadowed any investor optimism over the U.S. House of Representatives' approval Friday of a massive bailout plan that will allow the U.S. government to buy distressed mortgages and securities backed by mortgages from banks and other financial institutions.

Investors questioned how long it would take for the package to unfreeze credit markets, restore bank lending and generally shore up the U.S. economy.

"The market had already figured in the package's passage," said Yukio Takahashi at Shinko Securities Co. in Tokyo. "There are strong doubts about its implementation."

Japanese financial companies and industries dependent on exports, such as steel, were especially hard hit Monday. Nippon Steel Corp. stock tumbled 9.8 percent, while Mizuho Financial Group was down 8.3 percent in morning trading.

Trading in mainland China resumed after a weeklong holiday break with the benchmark Shanghai Composite Index sinking 5.2 percent to 2,173 by midafternoon.

Banks and other financial shares saw heavy declines. Shanghai Pudong Development Bank fell 7 percent and Bank of China slipped 3.6.

Shares of Ping An Insurance Co. rose even after it said Monday it will record a US$2.3 billion loss on its stake in European bank Fortis in the biggest blow yet to a Chinese institution from the global credit crisis. Ping An's shares were up 1.6 percent.

U.S. stock index futures were nearly 2 percent lower, suggesting Wall Street would open lower Monday. The Dow Jones industrial average fell 157.47, or 1.5 percent, to 10,325.38 on Friday.

In currencies, the euro slid to US$1.3570 from US$1.3774 late Friday. But the dollar was weaker against the yen, falling to 103.66 from 105.30 yen late Friday.

Oil prices tumbled on speculation that slower global growth will cut crude demand. Light, sweet crude for November delivery was down US$3.23 to US$90.65 a barrel in Asian electronic trading on the New York Mercantile Exchange
 

Foreclosure filings surge 71 percent in third quarter as mortgage crisis worsens

 

The number of homeowners ensnared in the foreclosure crisis grew by more than 70 percent in the third quarter of this year compared with the same period in 2007, according to data released Thursday.

Nationwide, nearly 766,000 homes received at least one foreclosure-related notice from July through September, up 71 percent from a year earlier, said foreclosure listing service RealtyTrac Inc.

By the end of the year, RealtyTrac expects more than a million bank-owned properties to have piled up on the market, representing around a third of all properties for sale in the U.S.

That's bad news for anyone who lives nearby and wants to sell their home. While foreclosure sales are booming in many areas, those properties are commanding deep discounts and pulling down neighboring property values. "It has a pretty significant impact in terms of pricing," said Rick Sharga, RealtyTrac's vice president for marketing.

RealtyTrac monitors default notices, auction sale notices and bank repossessions. More than 250,000 properties were repossessed by lenders nationwide in the third quarter, 81,000 of which were taken back last month.

Six states -- California, Florida, Arizona, Ohio, Michigan and Nevada -- accounted for more than 60 percent of all foreclosure activity in the quarter, with California alone making up more than a quarter of all U.S. foreclosure filings.

Detroit and Atlanta were the only cities outside California, Florida, Nevada and Arizona to make RealtyTrac's list of the 20 hardest-hit metropolitan areas.

The combination of sinking home values, tighter mortgage lending criteria and an economy that many economists think has already slipped into recession has left hundreds of thousands of homeowners with few options. Many can't find buyers or owe more than their home is worth and can't refinance into an affordable loan, with the global credit crisis making loans far less available.

For those who can qualify for a loan, or have cash to invest, there are bargains to be had, especially in ravaged markets like Nevada and California. Last month, foreclosure resales accounted for more than half of existing home sales in California last month, as home sales jumped 65 percent from a year ago, while the statewide median home price fell 34 percent to $283,000, according to MDA DataQuick.

RealtyTrac, however, reported foreclosure filings in September were actually down 12 percent from August. But much of that decline was the result of new state laws that delay the foreclosure process. In California, for example, lenders are now required to contact borrowers at least 30 days before filing a default notice. A similar law in North Carolina gives borrowers an extra 45 days.

Still, that's not likely to be enough to save homeowners who owe more on their mortgages than their homes are worth. Nearly 12 million of the 52 million Americans with a mortgage -- that's 23 percent of them -- are in that position, according to Moody's Economy.com.

It remains to be seen how much the government's intervention will stem the housing crisis. Earlier this month, the Federal Housing Administration launched a program that aims to prevent foreclosures by allowing homeowners to swap their mortgages for more affordable loans, but only if their lender agrees to take a loss on the initial loan. The bill is projected to help about 400,000 households.

Meanwhile, the Federal Deposit Insurance Corp., which took over Pasadena, Calif.-based IndyMac Bank over the summer, has been aggressively modifying troubled home loans since August in an effort to stave off foreclosures. Congressional Democrats are calling for that approach to be expanded as the Treasury Department buys billions in troubled mortgage debt as part of a $700 billion financial industry bailout.
 

Nation's foreclosure rate in October increases 25 percent year-over-year, with Nevada on top

 

The number of homeowners caught in the wave of foreclosures in October grew 25 percent nationally over the same month in 2007, data released Thursday showed.

More than 279,500 U.S. homes received at least one foreclosure-related notice in October, an increase of 5 percent over September, according to RealtyTrac Inc. One in every 452 housing units received a foreclosure filing, such as a default notice, auction sale notice or bank repossession.

More than 84,000 properties were repossessed in October, RealtyTrac said.

A nasty brew of strict lending standards, falling home values and a tough economy is filtering through the housing market. By the end of the year, the company expects more than a million bank-owned properties to have piled up on the market, representing around a third of all properties for sale in the U.S.

The collateral damage in the financial markets forced the government to pass a $700 billion financial rescue package last month. The plan was initially to buy bad assets from banks, but Treasury Secretary Henry Paulson said Wednesday that the rescue package won't purchase those troubled assets.

That plan would have taken too much time, he said, so instead the Treasury will rely on buying stakes in banks and encouraging them to resume more normal lending.

Also Wednesday, Housing and Urban Development Secretary Steve Preston said the government may let more borrowers qualify for a $300 billion program designed to let troubled homeowners swap risky loans for more affordable ones. The program was launched Oct. 1, but there are concerns that lenders won't participate because they have to voluntarily reduce the value of a loan and take a loss.

In RealtyTrac's report, three states -- Nevada, Arizona, Florida -- had the nation's top foreclosure rates. Nevada posted the nation's highest rate for the 22nd consecutive month in October.

In Nevada, one in every 74 homes received a foreclosure filing last month. Arizona saw one in every 149 housing units receive a foreclosure filing, and in Florida it was one in every 157 homes.

Other states in the top 10 were California, Colorado, Georgia, Michigan, New Jersey, Illinois and Ohio.

However, RealtyTrac noted that, while California had the highest total number of foreclosures in October, the rate in that state was down 18 percent from the previous month.

James J. Saccacio, chief executive officer of RealtyTrac, said new laws requiring delays in the foreclosure process have reduced the volume of foreclosure filings in several states. In California, lenders are now required to contact borrowers at least 30 days before filing a default notice. A similar law in North Carolina gives borrowers an extra 45 days.

"While the intention behind this legislation -- to prevent more foreclosures -- is admirable, without a more integrated approach that includes significant loan modifications, the net effect may be merely delaying inevitable foreclosures," Saccacio said. "And in the meantime, the apparent slowing of foreclosure activity understates the severity of the foreclosure problem in these states."

Among cities, Las Vegas had the highest October foreclosure rate among the 230 metro areas tracked in the report, with one in every 62 housing units receiving a foreclosure filing.

Four Florida metro areas ranked in top 10 -- Cape Coral-Fort Myers was second, Miami third, Fort Lauderdale eighth and Orlando 10th. California also had four metro areas in the top 10: Stockton fourth, Merced fifth, Riverside-San Bernardino seventh and Modesto ninth.

The remaining member of the top 10 was Phoenix, which came in sixth.

 

The home price plunge stayed on a record pace this summer, according to a widely watched gauge of national real-estate markets released Tuesday.

The S&P Case-Shiller Home Price national index recorded a 16.6% decline in the third quarter compared with the same period a year ago. That eclipsed the previous record of 15.1% set during the second quarter.

Prices in Case-Shiller's separate index of 10 major cities fell a record 18.6%, while its 20-city index dropped a record 17.4%

With foreclosures soaring at record rates, the economic picture dimming and job losses ramping up, all the elements were in place to push prices lower.

"The turmoil in the financial markets is placing further downward pressure on a housing market already weakened by its own fundamentals," said David Blitzer, Standard & Poor's spokesman for the indexes, in a press release. "All three aggregate indices, and 13 of the 20 metro areas, are reporting new record rates of decline...Prices are back to where they were in early 2004."

The 10-city index is now 23.4% off its peak price, which came in June 2006; the 20-city index is down 21.8% from its July 2006 high and the national index has fallen 21% since the third quarter of 2006.

Home prices in the 10-city index have fallen for 26 consecutive months. The decline has broadened over the past 12 months, with prices dropping in every city of the 20-city index during September.

In the weakest market, Phoenix, the 12-month loss came to 31.9%. Las Vegas prices plummeted 31.3% and San Francisco recorded a 29.5% decline. The best performing markets, Dallas and Charlotte, N.C., still posted drops - 2.7% in Dallas and 3.5% in Charlotte.

With San Francisco and Las Vegas, the other members of the 10-city index are: Miami, down 28.4% year-over-year; Los Angeles, down 27.6%; San Diego, down 26.3%; Washington, down 17%; Chicago, down 10.1%; New York, down 7.3%; Boston, down 5.7%; and Denver, down 5.4%.

In addition to Phoenix, Dallas, Charlotte and the cities in the 10-city index, the 20-city index is made up of: Detroit, down 18.6%); Tampa, Fla., down 18.5%; Minneapolis, down 14%; Seattle, down 9.8%; Atlanta, down 9.5%; Portland, Ore., down 8.6%; and Cleveland, down 6.4%.

Foreclosures continue to take a heavy toll, with sales in some cities dominated by properties repossessed by banks and then put back on the market, often at bargain prices. In Las Vegas and Cleveland, for example, about half of all homes for sale are bank-owned properties, according to the real estate Web site, Trulia.com.

"Foreclosures are clearly a part of the market now," said Blitzer.

He added that the national index price trends tend to be more moderate because they encompass many more exurban and rural areas, where, in many cases, home prices never skyrocketed as they did in some of the hotter, urban markets.

Karl Case, the Wellesley economics professor who is the Case in Case-Shiller, said during a news conference about the latest index report that he would hesitate to put a number on how much further prices could fall, but the increasing job losses will surely worsen the situation.

"There's no cushion against unemployment," he said.

And Pat Newport, an economist with Global Insight, pointed out that the latest numbers don't even capture the impact of some of the events of the past couple of months.

"The real economy took a sharp turn for the worse towards the end of the third quarter," he said. "Since then, housing permits are down, the National Association of Home Builders index of activity dropped to a record low in November and purchase loan applications were down 15%. That's telling us the housing market has worsened a lot."

Add to that a jumping unemployment rate and more bank woes and it portends lousy home price numbers for months to come, according to Newport.

"As bad as the latest Case-Shiller numbers appear to be, they are bound to get a lot worse," he said. 
 

Mortgage applications surged by the largest amount on record last week as a new Federal Reserve program pushed interest rates down to their lowest level in more than 3 years, data from an industry group showed on Wednesday.

The Mortgage Bankers Association said its seasonally adjusted index of mortgage applications, which includes both purchase and refinance loans, for the week ended November 28 soared a record 112.1 percent to 857.7, the highest reading since the week ended March 21 when it reached 965.9.

