Franklin Advantage News

NPR: Treasury Dept. Unveils Program To Fund Mortgages

noreply@blogger.com (Franklin Advantage) — Tue, 20 Oct 2009 16:41:00 +0000

The Treasury Department has unveiled a plan to pump billions of dollars into state housing finance agencies so they can increase loans to first-time homebuyers.

In a normal year, the so-called HFAs, or housing finance agencies, finance about $15 billion worth of mortgages, but the credit crisis has made it difficult for them to raise money for the loans.

Basically, the HFAs work like an affordable housing bank, says Steven Spears, acting executive director of the California Housing Finance Agency.

He explains that the agencies issue tax-exempt bonds to Wall Street and then the HFAs use the money to make loans. But investors have become reluctant to put their money into anything related to mortgages, especially in parts of the country, such as California, where home prices have fallen significantly since the market peak in 2006.

"They were just not interested," Spears said, explaining that his agency has been out of lending capital for a year now.

"Two years ago we had record lending, he said. "We had $1.7 billion in mortgages for first-time homebuyers. We're not making any loans at all really right now."

Treasury's plan is for the federal government to buy the bonds from HFAs, who will in turn have the money to lend to first-time homebuyers such as Natasha Henry, who is looking to buy a foreclosure in Boston's Dorchester neighborhood.

Natasha Henry, a single mom with a steady job and good credit, is the kind of first-time homebuyer that stands to benefit from the program. Henry moved back in with her parents to save for a down payment and enough money to fix up the house once she's bought it.

"I paid off all my credit cards — only held on to one, got my debt down," says Henry as she discusses her financing options with a housing counselor.

Henry is exactly the sort of person needed to turn the housing market around, analysts agree. But first, the HFAs need a shot in the arm.

"They have historically performed a critical function in serving first-time homebuyers across the country," explains Michael Barr, assistant treasury secretary for financial institutions. He says the current market has made it "very, very difficult" for the HFAs.

Barr has not said how much the federal government will spend on the housing agency bonds, but it is likely to be in the range of $15 billion to $20 billion.

But he says the government will be getting that money back.

"The expected cost to the federal government is zero. The expected cost is fully covered by the fees that HFAs are being charged for participation in the program," Barr says.

There is some risk, but most economists think the program is worthwhile.

Mark Zandi, chief economist of Moodys Economy.com says the HFAs are a small, but important part of the overall lending picture.

"At the moment, they just can't get credit liquidity and they may not survive if they can't get help," he says.

Others economists disagree. They say the programs for first-time homebuyers are already getting enough help from the federal government.

http://www.npr.org/templates/story/story.php?storyId=113957454

CNN: Push on to expand $8,000 tax credit

noreply@blogger.com (Franklin Advantage) — Wed, 14 Oct 2009 22:13:00 +0000

Some want to expand the tax credit for homebuyers. Supporters say it could stem price declines. Critics say it would just be a costly, temporary fix.

By Jeanne Sahadi, CNNMoney.com senior writer
Last Updated: October 14, 2009: 5:58 PM ET

NEW YORK (CNNMoney.com) -- Congress is considering proposals to greatly expand a soon-to-expire $8,000 tax credit for first-time homebuyers -- potentially applying it to all but the wealthiest homebuyers.

Supporters say doing so would further boost home sales, stabilize housing prices and generate jobs. Opponents say extending and expanding the credit would be a waste of money and only temporarily stave off further price declines.

The credit now can be claimed by anyone buying a home who has not owned one for three years and who closes the deal by Nov. 30.

Beyond extending that deadline, some lawmakers want to make the credit available to all homebuyers who meet income eligibility requirements. And some want to increase the amount of the credit from $8,000 to $15,000.

Currently the first-time home buyer credit is available in full to those buying their primary residence who make $75,000 or less ($150,000 for joint filers). A partial credit is available to those making between $75,000 and $95,000 ($150,000 to $170,000 for joint filers).
The case for expanding the credit

Through mid-September, 1.4 million tax returns had qualified for the credit, according to the IRS.

Some portion of those returns, which the IRS couldn't specify, represents buyers who took advantage of an earlier version of the tax credit, which was only worth $7,500 and has to be repaid over time.