Potential borrowers were lured by enticing mortgage rates, which dropped dramatically after the Federal Reserve unveiled a plan last week to buy up to $500 billion of mortgage securities backed by government-sponsored enterprises, Fannie Mae (Pacific:FNM - News), Freddie Mac (Pacific:FRE - News), and Ginnie Mae. The program also entails buying up to $100 billion of debt issued by Fannie Mae, Freddie Mac and the Federal Home Loan Banks.

"Many borrowers missed an opportunity to take advantage when rates dropped sharply for a brief period when the GSEs were placed under conservatorship," Orawin Velz, Associate Vice President of Economic Forecasting, said in a statement.

"When rates plummeted following the Fed's announcement that it would buy GSE debt and MBS, many of those on the sidelines decided to quickly jump in and take advantage of lower rates before they began to rebound," she said.

Borrowing costs on 30-year fixed-rate mortgages, excluding fees, averaged 5.47 percent, down a whopping 0.52 percentage point from the previous week, the largest drop since 1990 when the MBA started conducting the weekly survey.

Interest rates are at their lowest level since the week ended June 24, 2005, when they reached the same level. Interest rates are sharply below the peak of 6.59 percent reached during the summer, but only slightly below the 2008 low of 5.49 percent in January, according to the trade group.

Interest rates were below year-ago levels of 5.82 percent.

The MBA's seasonally adjusted purchase index rose 38.0 percent to 361.1, the largest rise since the week ended February 24, 1995. The index, however, came in well below its year-ago level of 464.3, a drop of 22.2 percent.

Overall mortgage applications last week were 8.3 percent above their year-ago level. The four-week moving average of mortgage applications, which smooths the volatile weekly figures, was up 29.7 percent.

WEEKLY REFINANCING ACTIVITY SURGES

Cameron Findlay, chief economist at LendingTree.com based in Charlotte, North Carolina, said they are seeing a positive uptick in refinancing volume due to the drop in interest rates.

"Consumers who were previously on the fence to refinance or purchase a home are in a position to take advantage of the decline in rates," said on Tuesday.

"Now it'll be a matter of qualification as lenders evaluate each borrower individually," he said.

The low interest rates can help many drop their monthly payments, and is especially good news for those who have adjustable- rate mortgages and are looking to lock in a secure fixed-rate mortgage, he said.

The group's seasonally adjusted index of refinancing applications jumped 203.3 percent to 3,802.8, the largest rise on record. The index was up 37.7 percent from its year-ago level of 2,761.3.

The refinance share of applications increased to 69.1 percent from 49.3 percent the previous week. The adjustable-rate mortgage (ARM) share of activity decreased to 1.4 percent, down from 3.0 percent the previous week.

Fixed 15-year mortgage rates averaged 5.13 percent, down from 5.78 percent the previous week. Rates on one-year ARMs decreased to 6.61 percent from 6.87 percent.

The U.S. housing market is currently suffering the worst downturn since the Great Depression. A huge supply of unsold homes, tighter lending standards and record foreclosures have pushed down home prices, deflating a bubble from the early part of this decade.

While U.S. housing market indexes tend to be volatile, data from the MBA may help gauge how the hard-hit sector is faring.

 Home prices plunged a record 18.2 percent in November from a year earlier as the country's housing market remains in the throes of a deep recession, according to an index from Standard & Poor's.

Prices in 20 metropolitan areas tracked by S&P fell 2.2 percent from October as housing continues to suffer from a huge supply of unsold homes, tighter lending standards and record foreclosures.

The drop in prices on a month-over-month basis was slightly steeper than expectations, based on a Reuters survey of economists.

However, the annual rate of decline for the Standard & Poor's/Case-Shiller composite index for 20 cities was not as steep as economists had expected.

S&P said its composite index of 10 metropolitan areas also fell 2.2 percent in November from October for a 19.1 percent year-over-year drop, matching the previous month's record decline.

Prices in 11 metro areas fell at record rates from a year earlier. Prices in 14 cities fell more than 10 percent from November 2007.

"The free-fall in residential real estate continued through November 2008," David M. Blitzer, Chairman of the Index Committee at Standard & Poor's, said in a statement.

"Since August 2006, the 10-city and 20-city composites have declined every month -- a total of 28 consecutive months," he said.

Prices in every region fell more than 1 percent from October. In eight metro areas, prices fell at a record monthly rate, Blitzer said.

Phoenix and Las Vegas were hardest hit in November, with prices down 3.4 percent and 3.3 percent, respectively. The two cities also have the worst returns over the one-year period, with prices falling 32.9 percent and 31.6 percent, respectively.

"Overall, more than half of the metro areas had record annual declines," he said.

As of November, average home prices are at similar levels to what they were in the first quarter of 2004. From their peak in mid-2006, the 10-city index is down 26.6 percent and the 20-city Composite is down 25.1 percent.

The battered U.S. housing market is critical to the U.S. economy, with a wide-ranging impact from the construction industry to the sale of appliances and furniture. After hurting growth for multiple quarters, a continued deterioration could prolong a turnaround for the world's largest economy, which has been in a recession since late 2007.
 

With mortgage rates at 25-year lows, refinancing applications have reached record levels in the last two months. But homeowners who bought during the boom years are getting squeezed out of refinancing because the value of their home has plummeted.

 

 "I tried to refi but they won't give me a new mortgage because I bought at the peak of the market and my house has depreciated," says Connecticut homeowner James McCusker. "I don't have the 20 percent equity in the house I need. When they turned me down, they said to me to qualify for any government-related loan program, I need to lose my job."

 McCusker, a public relations executive, and his wife, a school teacher bought their home in July of 2005 for $462,500 with a 30 year fixed loan at 6.3 percent.

But today, the home has a value today of $433,000. "We have good jobs, never missed a mortgage payment, "saysMcCusker. "But I can't get any help. There's something wrong with that."

Industry experts see McCusker's problem as a continuing sign of the skidding real estate industry.

Symptom of the Times

"It's a symptom of the times and it's mushrooming," says Greg McBride, a senior analyst for Bankrate.com, of the difficulty people have refinancing. "It's a bigger problem now than three months ago, and it was growing problem then."

The problem is particularly acute for people who bought a few years ago, when housing prices were skyrocketing.

"People could buy a house with no money down," McBride says. "They were borrowing with the equity from home prices. But with foreclosures and a falling economy, home prices fell and the music stopped."

___________________________________
"For those that bought a home in the last couple of years, it's a difficult time to refinance," says Jon Paukovich, Vice President of Mortgage Lending at Ent Federal Credit Union in Colorado Springs, Colorado. "We have seen borrowers who have not been able to finance because of how far property values have declined."

Paukovich says his firm handled some $30 million in refinancing in January, and the main reason for rejecting a loan is loss of home equity. "We only turn down about 25 percent of the applicants," says Paukovich, "And the main reason is property values."

 Luigi Rosablanca is a New York real estate lawyer who says middle-income homeowners are getting hit hard when it comes to refinancing. "We are in a situation right now that if you really need help, you can get it," says Rosablanca. "But if you're in the middle you can't. The assistance should be across the board for refinancing."

For homeowners, many lenders don't have an incentive to refinance a home that's valued lower than the original price. "Unfortunately, we run into that a lot," says Steve Habetz, CEO of Threshold Mortgage. "People call us to refinance that don't have enough equity and we have to say no. We try our best, but you can't force a bank to refinance them."

In the boom times of real estate, home appraisals helped create what some say were higher than actual price values. But now experts say appraisers are taking a different more realistic approach that's actually hurting some refinancing. "My own opinion is that appraisers were under pressure to submit higher prices," says Ent Credit Union's Paukovich. "But now appraisers are more conservative. The purchasers of the mortgages want them to be conservative and much more thorough."

Threshold Mortgage's Habetz agrees that appraisers are more cautious. "They have a lot less stress," says Habetz. "Home prices are stabilizing somewhat but not going up. Right now there's great fear for everyone when it comes to home prices."

Loan To Value

McCusker paid 9 percent down to buy his home. He says he just didn't have the $95,000 to make it 20 percent down, but he had some hope the house would increase in value. "The mortgage broker told us that the way homes were appreciating, we would reach 20 percent equity in a couple of years and we should refi at that point," says McCusker. "Thing is, the house never appreciated to bring us to that point. In fact, it went in the opposite direction."

To refinance, McCusker had hoped to use the 20 percent equity in his home as a down payment, but he now faces a housing market that puts his current mortgage in a financial hole. "I pay about $2,900 a month for my mortgage," says McCusker. "But with the house worth some $30,000 less, if the definition of being underwater is that the mortgage value is more than the value of the house, I am underwater."

Bankrate's McBride says 20 percent down will give you the best terms for refinancing. But anything less is pretty much a gamble for lenders. "For now, homeowners are stuck," says McBride. "I think one thing that would be nice to see, is a government program designed to facilitate refinancing for people that have been current on their loans for at least two years."

As for someone like McCusker, the advice ranges from eventually you'll find a lender to just sit tight and ride out the financial storm. "Shop around," says lawyer Rosablanca. "There are wonderful banking opportunities. One of the good affects of this current situation is that the folks that were not true professionals are now mostly out of the business."

"It would be difficult for a lender to take on that loan," says Threshold's Habetz. "He doesn't have much of an option." "Each lender approaching this in a different manner. They're playing it like a poker game. From their stand point, they don't want to do anything." 
 

One hour outside of Washington DC, in the picturesque small city of Martinsburg, West Virginia, some homes for sale are attracting bidding wars-again.

 

"Prices are so low, we're starting to see that," says Marc Savitt, a realtor there for a quarter of a century. "In our area, you're at the bottom."

Savitt, who's also president of the National Association Of Mortgage Brokers, might be accused of being overly optimistic. But he is hardly alone in sensing a long-awaited bottom in the real estate market.

 

  • Slideshow: Highest-End Real Estate
  • Slideshow: Most Affordable Metro Areas

 

For most at this point, it's less a matter of bold confidence that cautious optimism, but data are emerging to make a reasonable case.

Three categories of home sales-new, existing and pending - all posted surprise gains in February, along with housing starts are posted surprise gains in February.

"There are encouraging signs that we're near a bottom," says Nomura Securities Chief Economist David Resler, who is among those who have been calling for a bottom in the late first half of 2009. "The signs of improvement we've been seeing have to be recurrent. One to two months isn't enough to establish it; it needs to be a stretch."

Though the housing market still faces significant headwinds with foreclosures and unemployment on the rise, a number of positive forces may finally have enough traction to stop the market's brutal two-year descent.

Headwinds & Tailwinds

Housing affordability has soared in recent months, while mortgage rates have sunk to at a record low. The median price of home is down 15 percent from its 2006 peak. And first-time buyers are now eligible for a one-time $8,000 tax credit. The number of properties available is down 18-percent overall from the July 2008 peak, while inventory has been under a 10-month supply for three months now.

"We're seeing a tremendous uptick in activity." says Savitt, who estimates business is up 50-60 percent from a year ago.

The eastern panhandle of West Virginia, of course, is but one market, but there's even anecdotal evidence that conditions are better in the diverse markets around the country.

"The hardest hit areas-California, Florida-hinting at a bottom," says economist David Jones, who's also something of a housing optimist.

 

 

"There's a lot of good sentiment in the air," says David Olson, a former head of research at Freddie Mac who founded Access Mortgage Research, which provides data to lenders. "I talk to them everyday."