By the end of November, the credit will have been used by 1.8 million homebuyers, at least 355,000 of whom would not have bought a house without the tax break, according to estimates by the National Association of Realtors.

Mark Zandi, chief economist of MoodysEconomy.com, favors extending the current credit until June 1, 2010, and making it available to all home buyers regardless of income or at least to everyone except those at the highest end of the income scale. He estimates the cost of doing so wouldn't exceed $30 billion over 10 years.

Zandi's reasoning: Foreclosures are expected to rise next year because of rising unemployment, and that will drag home prices down further. Extending and expanding the credit will help mute that decline. And by June, there's a chance the job market will have stabilized.

"The most fundamental argument for the credit is that nothing works in the economy if housing is falling -- it hurts household wealth and credit becomes tight," Zandi said. "[The credit] is a good insurance policy. It's vital to stem the housing price declines."

To kick start economic activity, Zandi believes lawmakers should set aside an amount of money for an extended credit and tell potential home buyers "first come first served."

The National Association of Home Builders would like the credit extended for all of 2010.

"We estimate that this would increase home purchases by 383,000 in the next year and help mitigate the foreclosure crisis by whittling down inventory," NAHB Chairman Joe Robson said in a statement. "This stimulus alone would create nearly 350,000 jobs over the coming year, which is exactly what the economy needs right now."

A study funded by the industry-supported Fix Housing First Coalition found that the current credit helped stimulate demand for homes at the lower end of the price spectrum.

"An expansion of the tax credit would spur an increase similar to what occurred in the lower end of the market, by motivating buyers in the 'trade-up market' to purchase a higher priced primary home," said Kenneth Rosen in testimony before Congress. Rosen runs the consulting group that conducted the study and is chairman of the Fisher Center for Real Estate and Urban Economics at the University of California in Berkeley.

The case for letting the credit expire

Opponents of extending and expanding the credit worry that such moves offer poor bang for the buck and won't stem housing declines.

"Everything spent on this program will ultimately have to be paid for later through higher, economically harmful taxes," Ted Gayer, co-director of economic studies at the Brookings Institution, wrote in a Brookings blog.

Assuming there are 5.5 million home sales in 2010, Gayer said, expanding the credit to all homeowners "is poorly targeted because it would give a credit to 5.5 million homebuyers who would have bought a home anyway."

The current credit was estimated to cost federal coffers $6.64 billion over 10 years. But Gayer notes that the cost is likely to be much higher since more people than expected took advantage of it but only about 15% of people wouldn't have bought a house otherwise.

It would cost an estimated $16.7 billion if the credit is extended until the end of June 2010 and made available to single filers making up to $150,000 and joint filers making up to $300,000. Those are the parameters that Sen. Johnny Isakson, R-Ga., and Sen. Chris Dodd, D-Conn., are proposing in an amendment they introduced to a bill the Senate is expected to take up this week.
Another argument against an extension: It would only temporarily boost home prices and potentially set up those using it for a fall. That's because home prices are likely to decline once the credit expires and interest rates ultimately trek north, according to Dean Baker, codirector of the Center for Economic and Policy Research.

"Temporarily propping up house prices, so that a new set of homebuyers can incur losses, is a policy of questionable merit," Baker said in a CEPR column.

The sooner the market adjusts the better, Baker said. He did offer one caveat: "We may want to step in to prevent prices from overshooting on the downside in a select group of markets where this is a real possibility."

Zandi said that's already happened in a number of markets, and that an extended credit might help turn around the deflationary psychology in those markets where buyers are worried about catching a falling knife.

- CNNMoney.com's Les Christie contributed to this report.
http://money.cnn.com/2009/10/14/news/economy/home_buyer_tax_credit_extension/index.htm?postversion=2009101403

Reuters: Home rescue plan delaying, not solving crisis

noreply@blogger.com (Franklin Advantage) — Tue, 13 Oct 2009 19:39:00 +0000

ALBANY, Ohio/WEST PALM BEACH, Florida (Reuters) - Within weeks of taking office, U.S. President Barack Obama rode to the rescue of homeowners resigned to financial ruin.