Sentiment, indeed, confidence, most say, is the key ingredient to build momentum for an imminent bottom in sales followed by a bottom in prices, about six months later.

"We are close to the bottom," says Lawrence Yun, chief economist for the National Association of Realtors. "Once home sales begin to rise that could boost home buying confidence and get others off the sidelines."

The past week has also brought a glint of optimism in economic forecast from key trade groups.

The Mortgage Bankers Association's forecast calls for a steady increase in home sales beginning in the second quarter with the annual rate surpassing the 2008 high in the fourth quarter. Annual sales will go from 4.34 million units in the first quarter to 5.11 million by the end of the year, a 17-percent increase from 2008. Sales are forecast to increase another 10 percent in 2010 to 5.53 million.

"We still have a large number of people employed," explains the group's chief economist and SVP Jay Brinkman. "We also expect investors to come back into the market," given the significant decline in prices.

 

 The National Association Of Realtors forecast issued Wednesday shows a similar, though slightly more positive uptrend, with sales hitting a 5.50 million annual rate in the first quarter of 2010.

As promising as that may sound, it's still a far cry from the 6.48 million annual rate of the market peak in 2006. That and other measures should help manage expectations in the next six to nine months

"Hitting a bottom is not the sane to getting back to a healthy housing market and we're a long way from that," says Resler.

Prices Still Under Pressure

Most forecasts show median home price will continue to fall in the second quarter then turn slightly positive in the third quarter.

"We haven't gotten to the bottom of prices," says Olson. The earliest is September,"

NAR's forecast calls for a string of 4-percent increases in the final quarter of 2009 and the first two of 2010, which will put them roughly at 2008's level. The Mortgage Banker's forecast is a little less positive.

Both groups-along with the National Association of Home Builders-expect housing starts to be relatively depressed and fall until a surge of activity at the end of 2009 and in the first and second quarters of 2010.

 "We expect the first quarter to be the worst and there will be some improvement in the second quarter," says the building trade group's chief economist David Crowe, who adds lower interest are having only a marginal impact. "Time is about the only thing we have on our side."

Builders have been particularly disappointed in the government's stimulus efforts and feel the lack of aid has something to do with a sense-unfair or not--that the group is partly to blame for the crisis.

Otherwise, economists and industry players alike say some of the credit for the market's condition should go to the government's extraordinary intervention in the market.

"They've done a lot and it is starting to have an effect," says Scott Talbott, senior VP for government affairs for The Financial Services Roundtable, which counts the major lenders as its members. "Refinancing is up and home sales are starting to turn around. From here, let what they've done play out."
 

National home prices are at levels not seen since the end of 2002, but a closer look at data released Tuesday shows the worst may be over for some cities.

 

The Standard & Poor's/Case-Shiller National Home Price index reported home prices tumbled by 19.1 percent in the first quarter compared to the first quarter last year, the largest drop in its 21-year history. Home prices have fallen 32.2 percent since peaking in the second quarter of 2006.

In cities across the country home prices varied dramatically, depending on affordability, foreclosure activity and the local economy. The bottom may be in sight in some markets, but nationally home values are expected to decline -- though at a slower pace -- for the rest of the year.

"We continue to believe that it is unlikely that we are anywhere near a bottom in nationwide home prices," according to Joshua Shapiro, chief U.S. economist for MFR Inc.

It's hard to believe it could get much worse for homeowners in Detroit. Homes there are worth what they sold for in 1995. And while that's good news for homebuyers, the implosion of the auto industry and economic fallout means fewer buyers have the money to qualify for a mortgage.

"I feel like houses here are free," said Detroit area real estate agent Rose Marie Jouan with Re/Max Showcase Homes. Her house that she sold in 2004 for $200,000 is on the sales block, bank-owned, for $86,000.

In Phoenix and Las Vegas, where prices have plunged by half since their peaks, home values have receded to levels not seen since the beginning of the real estate boom. Phoenix prices are at early 2001 levels and Las Vegas values hover at mid-2002 prices.

Home values in Charlotte, N.C., Portland, Ore., and Seattle are steady at 2005 prices, the best showing of all 20 cities in the Case-Shiller report. All three were some of the last to fall into the housing slump.

The Case-Shiller report offered other hopeful signs the worst may be over for some cities. Denver prices posted an increase over February, while Dallas prices were flat.

Separately, Case Shiller said its 20-city index of home prices fell by 18.7 percent from the year before, and the 10-city index lost 18.6 percent. However, the rates of decline slowed in March, the second straight month they didn't set record price drops.

Still, there are no signs home prices nationally have hit bottom.

"We see no evidence that a recovery in home prices has begun," said David M. Blitzer, chairman of the S&P index committee.

All 20 cities showed monthly and annual price declines, with nine setting annual records. Fifteen cities posted double-digit drops and Phoenix, Las Vegas and San Francisco recorded declines of more than 30 percent.

Minneapolis posted a 6.1 percent decline from February to March, the biggest monthly drop on record for any metros in the indexes. Ron Peltier, chairman and chief executive of HomeServices of America, attributed the drop to a jump in distressed sales in March.

Economists will get a look at April housing data Wednesday when the National Association of Realtors releases sales data for previously owned homes, and on Thursday when the Commerce Department puts out numbers for sales of newly built homes. Economists surveyed by Thomson Reuters expect existing home sales to rise 2 percent from March to April, while new home sales are forecast to rise by 1.1 percent.
 

The number of U.S. households on the verge of losing their homes soared by nearly 15 percent in the first half of the year as more people lost their jobs and were unable to pay their monthly mortgage bills.

Related Quotes

The mushrooming foreclosure crisis affected more than 1.5 million homes in the first six months of the year, according to a report released Thursday by foreclosure listing service RealtyTrac Inc.

The data show that, despite the Obama administration's plan to encourage the lending industry to prevent foreclosures by handing out $50 billion in subsidies, the nation's housing woes continue to spread. Experts don't expect foreclosures to peak until the middle of next year.

Foreclosure filings rose more than 33 percent in June compared with the same month last year and were up nearly 5 percent from May, RealtyTrac said.

"Despite all the efforts to date, we clearly haven't got a handle on how to address the situation," said Rick Sharga, RealtyTrac's senior vice president for marketing.

More than 336,000 households received at least one foreclosure-related notice in June, according to the foreclosure listing firm's report. That works out to one in every 380 U.S. homes.

It was the fourth-straight month in which more than 300,000 households receiving a foreclosure filing, which includes default notices and several other legal notices that homeowners receive before they finally lose their homes. Banks repossessed more than 79,000 homes in June, up from about 65,000 a month earlier.

On a state-by-state basis, Nevada had the nation's highest foreclosure rate in the first half of the year, with more than 6 percent of all households receiving a filing. Arizona was No. 2, followed by Florida, California and Utah. Rounding out the top 10 were Georgia, Michigan, Illinois, Idaho and Colorado.

The Obama administration in March launched a $50 billion plan to give the lending industry financial incentives to modify mortgages to lower payments, but it's off to a slow start.

As of early July, about 130,000 borrowers were enrolled in three-month trial modifications under the plan, and 25 mortgage companies have signed up to receive potential payments of up to $18.6 billion, according to the Treasury Department. But analysts and housing counselors say it isn't having much of an impact.

"The plan isn't going well, at least not yet," said Mark Zandi, chief economist at Moody's Economy.com. "It's a creative plan with lots of incentives, but it's very complex."

In testimony prepared for delivery at a Senate hearing on Thursday, Bank of America executive Allen Jones said the company has about 80,000 loan modifications in the works under the new government guidelines, including some that aren't in the three-month trial phase yet.

"We have achieved this level of success by devoting substantial resources to this effort," Jones said, noting that the company has more than 7,000 employees handling calls and working on modifications. Industry experts, however, say the response from most mortgage companies has been lackluster.

"They've been slow to make sure they understand it and put all the processes and people in place," said Joel Lewis, vice president of financial services at Convergys Corp., which runs call centers for the financial industry and other companies.

A week ago, Treasury Secretary Timothy Geithner and Housing Secretary Shaun Donovan sought to ramp up pressure on the industry, saying in a letter to participating mortgage companies that the industry needs to "devote substantially more resources to this program for it to fully succeed." They also summoned mortgage executives to a July 28 meeting with top government officials.

Though the program was launched months ago, few companies are upgrading their computer systems to process loans rapidly, said Bill Kelvie, chairman of Overture Technologies in Bethesda, Md.

"They need to automate the process, and they need better technology, and they need to do this quickly," he said.
 

For Aaron Carter, a musician who was struggling to fit a drum set, a piano and three guitars into his 600-square-foot apartment in Phoenix, the math on owning a home finally began to work in his favor.

Rent for the apartment he shared with his wife: $615. Mortgage payment for a home with twice the space: $760. And the interest on a mortgage is tax-deductible. So they jumped at the chance to buy some elbow room.

"We figured that everything together, getting more space, getting out of the apartment life and also just the prices right now, it just was the perfect time for us as a couple" to buy, said Carter, 20.

For Americans debating whether to buy or rent their homes, the scales are tipping toward ownership. Because of the slide in home prices, low interest rates and tax incentives, renters are realizing they could handle a mortgage for a just little more money.

An Associated Press analysis of 45 metro areas finds the gap between the monthly mortgage payment on a median-priced home and the median rent has shrunk from $777 a month to just $221 in the past three years.

It could mean a quicker end to the housing-market doldrums, as renters buy up unsold homes languishing on the market.

In some metro areas, including Cleveland, Atlanta, Indianapolis and St. Louis, the gap was less than $100 a month. And home prices are expected to fall faster than rents this year, which means the gap should get even smaller.

In once-inflated markets like Phoenix, Las Vegas and inland swaths of California and Florida, where prices have tumbled more than 40 percent, sales are rising because first-time homebuyers are snapping up bargain-priced homes.

They are getting help from a federal tax credit that covers 10 percent of the home price or up to $8,000 for first-time buyers who earn up to $75,000 a year, or $150,000 for a couple. The credit expires in November.

Cheap foreclosures in some of those markets are now drawing multiple bids. As supply and demand even out, home prices will eventually begin to rise. But for now buyers are having little trouble finding bargains.

Jere Ross, an Air Force vehicle operator, and his wife recently bought a four-bedroom, 1 1/2-bath house in Zephyrhills, Fla., a Tampa suburb, for $86,500 rather than jump into another yearlong apartment lease.

Ross, 23, used a Veterans Administration loan, which doesn't require a down payment, and got a 30-year mortgage at a fixed rate of 5.5 percent. His monthly payment comes to $700 a month, including property taxes and insurance — $110 less than he paid to rent an apartment nearly half the size.

"It just came to a point where we were just throwing our money away on rent," Ross said. "When it came to find out that we could own this house for, less than what we're paying in rent, it was a 'no duh!' kind of moment."

The study, conducted for the AP by Marcus & Millichap Real Estate Investment Services, used prices for the first three months of this year.

It calculated mortgage payments by assuming a 10 percent down payment, a 30-year fixed loan at 5.15 percent, and taxes and insurance that added up to 1.5 percent of the purchase price. It assumed borrowers used private mortgage insurance.

While the analysis found the gap between what it costs to own and rent is shrinking, it's still too wide for millions who live paycheck to paycheck.

Renters with jobs in the education, retail and transportation industries don't earn enough to rent the average two-bedroom apartment in many of these major cities, let alone buy, according to a recent study of 200 metro areas by the Center for Housing Policy.

Renters who want to become homeowners also face the obstacles of scraping together a down payment and qualifying for the loan. And renters with a record of paying bills late will have a hard time getting a low interest rate.

"There's still those buyers that are having trouble getting financed," says Brad Snyder, an agent with ZipRealty in Las Vegas. "A lot of them are still just looking for that easy way in, and it's just not there."

Homeowners also have to shoulder many costs renters don't face — association fees, insurance, some utilities. And there are still cities, among them San Francisco and Los Angeles, where it's usually still more affordable to rent — even though home prices have fallen more than 30 percent.

Mike Sigal, a longtime renter in San Francisco, has looked at buying a home for the past couple of years. But buying one comparable to the two-bedroom, two-bath apartment he has now would cost more than $600,000, meaning the mortgage would far exceed his $1,800 rent.

"The math doesn't come out," said Sigal, 42, who runs an information services company. "I've got extreme value for my rent."

Nevertheless, homes in some parts of country are more affordable than they've been in decades. Even Dean Baker, an economist who sounded early warnings about the housing bubble and sold his own condo in 2004, has come around.

Baker, co-director of the Center for Economic and Policy Research in Washington, bought a five-bedroom house last month for $650,000, which he figures is about 20 percent below what it would have gone for at the peak of the market.

"We feel we got a pretty good deal," Baker said.

By buying, he accepted the risk that he might lose money if home values keep dropping. "We'll probably end up more or less even," he said. "Depending how much further down they go."
 

With the recession throwing thousands of people out of work daily, more than 13 percent of American homeowners with a mortgage have fallen behind on their payments or are in foreclosure.

The record-high numbers released Thursday by the Mortgage Bankers Association are being driven by borrowers with traditional fixed-rate mortgages, rather than the shady subprime loans with adjustable rates that kicked off the mortgage crisis. As of June, more than 4 percent of all borrowers were in foreclosure, while about 9 percent had missed at least one payment.

And the layoffs keep coming. Lockheed Martin Corp. said this week it's handing out about 800 pink slips in its space systems division, and audio conferencing company Polycom Inc. said it will cut about 80 positions.

New jobless claims rose last week to a seasonally adjusted 576,000, the Labor Department said Thursday. While the recession, measured by the nation's total economic output, is likely over, most economists expect layoffs and foreclosures to keep rising for many months as companies remain in cost-cutting mode.

"Their confidence has been shattered," said Brian Bethune, chief U.S. financial economist at IHS Global Insight. "They are going to be very conservative. They don't want to be blind-sided by a false dawn economy."

Nee Salam, 56, lost his engineering job at an automotive electronics supplier south of Atlanta more than a year ago.

At the time, he said, "I was thinking the job market was going to change right away." But it hasn't.

Since then, he's been working as a consultant, earning less than half his old salary of $115,000. His wife has been cleaning houses to keep the family afloat.

But after draining their savings and retirement accounts, the couple have missed four payments on their $636,000 mortgage. Their request for a loan modification from OneWest Bank (formerly failed IndyMac Bank) was denied because the couple's income was too low. A OneWest representative did not immediately comment.

As banks unload foreclosed properties at deep discounts, they are attracting homebuyers back into the market. On Friday, the National Association of Realtors will release July home sales data, and economists expect it to show the fourth-straight monthly sales increase.

While there have been signs that prices are stabilizing, some economists say that's a temporary respite. "We don't think we've seen a bottom yet in home prices because of the foreclosure problem," said Michelle Meyer, an economist with Barclays Capital.

The worst of the trouble is still concentrated in California, Nevada, Arizona and Florida, which accounted for 44 percent of new foreclosures in the country. Nearly 12 percent of all loans in Florida were in foreclosure, the highest in the country, followed by Nevada at 9 percent.

Loan delinquencies among borrowers with prime, fixed-rate mortgages grew from the first quarter to the second in all 50 states, with the biggest jumps in Wisconsin, Illinois, Utah and West Virginia.

President Barack Obama has pledged to fight the problem, but its foreclosure prevention program, known as "Making Home Affordable," is off to a disappointing start. As of July, only about one in 10 of eligible borrowers had signed up.

When homeowners don't have much income left, there's little that can be done to help. Cindy Kennedy, 44, ran a successful cleaning business in Allentown, Pa., for seven years. But she lost most of her customers once the recession hit.

Kennedy paid more than $1,700 to a California company that promised to help modify the loan. But the company stopped returning her calls in June, and she suspects she has been scammed.

She and her longtime companion stopped paying on their $840-a-month mortgage in February and their house has gone into foreclosure. They attended a mediation conference in county court Wednesday with their lender but are not optimistic about saving their home.

Now making $120 a week as a part-time supermarket cashier, Kennedy says she commiserates with her co-workers, some of whom are also facing foreclosure.

"We talk about it and laugh," she said. "It's not really a funny situation, but sometimes you have to laugh to keep your sanity, so you don't make yourself nuts."
 

Passing through the Fort Myers, Fla., airport a few weeks ago, I noticed people eagerly signing up for a free bus tour of foreclosed real estate — with all properties offering water views. During the ride to my hotel, the young driver volunteered that he’d just bought his first house, paying $65,000 for a foreclosed property in nearby Cape Coral that had last sold for over $250,000. He said he’d never expected to be able to buy anything on a driver’s salary, let alone something that nice.

Last week, Standard & Poor’s reported that its S&P/Case-Shiller U.S. National Home Price index of real estate values increased this past quarter over the first quarter of 2009, the first quarter-on-quarter increase in three years. Its index of 20 major cities also rose for the three months ended June 30 over the three months ended May 31, with only hard-hit Detroit and Las Vegas experiencing declines. The week before that, the National Association of Realtors reported that sales volume of existing homes was up 7.2% in July from June.

 

 

 

In short, the data suggest that real-estate prices hit a bottom some time during the second quarter, and have now begun to rise. There’s no way to be certain that this marks the end of the long, painful correction that followed the real-estate bubble, but clearly prices are no longer in free fall. That means if you’ve been sitting on the fence, it’s time to act.

Ordinarily I’d never try to time the real-estate market, but I can understand why buyers have been cautious. Few want to buy in down markets, just as stock buyers avoid bear markets. And for most people, of course, buying a house is a much bigger decision than buying a stock. But with real estate prices nationally now down about 30% from their 2006 peak, and showing signs of turning up, the prices aren’t likely to go much lower. Every real-estate market is local, and so there may be a few exceptions. Overall, though, I can’t imagine a better time to buy than right now.

In addition to bargain prices, buyers should find plenty of homes to choose from. The inventory of unsold homes was 4.09 million units in July, up 7.3% from June, according to the National Association of Realtors. And mortgage rates this week were at a two-month low of close to 5%, according to Zillow. Even the stricter appraisal process is working to the advantage of buyers. Appraisals are coming in far lower than most sellers have been expecting, forcing them to face the new reality of sharply lower prices. And with stricter standards, lenders aren’t going to let buyers borrow more than they can afford, which protects buyers and helps to keep prices down.

Unless you’re really prepared to accept the demands (and headaches) of being a landlord, I don’t recommend direct ownership of real estate as an investment. The days of buyers lining up to buy and flip Miami Beach and Las Vegas condos are mercifully gone. There are much easier ways to make money in real estate, such as real-estate investment trusts or buying shares in home builders and other housing-related businesses (such as Home Depot (HD)). Historically, the mean rate of return on real estate has been around 3%, according to research from Yale economist Robert Shiller, who co-developed the Case-Shiller index. Shares in REITs and other stocks have often done much better.

But there’s a good reason home ownership has been such a central part of the American dream. It delivers security, pride of ownership, a sense of community and decent investment returns as a bonus. I felt glad for my driver in Florida. He represents the other side of the foreclosure crisis. For every hardship story, and no doubt there are many, others are realizing their dreams of home ownership and getting what may well turn out to be the deals of their lives.
 

After housing meltdown, buyers hold the power -- and old-fashioned rules return

The American dream of homeownership is still attainable. Buyers just have to deal with a new set of realities.

 

A year after the collapse of the housing market triggered the financial meltdown, lenders are demanding more money up front, high credit scores and proof of income. Paperwork must be in perfect order. Patience and persistence are required. And don't even bother asking about a subprime mortgage.

It's a vastly different set of rules from earlier this decade, when home prices soared and mortgages were easy to come by.

In some ways, it's a return to the standards that emerged as the World War II generation bought its first homes in the suburbs: Buy what you can afford. Stick to a 30-year, fixed-rate mortgage. View your home as a place to live, not as a piggy bank.

For people trying to sell their homes, the standards are different, too: Be patient and maybe even lower your asking price, because the balance of power has swung strongly to buyers.

Housing bubbles have happened before and, experts warn, could happen again. Already, home sales and prices are rising slowly, helped by tax breaks for first-time homebuyers. But real estate agents, mortgage brokers, economists and homebuyers across the country say they've noticed a shift in attitudes that they expect will last for years.

NEW REALITY: Selling your house

Real estate agent Scott Patterson hits the gas and weaves his black Mercedes-Benz across three lanes of Interstate 95 near Plantation, Fla., holding his iPhone with one hand and the steering wheel with the other.

He is rushing to meet with potential buyers of a condo with an ocean view. When he arrives, he turns on lights and opens doors in the four-bedroom place. The prospective buyers, a couple from Venezuela, walk around, ask a few questions -- and leave.

Business may be up in South Florida, but the power has shifted to the buyer. And price is the key. "If you're not getting showings, you're overpriced," says Patterson, an agent with Esslinger Wooten Maxwell Realtors Inc.

The record number of foreclosed homes on the market gives buyers even more leverage. "They can afford to wait," says David Baran, a broker with Prudential Preferred Properties in Chicago.

Michael Davies and Nicole Anzia of Washington, D.C., a married couple in Washington, got caught in their first bidding war when they bought their two-bedroom condo in 2003. The seller fielded eight bids within five days of listing. The couple waived an inspection to clinch the deal and paid $372,000.

That was tame compared with what happened when they sold the condo two years later. They listed the property on a Thursday for $479,000 and held two open houses. More than 100 people showed up, and 11 bids were waiting for them by Tuesday. The final price: $605,000. The buyer waived the inspection, too.

When they tried to sell their home this May, things were different. They listed the house at the purchase price and received just one bid. The negotiation process took longer, and they sold at a $21,000 loss. The buyer demanded an inspection.

"We don't feel like we went from boom to bust," Davies says. "We felt like we went from boom to reality."

NEW REALITY: Getting a mortgage

Jim Sahnger, a mortgage broker in Jupiter, Fla., still chuckles over one borrower three years ago who landed a mortgage with no down payment and two foreclosures and a bankruptcy in his past.

Now, lenders pore over bank statements, tax returns and job histories. The average mortgage application today starts three times thicker than what it was at the start of the housing boom, and often gets thicker as the process drags on.

Sometimes all the extra documentation still isn't enough. Sahnger recently had a customer with a good job and a 20 percent down payment who couldn't get a mortgage because the lender said there were too many delinquent mortgages in the neighborhood.

"Now, they want to know everything about the buyer," Sahnger says. "It's a true and full underwriting process on every particular loan."

It is common to require a down payment of 20 percent -- sometimes more. And it is virtually impossible to get subprime mortgages, which were written for people with poor credit histories and helped cause the meltdown when the interest rates jumped and borrowers defaulted. In 2005, one in every five mortgages was considered subprime. This year, it's less than 1 percent.

Another category of risky loans, Alt-A mortgages, which required little or no documentation of the borrower's financial health, have plunged to $3 billion this year from $400 billion in 2005.