Obama, grappling with the worst U.S. housing crisis since the Great Depression, pledged to help as many as 9 million families keep their homes by reworking their mortgages.

Eight months later, the plan is plagued by delays, red tape and, some critics say, a reluctance by banks to do their part. Just 17 percent of eligible borrowers have had their loans modified and monthly payments cut. Hardly any have been given a cut in the amount they owe on homes which are now worth less.

That means many successful applicants are left with loans that they still will not be able to afford in the long run. So instead of resolving the housing crisis that pushed the U.S. economy into recession, America may be prolonging it and, in the process, stunting the global recovery.

"Every single policy we've seen has merely kicked the problem down the road," said Laurie Goodman, a veteran analyst at broker-dealer Amherst Securities Group LP, which specializes in residential mortgage-backed securities.

"But there is no easy solution to the underlying problems."

For homeowners like Jeff Latta, there was no help at all.

Latta, a 53 year-old retiree, pays $1,600 in monthly home payments that eat up 93 percent of his pension and he struggles to make child support payments.

To help pay his mortgage, Latta has slashed his bills by hunting for food in the wooded hills around his town of Albany in southern Ohio, and growing his own vegetables. He has resorted to selling pumpkins and firewood to make cash.

In March, Latta heard about Obama's Home Affordable Modification Program, or HAMP, that allows mortgage payments to be reduced to 31 percent of a homeowner's income.

The plan was launched as a central plank of Washington's efforts to stem foreclosures.
Latta applied for a loan modification but was rejected. His bank said his income from selling pumpkins and firewood -- a net of $906 in 2008 -- was too high.

"Frankly, I'm disappointed," Latta said. "I thought I would qualify as I am at high risk of default."

Foreclosure prevention advocate Bryce Burton at Ohio Housing Finance Agency said Latta's bank miscalculated his income. "Jeff is a shining example of someone doing everything they should be to keep their house," Burton said.

Nonprofit agencies say HAMP helps combat foreclosure but success varies from lender to lender.
Mortgage servicing companies, which service but do not own loans, complain that excessive bureaucracy slows the process.

HOME VALUES DROP $4.7 TRILLION

That banks lent irresponsibly in the U.S. property boom is irrefutable. As San Diego-based realtor Steve Rodgers says: "If you could fog a mirror, they'd give you a mortgage."

But borrowers are facing blame too for using their homes as machines to raise cash and consume on credit. The bubble burst in early 2007 and America went into recession later that year.

From the market's peak in 2005 to the second quarter of 2009, U.S. home equity fell 37 percent, or by $4.7 trillion, according to the Federal Reserve. To put that into context, China's economic output totaled about $4.3 trillion in 2008.

There have been recent signs the housing market may be bottoming. But rising unemployment and "shadow inventory" -- homes that banks have yet to foreclose on -- raise the prospect of further price declines.

Between July 2007 and August 2009 there were more than 7 million foreclosure filings, according to RealtyTrac, out of a total of 111 million households in the United States.

To stem the tide Obama launched HAMP, a $75 billion plan offering cash incentives to servicers to cut payments for distressed borrowers with most of the money coming from the $700 billion bank rescue program Congress approved last year.

But companies like subprime mortgage servicer Ocwen Financial Corp complain they have been inundated with borrowers who simply have no chance of qualifying for HAMP.

"I think there is a sense publicly... (that) everybody will be eligible for this program," said president Ron Faris at Ocwen headquarters in West Palm Beach, Florida.

"What we are finding is probably at this point, unfortunately, less than one in three borrowers that has applied is actually eligible under the government guidelines."

Margery Rotundo, a senior vice president at Ocwen, worried about the consequences of most HAMP applicants being rejected by servicing companies, saying it might produce "a tidal wave of foreclosures."

The U.S. Treasury Department said on October 8 that under HAMP more than 500,000 people so far had their payments cut, slightly under 17 percent of those deemed eligible, ahead of the department's November 1 deadline for reaching that number.

But Treasury officials concede that even if HAMP is a success, millions more foreclosures remain likely.

LAWSUITS PENDING

One of the big obstacles in the government's modification program has been the sheer workload.

"No one, including Treasury, had any concept of how much work this was going to be in getting these documents from borrowers," said Gregory Hebner, head of Irvine, California-based MOS Group Inc which handles loss mitigation for some servicers.