NEW REALITY: Closing the deal

Mike Delano thought everything was in order. He was set to buy a $785,000 home in Washington, D.C., until he learned his lender now required a 20 percent down payment instead of 10 percent.

Unlike in years past, there was no wiggle room. He had to raise the extra money from his family. "It was a nightmare," he says.

It's not uncommon nowadays for closings to take 60 days. One big reason: Appraisers have become more strict -- or, some would say, more accurate.

During the boom years, agents and brokers often pressured appraisers to "hit the number" that the buyer and seller had agreed on so the deal would close and everyone could collect fees.

Under new industry rules, mortgage brokers are barred from ordering appraisals themselves. Instead, lenders order appraisals in-house or hire independent firms.

Some real estate agents and homebuilders say the rules are causing delays in closing sales, or undermining sales because appraisals are coming in too low.

NEW REALITY: The future

Nearly everyone in the real estate industry agrees on this much: Another dramatic boom-bust cycle isn't likely soon. Albert Saiz, assistant real estate professor at the University of Pennsylvania's Wharton School, expects that new regulations and a different consumer mindset will help real estate return to a more traditional cycle.

There will be some ups and downs, Saiz said, but in the long run, prices should move higher. "In the end, the United States is still growing," he says. "We're going to need more housing."

Pava Leyrer, president of Heritage National Mortgage in Michigan, notes that the majority of people are still paying their debts. She's confident the market will rebound once the unemployment rate begins to fall.

"I really can't imagine we would go back to the same situation because it took an exact wrong mix of everything for that to occur," she says. "If it ever did happen, I'll be long dead."
 

Pending home sales rise for seventh straight month in August to highest level since March 2007


Aspiring homebuyers rushed to take advantage of a tax credit for first-time owners that expires in November, driving up the number of signed sales contracts for the seventh straight month in August.

Sales and homebuilding are being fueled by a tax-credit of up to $8,000, low mortgage rates and cheap foreclosures. In some of the most hard-hit areas, like Phoenix and Las Vegas, there are bidding wars for deeply discounted properties. And in all but a few cities, home prices are slowly starting to rise, reversing their three-year descent.

To make sure first-time buyers can complete their purchases by the Nov. 30 deadline, real estate agents "have been pushing buyers to sign a contract at least a couple months in advance" according to Abiel Reinhart, an economist with JPMorgan Chase.

More than a dozen bills have been introduced in Congress to extend the credit, but it's unclear if lawmakers want to continue to subsidize the market.

The National Association of Realtors said Thursday its index of sales agreements rose 6.4 percent from July to 103.8, beating forecasts. It was the highest since March 2007 and 12 percent above a year ago. Economists surveyed by Thomson Reuters expected the index would rise to 98.6.

Typically there is a one- to two-month lag between a contract and a done deal, so the index is a barometer of future sales. However, new rules for home appraisals and rigid lending standards have scuttled many sales agreements recently. In addition, the index may also double-count some buyers who agree to purchase other homes after the first deal falls through.

These factors have made the index a less reliable gauge for completed sales. Despite a steady increase in the number of signed contracts this summer, for example, completed sales actually took an unexpected 2.7 percent dip in August.

"Perhaps the real question is how many transactions are being delayed in the pipeline, and how many are being canceled," Lawrence Yun, the Realtors' chief economist, said in a statement. "Without historic precedents, it's challenging to assess."

Pending sales were up 16 percent in the West and 8 percent in the Northeast. They were up 3 percent in the Midwest and nearly 1 percent in the South.

Home prices, meanwhile rose 1.2 percent from June to July, according to the Standard & Poor's/Case-Shiller home price index of 20 major cities. On a seasonally adjusted basis, prices rose in all but three metro areas, Las Vegas, Detroit, and Seattle.

Housing experts, however, remain divided on whether the price gains signal a definite bottom to the worst housing downturn in decades or just a brief respite from plummeting prices.

 

U.S. mortgage applications surged last week to their highest since mid-May as consumers sought to take advantage of the lowest interest rates in months, data from an industry group showed on Wednesday.

The Mortgage Bankers Association said rates on 30-year fixed-rate mortgages, the most widely used loan, were below 5 percent for a third straight week, reaching a four-month low. Demand for home refinancing loans was the highest since mid-May.

Appetite for applications to buy a home, a tentative early indicator of sales, climbed to the highest level since early January. The trend bodes well for the hard-hit U.S. housing market, which has been showing signs of stabilization.

The MBA said its seasonally adjusted index of mortgage applications, which includes both purchase and refinance loans, for the week to October 2 increased 16.4 percent to 756.3, the highest since the week ended May 22.

"The residential housing market appears to be stabilizing due to lower mortgage rates," said Alan Rosenbaum, president of Guardhill Financial, a New York-based mortgage banker and brokerage company.

"The affordability factor, which takes into consideration both price and mortgage rates, has been very positive of late," he said.

Low mortgage rates, high affordability and the federal government's $8,000 tax credit for first-time home buyers -- part of the stimulus bill -- have helped pave the way for stabilization.

But with the tax credit set to expire on November 30 and distressed properties making up a high proportion of sales, the recent uptick in activity may mask uncertainty about the long-term outlook.

Rising unemployment is another obstacle. The U.S. Labor Department last week said the jobless rate reached a 26-year high of 9.8 percent in September.

Borrowing costs on 30-year fixed-rate mortgages, excluding fees, averaged 4.89 percent, down 0.05 percentage point from the previous week and the lowest since the week ended May 22.

The rate remained above the all-time low of 4.61 percent set in the week ended March 27. The survey has been conducted weekly since 1990. Nevertheless, interest rates were well below the year-ago level of 5.99 percent.

The MBA's seasonally adjusted purchase index rose 13.2 percent to 306.1, its highest since the week ended January 2.

The four-week moving average of mortgage applications, which smooths the volatile weekly figures, was up 4.2 percent.

REFINANCING JUMPS

The Mortgage Bankers seasonally adjusted index of refinancing applications increased 18.2 percent to 3,377.1, with the index at its highest since the week ended May 22.

The refinance share of applications increased to 66.3 percent from 65.3 percent the previous week, but remained significantly lower than the peak of 85.3 percent in the week to January 9. The adjustable-rate mortgage share of activity decreased to 6.1 percent, down from 6.2 percent the prior week.

The U.S. housing market has suffered the worst downturn since the Great Depression and its impact has rippled through the recession-hit economy, as well as the rest of the world.

The housing market, however, has been showing signs of stabilization, with sales rising and price declines moderating in many regions of the country. In fact, home prices in some areas have risen.

Some analysts, however, say prices may fall again, with a new wave of foreclosures in the pipeline.

Fixed 15-year mortgage rates averaged 4.32 percent, down from 4.34 percent the previous week. Rates on one-year ARMs increased to 6.56 percent from 6.40 percent.


 

Home prices are expected to grow modestly next year and sales will keep rising as the housing market continues to recover from the worst downturn since the Great Depression, the National Association of Realtors said Friday.

"Going into 2010, I anticipate that prices will also begin stabilizing or begin to modestly improve," Yun told the audience at the association's annual conference and expo in San Diego.

That should help ease buyers' anxiety. "I don't think the fear factor will be at play in 2010," Yun said.

The housing market's rebound has been aided by an aggressive federal intervention to lower mortgage rates and bring more buyers into the market. Home resales rose in September to the highest level in more than two years, something Yun said shows buyers are eager to get back into the market.

A federal tax credit of up to $8,000 for first-time homebuyers has helped stoke sales this year. The incentive was set to expire at the end of this month, but the NAR and other housing groups successfully lobbied to get the credit extended.

Now buyers can claim the credit if they sign a contract by April 30 and close the deal by the end of June. Lawmakers also expanded the program to include a $6,500 credit for existing homeowners who have lived in their current residence for at least five years.

First-time buyers accounted for a record 47 percent of home sales this year, up from 41 percent last year, the trade group said.

That surge helped drive traffic for real estate agents like Jan McGill of Omaha, Neb., and the extension makes her more optimistic about business next year.

"I've got to be positive," McGill said.

Yun estimated around 2 million people took advantage of the tax credit this year and projects it will continue to lift the market.

However, some housing analysts said the NAR's forecast was overly optimistic, as it was during the housing bubble. Economists like Patrick Newport argue the tax credit has already enticed many buyers who otherwise would have waited until next year.

"It induced first-time homebuyers who were going to buy a home in 2010 to buy in 2009 because they thought it wasn't going to be extended," said Newport, an economist at IHS Global Insight.

Newport is projecting home prices will fall between 3 percent and 5 percent next year and sales of existing homes will be flat, at best.

"I don't think that second tax credit is going to create a lot of new homebuyers," he said.

But Yun supports his case by pointing to data from 2000, prior to the housing boom, when 11 million renters had the income necessary to buy a median-priced home. This year, he said, there are 16 million renters in that position.

"This clearly shows that there's potential pent-up demand that could be tapped," he said.

His forecast calls for sales of newly built homes to surge by about 38 percent from 2009 levels. That translates to about 549,000 homes, still well below historical trends.

Yun also sees the average interest rate on a 30-year, fixed mortgage creeping up to 5.8 percent by the end of 2010 from about 5 percent today.

Foreclosures, meanwhile, should peak in the first half of the year, he said.

 

Is 2010 the year to buy a house? It certainly looks that way: After a steep run-up in prices during the first half of the decade, home values have plummeted back to 2003 levels. Fixed mortgage rates are sitting near record lows. And the foreclosure epidemic--while painful for many home owners--has created some wonderful opportunities for bargain hunters. If that's not enough, Uncle Sam is handing out thousands of dollars in tax credits to nearly all first-time buyers and the bulk of existing home owners who close a purchase by June.

 

But while the 2010 outlook appears inviting, there's one key catch. "You need to have a stable job," says Mark Zandi, the chief economist of Moody's Economy.com. The economy is showing signs of life, but the unemployment rate is already at 10 percent and expected to go higher. And while those mortgage rates are attractive, buying a house makes sense only if you can bank on your income stream. So before you consider purchasing a home, take a hard look at your job, your company, and your industry.

That said, here are 10 things to know about real estate in 2010:

1. Prices to bottom: After more than three years of falling, real estate values have shown signs of stabilization in recent months. At the national level, home prices slid nearly 9 percent between the third quarter of 2008 and the same period this year, according to the S&P/Case-Shiller home price report. That's a notable improvement from the second quarter's nearly 15 percent annual drop and the first quarter's 19 percent decline. This improvement will give way to a bottom in home prices--finally!--in 2010, but not before additional declines, Zandi says. Zandi projects home prices will hit bottom in the third quarter of 2010 after logging a peak-to-trough decline of roughly 37 percent, based on the S&P/Case-Shiller national home price index. "That means we've got another roughly 10 percent [decline] to go," Zandi says.

2. Mortgage delinquencies up: Amid falling home prices and a nasty labor market, roughly 1 in every 7 mortgages was either past due or in foreclosure by the end of the third quarter--the highest delinquency rate in the 37-year history of the Mortgage Bankers Association's National Delinquency Survey. Two factors are expected to drive delinquencies even higher next year. First, nearly 1 in 4 homeowners currently owes more on their mortgage than the property is worth, which increases their odds of default. And secondly, the national unemployment rate--which already stands at 10 percent--will peak at about 10.5 percent in the first quarter of 2010, says Patrick Newport, an economist at IHS Global Insight. Additional job losses mean more borrowers won't be able to pay their mortgage bills. "The [delinquency] rate is going to stay up there for quite a while because the job market is going to be really weak for a while," Newport says.

3. Foreclosures move upstream: The number of foreclosure sales will increase to about 1.9 million in 2010, according to Moody's Economy.com. And while we've already seen a growing number of more expensive homes heading into foreclosure, Heather Fernandez, vice president of marketing at the real estate search engine Trulia, expects the trend to pick up steam next year. (Trulia is a U.S. News partner.) "We are poised in 2010 to see a surge of foreclosures from prime borrowers. Hundreds of billions of dollars in option [adjustable rate] mortgages are set to be recast" next year, Fernandez says. Option adjustable rate mortgages allow borrowers to make lower monthly payments for an initial period, after which the payments adjust--or "recast"--higher. For some borrowers, the new payments can be more than twice their initial payments. Combined with other factors, like the loss of a job, a recasting option adjustable rate mortgage can make borrowers more likely to default. "These are [properties] at higher price points [and] potentially in more desirable neighborhoods," Fernandez says.

4. Mortgage rates to rise: Anyone who purchased a home in 2009 was presented with some extremely attractive mortgage rates. Rates on 30-year, fixed mortgages fell to an average of 4.88 percent in November, down sharply from 6.09 a year earlier. A key factor behind the plunge was a Federal Reserve program, first announced in November of 2008, that purchased debt and mortgage-backed securities from Fannie Mae and Freddie Mac. But the program is slated to expire at the end of the first quarter, and if private investors don't step up, fixed mortgage rates could jump. (The Fed, of course, could always decide to extend the program.) The unwinding of this Fed program, the improving economy, and mounting concern over government deficits could push rates on 30-year, fixed mortgages to roughly 5.5 percent by mid-2010 and close to 6 percent by the end of the year, says Mike Larson of Weiss Research. "Almost all signs to me point higher," Larson says.

5. Buyer's market remains: With prices still falling, mortgage rates remaining historically attractive, and additional homes hitting the market in the form of foreclosures, the dynamics of the real estate market will continue to favor buyers over sellers in 2010. That means those looking to buy a home next year should not feel pressured to act impulsively. "You don't need to have a sense of urgency, but understand that as time progresses the balance of power as we get into 2010 is going to slowly but surely shift away from [buyers]," Larson says. "It is not going to be a strong seller's market, but it will be more evenly distributed as the year goes on." Data from the real estate firm Zillow show that home buyers are already losing the leverage they once enjoyed. While home buyers landed a median discount of 4.6 percent off listing prices in January, the size of the gap fell to 2.7 percent by October. Expect this gap to close further as 2010 marches on.

6. Modification plan could be modified: While the Obama administration has put nearly 700,000 borrowers into temporarily restructured mortgages, it had found permanent fixes for just 31,382 struggling homeowners through November. What's more, critics have identified two key shortcomings of the government's $75 billion antiforeclosure plan. First, the program isn't much help for borrowers struggling to stay in their homes as the result of a job loss. And the rickety labor market is a key factor behind rising delinquencies. At the same time, the plan does not sufficiently address the issue of negative equity--owing more on your home loan than the property is worth--which also works to increase foreclosures. "The current modification program does not address negative equity and is therefore destined to fail," Laurie Goodman, a senior managing director at Amherst Securities Group, told a congressional committee in written testimony on December 8. "It must be amended to explicitly address this problem." Zandi says the government may move next year to overhaul the modification program in two ways: improving troubled borrowers' negative equity positions by writing down some of the mortgage principal, and helping to turn troubled homeowners into renters.

7. FHA lending standards may increase: While banks have jacked up lending standards in the face of mounting delinquencies, mortgages backed by the Federal Housing Administration--which come with a minimum down payment of just 3.5 percent--have remained accessible to a wide swath of borrowers. The FHA guarantees nearly 30 percent of new-home purchase mortgages today, up sharply from just 3 percent in 2006. But the rapid growth has occurred alongside an increase in mortgage delinquencies. As a result, the FHA's reserves have dipped below congressionally mandated levels. The development has put pressure on the Obama administration to beef up its requirements for agency-backed home loans. In early December, the Department of Housing and Urban Development announced that it would make several changes to FHA mortgage requirements: raising up-front cash requirements, boosting minimum credit scores, and perhaps charging more for insurance premiums. Additional new restrictions may be in store. Taken together, the developments could work to choke off the supply of mortgage credit to borrowers who can't get financing elsewhere.

8. Tax credit available through June: On top of lower prices and cheap mortgage rates, Uncle Sam is offering an additional incentive to get buyers into the market next year. In early November, President Obama signed a bill extending and expanding a popular tax perk for home buyers. The legislation gives qualified first-time home buyers a tax credit of up to $8,000 if they close the purchase of a primary residence by the end of June. Meanwhile, qualified current home owners are eligible for a credit of up to $6,500 when they buy their next principal residence. But while the tax perk may make a home purchase more tempting, would-be buyers should make sure they have the job security and financial wherewithal to handle the transaction before going ahead. "Don't let [the home buyer tax credit] be the thing that drives you to act," Larson says.

9. Markets will vary a great deal by region: The performance of the national housing market is much less important that the dynamics of your local market, and sales and pricing trends will vary a great deal from one area to the next in 2010. "There will be geographic pockets where the values will still continue to decline, and there will be geographic pockets where they increase," said Dale Siegel, a mortgage broker and the author of The New Rules for Mortgages. That means anyone interested in buying real estate next year can't just read the national headlines. Instead, find a good blog that covers the local housing market and consider speaking with a real estate agent with experience in the area. Check out online listings--pay close attention to pricing and inventory trends. And make sure to head out to open houses to get a firsthand feel for the market.

10. Mobile maps can help: Advances in technology have enabled would-be home buyers to increase the efficiency of their searches. For example, Zillow's iPhone app allows home buyers to see the estimated values and listed prices of the properties they pass on the street. The app, which is free, has been downloaded more than 830,000 times. Trulia has unveiled a similar product that allows users to find nearby open houses as well. "If you are sitting in a neighborhood having brunch on a Sunday, you can very easily pull up your phone [and] walk into open houses," says Trulia's Fernandez.


Home prices rose in more than 40 percent of U.S. cities in the fourth quarter of last year, as massive federal spending helped the housing market show signs of stability.

The National Association of Realtors said Thursday that the median sales price for previously occupied homes rose in 67 out of 151 metropolitan areas in the October-December quarter versus a year ago. That's a sharp improvement from the third quarter, when prices rose in only 20 percent of cities.

The national median price was $172,900, or 4.1 percent below the fourth quarter last year. That was the smallest year-over-year price decline in more than two years.

Home sales surged in the quarter, outpacing the third quarter and the previous year's figures. A federal tax credit of up to $8,000 for first-time homebuyers that was originally due to expire Nov. 30 but was extended through April provided much of the fuel. Sales for the quarter hit a seasonally adjusted annual rate of 6 million, up 27 percent from a year earlier.

The big question hanging over the housing market this year is whether the tentative recovery will stumble after the government pulls back support. The Federal Reserve's $1.25 trillion program to push down mortgage rates is scheduled to expire at the end of March. A month later, the newly extended tax credit for first-time homebuyers runs out.

Economists are also concerned about a huge backlog of homeowners facing foreclosure. If those homes go up for sale at deeply discounted prices, median prices could turn downward again. Indeed, prices in some severely depressed areas are still falling.

The largest price decline by percentage in the fourth quarter was in Ocala, Fla., where the median sale price plunged 23.4 percent to $93,000. Foreclosure-plagued Las Vegas saw its median price tumble 23.3 percent to $139,400 versus a year ago.

The largest price gain was in Saginaw, Mich., where prices rose more than 50 percent to a median of $67,400. Cleveland followed with an increase of 25 percent to $110,000.


 

The housing finance system of the U.S., once viewed by many as a model, is now a shambles. The underwriting rules applicable to nine of every 10 mortgage loans, stipulating who is and who is not eligible for the loan, are dictated by an arm of the federal government: Fannie Mae, Freddie Mac, FHA, VA, and USDA. The sliver of the market not touched by those agencies is dominated by a small group of too-large-to-fail bank holding companies.   

Before the crisis, the non-federalized part of the market was much larger because it was supported by a private secondary market. Lenders originating loans that did not meet the requirements of any of the federal agencies could sell them in the private secondary market.  But that market collapsed in 2007 and has yet to reopen. 

One result has been a sharp widening of the yield spread between conventional loans that can be sold to Fannie Mae and Freddie Mac, and those that can’t. Today the spread between a $417,000 loan purchasable by the agencies and a $418,000 loan that isn’t purchasable by them, but which is otherwise identical, is almost 1%. Before the crisis, it was 1/4% to 3/8%.

The key to an effective redesign of the housing finance system is the development of an effective private secondary market, but not the kind of market we had before. That market was markedly inferior to the Danish model, which could easily be transplanted here.

Structural Stability: The U.S. market had a structural defect that made it extremely vulnerable to a contagious loss of confidence. Every individual mortgage security was a stand-alone entity secured by whatever reserves or insurance protections were embedded in that security. If these reserves turned out to be superfluous, as they always were before the crisis, they were paid out to investors who owned a residual claim to them. These were often the firms that had issued the security. While these firms had the right to remove unneeded reserves, they were under no obligation to provide additional reserves if this proved necessary.

Since the surpluses on one security were not available to meet deficiencies on others, and since no one was obliged to provide additional reserves if this became necessary, the entire market was a house of cards.  When some securities did run into trouble and were downgraded by the credit rating agencies, fears about the status of others ran rampant and the entire house collapsed.

In the Danish model, in contrast, every mortgage security is a bond that is a liability of the firm issuing it. The Danish mortgage banks issue multiple bonds, and if one of them experiences a high loss rate, all the resources of the bank are available to deal with it. There has never been a default on a Danish mortgage bond in more than 200 years. During the very worst months of the financial crisis, it was business as usual in the Danish mortgage bond market.

Linkages to Primary Markets: In the U.S. model, the secondary market and the primary market where loans are made to borrowers are distinct, connected only through transfers of ownership over a period of time. For example, a loan closed by a small (“correspondent”) lender is sold to a larger wholesale lender who sells it to an investment bank who places it in a new mortgage security. Months may pass between the date when the loan is closed and the date when the loan becomes collateral for a security.

In the Danish model, in contrast, there are no transfers of ownership, because each individual borrower is funded directly by the secondary market. The mortgage bank sells the mortgage to investors simply by adding it to an open bond issue covering the same type of mortgage. If the new loan is a 5% 30-year FRM, for example, it is added to the outstanding bond secured by 5% 30-year FRMs.

Reflecting these differences in the relationship between primary and secondary markets, borrowers in the U.S. face far more challenges in shopping for mortgages than borrowers in Denmark. Borrowers in the U.S. don’t have access to secondary market prices, and if they did, it would do them no good because there would be no way to use it. They are on their own in dealing with loan originators, many of which use a variety of tricks of the trade to extract as much from them as possible.   

In Denmark, borrowers can price their loan by accessing secondary market prices online. They enter the type of mortgage they want and the interest rate, and find the corresponding bond selling for the highest price. The prices of all Danish mortgage bonds are shown on the NASDAQ Web site. (Alternatively, borrowers can go to a broker or loan officer who is paid by the lender selected, who has access to the same bond data with consumer-friendly add-ons.) The borrower pays the bond price plus a .5% rate add-on by the lending bank, plus some out-of-pocket fees that are set competitively. 

Refinancing Options: When market interest rates drop, borrowers in both the U.S. and Denmark can refinance at par to lower their interest rate. When market interest rates rise, however, only borrowers in Denmark can refinance at the lower market price. Borrowers in the U.S. must pay off their old loan at par.

For example, John Doe has a $200,000 balance on his 5% mortgage and he expects to sell his house for $250,000 in a market in which home buyers pay 5%. But before he can sell, market rates jump from 5% to 7.5% and potential buyers can now only afford to pay $200,000, wiping out Doe’s home equity. However, because of the rate increase, the market price of Doe’s 5% mortgage has dropped from 100 to 90. If Doe is a Dane, he can refinance into a 7.5% loan by paying $180,000 to retire his old loan; by so-doing, he retains a piece of his equity. If Doe is from the U.S., he must pay $200,000 to retire his existing loan.

Given the already substantial depletion of home equity in the U.S., the need to reduce the further losses that will occur when interest rates begin their inevitable ascent is compelling.


 

The housing market still looks pretty bleak: There were a record one million foreclosures last year, home prices are still falling in many regions and the number of "underwater" properties is at a record high.

And things don't look much better in other areas of real estate. The number of construction jobs continues to decline, even as other parts of the economy have added jobs. And mortgage rates have moved higher as long-term Treasury yields have backed up during the past few months.

Basically, the real estate market remains a mess.

Real estate encompasses a wide range of markets — homes, apartments, hospitals, office buildings, strip malls, dormitories and other properties. But for our purposes, let's focus on residential real estate, or homes. Here are four reasons to think residential real estate might represent a bargain — with one big caveat.

Everyone hates homes.

Homes are probably the most hated asset class in the country. That's what happens when a bubble bursts. People avoid thinking about the value of their home. Sellers moan about no offers, buyers gripe about impossible lending requirements.

Hatred of an asset is often the precursor to contrarian interest, and being contrarian is at the heart of many investment strategies. To paraphrase Warren Buffett, be fearful when others are greedy and greedy when others are fearful. Mr. Buffett backed that idea when he invested in the stock market in the teeth of the financial crisis in late 2008 and early 2009.

Of course, being contrarian for its own sake isn't wise investing. Gold was hated for years ("dead money") before it recently became an attractive asset class. Still, a lot of smart ideas begin with the question: What does everyone hate?

Smart people are buying real estate.

This cohort is led by John Paulson, the hedge-fund manager who made $20 billion betting against the housing bubble. Last fall he said in a speech: "If you don't own a home buy one. If you own one home, buy another one, and if you own two homes buy a third and lend your relatives the money to buy a home."

Why is Mr. Paulson so adamant? Because he believes long-term interest rates are not going to get much lower. They have, in fact, risen since he gave that speech, but they remain remarkably low by historic standards. Low rates and the expectation that home prices will rise is his argument. For his part, Mr. Buffett has predicted the housing market will bottom this year.

Real estate performs well during inflation.

There's no inflation these days, but when buying a home one should take a longer view. And the longer view shows that the economy has enjoyed a disinflationary period since the early 1980s. A number of folks think that cycle is slowly reversing itself.

If that's the case, then convention would argue for holding assets that do well in an inflationary environment. That includes Treasury Inflation Protected Securities, commodities and real estate. Remember that during the stagflation nightmare of the 1970s, real estate had a strong run.

Inflation isn't a significant issue in the U.S., but it's a growing problem elsewhere. China and India have taken steps to fight inflation, the euro zone is getting flickers of inflation and the U.K. has had oddly higher prices (above 3%) for an extended period of time. If the cycle is slowly turning, real estate makes more sense.

Demand may be coming back.

Supply isn't as out of whack as it used to be. At the end of November, home builders reported 197,000 new homes on the market, the lowest level since 1968, according to Yardeni Research. The National Association of Realtors reports that the inventory of existing homes for sale fell 4% to 3.71 million homes, which represents a 9.5-month supply at the current sales pace, down from a 10.5-month supply in October.

Those aren't pretty numbers, of course, but they are moving in the correct direction. And that may be a reason that many home builder stocks, such as KB Home (NYSE: KBH - News), Hovnanian (NYSE: HOV - News), Pulte (NYSE: PHA - News) and Toll Brothers (NYSE: TOL - News), have come off their lows in the past several weeks.

It's all comes down to jobs. There are a zillion caveats to any positive home thesis, but the big one is unemployment. If the economy is not creating jobs, the chance of a rebound in housing is diminished. It's hard to buy a home without a job, and folks who aren't working don't want to take long-term risks.

The job market is still struggling and the debate is hot about when it will recover. Optimists see recovery this year. Pessimists see pain for several years ahead. How this X factor gets resolved will say a great deal about whether housing will rebound.


Three top Federal Reserve officials aggressively pushed on Friday for more stimulus for the U.S. housing market, saying that other government policymakers as well as the central bank should be looking at ways to help the sector in order to speed the economic recovery.

In separate speeches, the Fed officials -- William Dudley, the president of the New York Federal Reserve Bank; Fed Governor Elizabeth Duke; and Eric Rosengren, president of the Boston Fed -- warned that the fragile housing sector threatens to derail a U.S. recovery.

Their remarks came even as a robust government jobs report provided fresh evidence that the recovery is gaining.

The push for action came two days after the Fed entered the thorny debate over how to use the two main government-run mortgage finance firms, Fannie Mae (OTC BB:FNMA.OB - News) and Freddie Mac (OTC BB:FMCC.OB - News), to turn around the housing market.

The housing sector was at the heart of the financial crisis and recession and has continued to hamper the recovery.

A 33 percent decline in U.S. housing prices since 2006 has resulted in an estimated $7 trillion loss of household wealth, and about 12 million U.S. homeowners are currently underwater on their mortgages.

Policymakers need to consider more action to kick-start housing and to help the country's "frustratingly slow" economic recovery and "unacceptably high" unemployment, Dudley said in a speech in New Jersey.

Monetary policy should work to complement actions by other U.S. government policymakers, which together could help to stabilize home prices and turn around the housing market within a year or two under good conditions, he said.

Duke, speaking in Richmond, Virginia, said new policies that rely on Fannie and Freddie, the government-sponsored enterprises, are necessary.

"Policymakers should at least consider policies that take into account the role the GSEs could play in hastening the healing of the housing market rather than focusing entirely on minimizing losses to the GSEs," she said.

Rosengren, the Boston Fed chief, said one way to shore up housing would be for the central bank to buy more mortgage-backed securities.

"Given the low inflation rate and weak labor markets that are both likely to persist this year, I believe the Federal Reserve should continue to explore ways to promote more rapid recovery through stronger growth," Rosengren told a business group in Hartford, Connecticut.

Dudley, Rosengren and, to some degree, Duke are considered part of the Fed's "dovish" wing -- more concerned with strengthening the economy than trying to contain inflation. Their speeches could set the tone for the central bank's more activist members this year.

Dudley, as head of the New York Fed, and Duke hold permanent votes on the central bank's policy-setting committee; Rosengren will rotate into a voting seat in 2013.

The Labor Department on Friday reported the biggest gain in nonfarm payrolls in three months and said the jobless rate dropped to a near three-year low of 8.5 percent.

Rosengren said that while the job growth is better than had been seen recently, it is still not enough to return the country to full employment.

Duke on Friday said the Fed's current stance of monetary policy is appropriate, with considerable risks both up and down to her forecast of moderate growth.

Prices for U.S. government debt rose Friday as the Fed officials' calls for further stimulus overshadowed the good news on the economy, while stock prices slipped. The dollar rose against the euro.

WHAT TO DO WITH FANNIE, FREDDIE

The Fed has bought Treasury debt and, to a lesser extent, mortgage-backed securities as part of its so-called quantitative easing efforts over the last three years, totaling $2.3 trillion in purchases. In response to the worst recession in decades, the Fed late in 2008 also slashed interest rates to near zero.

The purchase of mortgage securities, however, was a controversial part of the first round of easing in 2009, known as QE1, drawing criticism from some officials for propping up a specific sector of the economy.

The use of "unconventional policy tools has been completely appropriate" to help the Fed achieve its mandate of maximum employment and price stability, Fed Governor Sarah Bloom Raskin, also a voter, said in a speech in Maryland.

Dudley, who in the past suggested the Fed could potentially do more to drive down mortgage rates, said: "Monetary policy and housing policy are much more complements than substitutes."

On Wednesday, in a paper sent to Congress, the Fed under Chairman Ben Bernanke argued that Fannie Mae and Freddie Mac could boost the recovery if they were allowed to provide cheaper mortgages to a broader pool of homeowners.

Dudley on Friday called the paper "a thoughtful analysis of housing policy."

A "truly comprehensive approach," he added, "would also include long-term reform -- including reform of Fannie Mae and Freddie Mac -- to put housing finance on a more stable footing and to equip the market to deal more effectively with any future systemic shocks."

The two firms, the biggest sources of U.S. mortgage funding, were seized by the government in 2008. They have been propped up by $169 billion in taxpayer aid since then, making them a target of many on Capitol Hill.

The Fed is to hold its next policy-setting meeting January 24-25, when a new slate of four regional Fed bank presidents will rotate into voting seats. Any further action could hinge tightly to prospects for the stubbornly high U.S. unemployment. 

To the surprise of virtually no one, the Federal Reserve kept its cheap-money policy in place, but markets interpreted language in the decision to mean that the end may come sooner than expected.

Wall Street had expected the Fed to refrain from tapering its so-called money printing operation. Economic data, particularly in employment and consumer confidence, has weakened over the past two months, giving the U.S. central bank cover to continue unabated.

Language in the October statement mirrored the "moderate pace" of economic improvement that the Fed saw at its last meeting in September.

The statement, though, did omit a reference from last month that fiscal tightening could slow growth in jobs and the broader economy.

The stock market meandered in the minutes after the statement but later dropped precipitously, with the Dow industrials (Dow Jones Global Indexes: .DJI) losing close to 100 points at one juncture.

Bond yields moved higher as well, with the 10-year Treasury most recently off its lows for the session and close to flat for the session.

 

Some investors interpreted the remarks as at least slightly more hawkish in terms of economic prospects and Fed policy response.

"The Fed is on hold, but the tone of the statement and the failure to bend on account of the government shutdown is very likely to bring forward the market's timetable of tapering from March where we feel the pendulum has swung too far," Andrew Wilkinson, chief economic strategist at Miller Tabak, said in a note. 

Where once the market had expected a retreat on quantitative easing to begin before the end of 2013, consensus is now that tapering won't begin until at least March 2014.

 

In another departure from the last statement, central bank officials noted that the pace of housing recovery "has slowed" and they warned again that "fiscal policy is restraining economic growth."

"It's clear the catalyst needed to even discuss tapering again will have to come from significant improvement in the labor market," said Todd Schoenberger, managing partner at LandColt Capital.

Kurt Karl, chief economist at Swiss Re, said the Fed's economic outlook is benign enough to suggest that reductions in asset purchases likely will start early in 2014 and conclude by the third quarter. That in turn likely will send the 10-year note to 3.1 percent by 2014, he said.

The Fed has been using the unemployment rate as a benchmark for guiding monetary policy. The rate has been on a steady decline and now stands at 7.2 percent, but much of the move has come to a shrinking labor force rather than robust job gains,.

Moreover, recent reports have indicated a softer market, with the ADP count of private jobs for October showing just 130,000 new positions.


 

JPMorgan has agreed to pay $5.1 billion to Fannie Mae and Freddie Mac to resolve claims stemming from the housing bubble, federal housing regulators announced Friday.

The bank has also been in talks with the Justice Department and other government officials over another potential settlement based on similar claims. That settlement will likely be even more expensive for JPMorgan.


The claims relate to conduct at JPMorgan and at Bear Stearns and Washington Mutual, which JPMorgan purchased in 2008. At issue are allegations that the firms sold risky mortgages and mortgage securities while misrepresenting their quality.

Among the purchasers were Fannie Mae and Freddie Mac, the government-backed housing finance giants that required a massive bailout in 2008 when their housing investments soured.

The deal was announced by the Federal Housing Finance Agency, which has overseen Fannie and Freddie since their 2008 rescue.

Agency head Edward DeMarco said the accord "provides greater certainty in the marketplace and is in line with our responsibility for preserving and conserving Fannie Mae's and Freddie Mac's assets on behalf of taxpayers."

"This is a significant step as the government and JPMorgan Chase move to address outstanding mortgage-related issues," DeMarco said.

The firm reached the agreement without admitting or denying wrongdoing.

Related: More banks in crosshairs

JPMorgan will pay $4 billion to resolve claims related to the alleged misrepresentation of mortgage-backed securities -- investment products created by bundling payments from individual loans.

It will also repurchase $1.1 billion worth of mortgages sold to Fannie and Freddie between 2000 and 2008 that the firms say do not meet their quality standards.

JPMorgan (JPM, Fortune 500)said the settlements "are an important step towards a broader resolution of the firm's [mortgage-backed-securities]-related matters with governmental entities, and reflect significant efforts by the Department of Justice and other federal and state governmental agencies."

JPMorgan acquired Washington Mutual in 2008 after the failed bank had been taken over by the Federal Deposit Insurance Corporation. It's unclear whether JPMorgan will be able to pursue reimbursement claims with the FDIC for the portion of the settlement related to WaMu.

This issue has been a point of contention in JPMorgan's negotiations with the Justice Department, which wants to prevent the bank from passing on any settlement costs.

Securities sold by WaMu accounted for roughly $1.15 billion worth of the FHFA settlement.

Related: Half of nation's foreclosed homes still occupied

Investors initially shrugged off the news, which has been rumored for weeks. JPMorgan shares were up slightly in after-hours trading Friday, and have gained 20% so far this year.

JPMorgan is just one of 18 banks sued by the FHFA back in 2011 over the alleged misrepresentation of mortgage-backed securities, and is only the fourth to reach a settlement.

UBS (UBS) agreed to a settlement with the FHFA in July for $885 million. The agency has also settled with Citigroup (C, Fortune 500) and General Electric (GE, Fortune 500) for undisclosed sums.

JPMorgan is large enough to easily absorb the settlement costs. It's the biggest bank in the nation, with assets of $2.5 trillion and net income of $21.3 billion in 2012.

The bank has been buffeted by legal problems in the past few months, however.

It has paid over $1 billion in fines in connection with last year's "London Whale" trading debacle, and $80 million more over its allegedly unfair credit card billing practices.

In July, the bank agreed to pay $410 million to settle charges that it manipulated electricity prices in California and the Midwest. It is also facing scrutiny over its hiring practices in China and its alleged involvement in the Libor rate-fixing scandal.

JPMorgan posted a loss for the third quarter based on its massive legal expenses. CEO Jamie Dimon called the loss "painful" and warned that litigation costs could continue to be a drag on earnings for several quarters. To top of page  

 

Applications for U.S. home loans plunged as mortgage rates matched their high of the year, with refinancing activity falling to its lowest in more than four years, data from an industry group showed on Wednesday.

The Mortgage Bankers Association said its seasonally adjusted index of mortgage application activity, which includes both refinancing and home purchase demand, sank 13.5 percent in the week ended Sept. 6, after rising 1.3 percent the prior week.

That puts the index at its lowest since November 2008 and the depths of the financial crisis.

 

 
Mortgage market and what's next
CNBC's Diana Olick reports on the leading proposal in Congress to do away with Fannie Mae and Freddie Mac.

The data come just a week before U.S. Federal Reserve policymakers meet to consider slowing a massive bond-buying program, which includes purchases of mortgage-backed securities.

The Fed's support has been a major factor in boosting home prices in the United States after a slump during the crisis, and many economists worry that a pullback now may set back the housing market's nascent recovery.

Borrowing costs have soared by more than a percentage point since late May on views the Fed will soon taper its $85 billion per month in buying of MBS and Treasuries.

MBA data showed 30-year mortgage rates rose 7 basis points to 4.80 percent, matching an earlier high for 2013.

The refinancing index slumped 20.2 percent to 1,528.5, off 71 percent since its 2013 high in May and now at its lowest since June 2009, another sign that higher interest rates are starting to hit homeowners.

The effect of higher interest rates on home buying has been a worry for economists and bankers alike recently.

Bank of America, in fact, is laying off thousands of positions because of weak refinancing activity.

And Wells Fargo & Co, the largest U.S. mortgage lender, expects to make 30 percent fewer home loans this quarter due to rising interest rates, its financial chief said on Monday.

Fed policymakers will meet on Sept. 17-18 to consider whether to slow the bank's substantial help to the economy.

The mortgage survey covers over 75 percent of U.S. retail residential mortgage applications, according to MBA.  

The bank has also been in talks with the Justice Department and other government officials over another potential settlement based on similar claims. That settlement will likely be even more expensive for JPMorgan.

Home borrowers got a reminder Thursday that the mortgage process remains a potential minefield.

 

A nationwide mortgage firm accused of paying employees bonuses to steer borrowers into less-favorable mortgage terms has agreed to pay $13 million in penalties to settle the charges, the Consumer Financial Protection Bureau announced Thursday.

Utah-based Castle & Cook was accused of paying quarterly bonuses to employees that ranged from $6,100 to $8,700, based on their ability to get borrowers to accept higher interest rates than they qualified for.

Such bonuses, which create perverse incentives that work against consumers, were banned by the Federal Reserve in a regulation that took effect in 2011.  The CFPB enforces that regulation, and this is the first legal action it has taken in accusing a firm for breaking the rule.

“We are taking action against the type of practices that precipitated the financial crisis,” said CFPB Director Richard Cordray when the suit was filed. “Consumers should be able to get a mortgage without worrying about how the financial incentives of their loan officers may cause them to pay higher rates than they actually qualify for.”

Castle & Cooke admitted no wrongdoing in a statement issued to Credit.com, saying it was “committed to legal and regulatory compliance.” A non-bank lender, Castle & Cooke originated $1.3 billion in loans during 2012, operating in 22 states, including California, Arizona, Colorado and Texas.

Bonus Plans in Question

Before the rule took effect, it was common for brokers and lenders to grant sales staff a per-loan bonus each time a borrower was steered towards a loan with higher rates, an arrangement sometimes called a yield-spread premium.

Castle & Cooke was not accused of that, but rather tying quarterly bonuses to more profitable loans. According to the CFPB lawsuit, an estimated 1,100 bonuses were paid to 215 loan officers.

“(The firm) developed and implemented a scheme by which the company would pay quarterly bonuses to loan officers in amounts that varied based on the interest rates of the loans they originated—the higher the interest rates of the loans closed by a loan officer during the quarter, the higher the loan officer’s quarterly bonus,” the lawsuit said.

The lawsuit also accused the financial institution of not keeping proper records about the bonus program.

“The company does not refer to the quarterly bonus plan in any written policies (and) has failed to maintain a written policy explaining the method (an executive) uses to calculate the amount of the loan officers’ quarterly bonuses,” the suit alleged.

Castle & Cooke has agreed to pay $9 million into a restitution fund. Approximately 9,400 borrowers will receive compensation for mortgage overpayments.  The firm will also pay a $4 million civil penalty.

“With today’s resolution we are pleased that we can now focus our undivided attention on our core mission: extending high quality loans and superior service to borrowers,” the firm said in an email. “The regulations are complex, but we are committed to legal and regulatory compliance in our lending.”

Red Tape Wrestling Tips

Several steps in the mortgage process may involve commissions that create the potential for perverse incentives which work against consumers. The only way for buyers to truly protect themselves is to engage in competitive bidding.  Buyers should always get Good Faith Estimates from at least three lenders/mortgage brokers, and compare the total loan coasts.  While new federal regulations ban yield-spread premiums and other bonuses paid based on selling higher-cost loans, other financial arrangements between third parties can add unnecessary costs to a mortgage. Comparison shopping is the best defense.


 

For the second month in a row, sales of existing homes declined, down 3.2% in October compared to the previous month, according to a National Association of Realtors (NAR) report released today.

The NAR said the number of existing homes sold in October, which includes houses, townhomes, and co-ops, dropped to a seasonally adjusted annual rate of 5.12 million from September's 5.29 million.

The 16-day partial government shutdown pinched home sales last month by creating uncertainty about the economy and slowing loan approvals: 13% of real estate agents reported that transactions had been delayed.

Despite a drop in sales, there were some positive indicators. October's number was 6% higher than October 2012's, according to the NAR. The improved sales results relative to the year-ago period marks 28 straight months of growth year over year. Additionally, noting the market's "constrained inventory," the NAR said October's median sales price was 12.8% higher than 2012, rising to $199,500 nationally.

While the median time on the market increased in October compared to the prior month, 54 days to 50 days, respectively, that's considerably less than October 2012's 71 days, according to the NAR. Distressed home sales -- foreclosures or short-sales -- were 14% of October's sales, which was a marked improvement compared to October 2012 when distressed homes accounted for 25% of all sales. The NAR said part of the gain in median price is because of a smaller share of distressed sales.

The NAR noted that first-time buyers accounted for 28% of purchases in October, unchanged from September, but down from 31% in October 2012.

Existing-home sales in October declined in each of the NAR's four regions -- Northeast, Midwest, South, and West -- led by a 7.1% decline compared to September in the West region. The Northeast experienced a 2.9% drop, followed by a 1.9% decline in the South and 1.6% drop in the Midwest.

NAR chief economist Lawrence Yun said in a statement that, "More new home construction is needed to help relieve the inventory pressure and moderate price gains." 

  

 

The claims relate to conduct at JPMorgan and at Bear Stearns and Washington Mutual, which JPMorgan purchased in 2008. At issue are allegations that the firms sold risky mortgages and mortgage securities while misrepresenting their quality.

Among the purchasers were Fannie Mae and Freddie Mac, the government-backed housing finance giants that required a massive bailout in 2008 when their housing investments soured.

The deal was announced by the Federal Housing Finance Agency, which has overseen Fannie and Freddie since their 2008 rescue.

Agency head Edward DeMarco said the accord "provides greater certainty in the marketplace and is in line with our responsibility for preserving and conserving Fannie Mae's and Freddie Mac's assets on behalf of taxpayers."

"This is a significant step as the government and JPMorgan Chase move to address outstanding mortgage-related issues," DeMarco said.

The firm reached the agreement without admitting or denying wrongdoing.

Related: More banks in crosshairs

JPMorgan will pay $4 billion to resolve claims related to the alleged misrepresentation of mortgage-backed securities -- investment products created by bundling payments from individual loans.

It will also repurchase $1.1 billion worth of mortgages sold to Fannie and Freddie between 2000 and 2008 that the firms say do not meet their quality standards.

JPMorgan (JPM, Fortune 500)said the settlements "are an important step towards a broader resolution of the firm's [mortgage-backed-securities]-related matters with governmental entities, and reflect significant efforts by the Department of Justice and other federal and state governmental agencies."

JPMorgan acquired Washington Mutual in 2008 after the failed bank had been taken over by the Federal Deposit Insurance Corporation. It's unclear whether JPMorgan will be able to pursue reimbursement claims with the FDIC for the portion of the settlement related to WaMu.