Nonprofit groups also have complaints about the government's program, and others independent of it. Counselors recount tales of lenders losing documents or of difficulty reaching bank staff.

"A client of mine was kept on hold for an hour and a half and transferred 17 times," said Michelle Watts, an OHFA foreclosure prevention advocate. "Some people just give up."

Ohio Attorney General Richard Cordray filed a lawsuit in July against a large mortgage servicing firm, Carrington Mortgage Services, alleging it had failed to make good faith efforts to stem foreclosures, and he warned more could follow.

"We'd rather not sue everyone, but we will if we have to," Cordray said.

Another problem is the number of borrowers who re-default on their modified loans. The U.S. Office of the Comptroller of the Currency says 56.2 percent of loans modified in the second quarter of 2008 re-defaulted after 12 months.

According to Amherst Securities, an even higher 70 percent of homeowners re-default within 12 months of a modification -- but it stresses its data does not include HAMP modifications.

On October 9, a day after the Treasury announced HAMP was ahead of target, the Congressional Oversight Panel issued a scathing report on the program. It found fewer than half of the predicted foreclosures would be avoided under HAMP.

Furthermore, many modifications added to the principle owed by homeowners at the end of their mortgages even as the market value of their homes fell, "a factor that appears to be associated" with higher re-default rates, the report said.

Some nonprofit groups say the high re-default rate is because many homeowners lack counseling on budgeting.

Mark Seifert, head of nonprofit agency Empowering and Strengthening Ohio's People said his group's re-default rate is around 30 percent because counselors help homeowners cut their budgets to keep their homes. This may involve not eating out and cutting all non-essential items.

For all the problems, many nonprofit groups say HAMP has led to more successful loan modification applications.

"HAMP has given us another tool in our toolbox," said Melinda Opperman, vice president of counseling group Springboard in Riverside, California. "Before we could help three to four people out of 10. Now it's five to seven."

http://www.reuters.com/article/domesticNews/idUSTRE59C00620091013?sp=true

LA Times: Schwarzenegger signs seven mortgage laws

noreply@blogger.com (Franklin Advantage) — Tue, 13 Oct 2009 17:26:00 +0000

The approved bills provide a variety of home loan protections for consumers, including a ban on so-called negative-amortization loans.

By Marc Lifsher
October 13, 2009

Reporting from Sacramento - In a flurry of end-of-session bill signings, Gov. Arnold Schwarzenegger approved seven new laws that provide a range of consumer protections to home-mortgage holders and may allow some to hold on to their houses.

Late Sunday night, the governor signed AB 260 by Assemblyman Ted Lieu (D-Torrance). The measure, which takes effect Jan. 1, tightens restrictions on mortgage brokers so they cannot steer borrowers to riskier, higher-interest loans when they qualify for less-expensive ones.

The new law also bans so-called negative-amortization loans, which offer the option of monthly payments so low that the loan amounts can actually grow over time.

The law also limits prepayment penalties to no more than 2% of the loan balance and allows state regulators to enforce federal lending laws.

The governor vetoed similar legislation last year at the urging of some groups in the mortgage and real estate industries.

The California Assn. of Mortgage Brokers, the California Mortgage Assn. and the California Assn. of Realtors unsuccessfully opposed this year's version of the bill.

Lieu, the bill's author, successfully argued that his proposal was needed more than ever to help California homeowners avoid foreclosure.

Lieu noted that, according to RealtyTrac, a real estate data service, 92,326 homeowners were hit with foreclosure notices during August.

"Look out Wall Street, California is no longer the Wild West," Lieu said in a statement Monday. "Although it took two years, I am pleased to have been able to overcome the powerful interests blocking reform so that future generations won't ever experience this type of crisis.

"Other mortgage-related bills signed by the governor:

* SB 36, by Sen. Ron Calderon (D-Montebello), sets licensing requirements for all residential loan originators.

* SB 239, by Sen. Fran Pavley (D-Agoura Hills), makes it a felony to commit fraud on a mortgage loan application.

* AB 329, by Assemblyman Mike Feuer (D-Los Angeles), requires lenders to give more and clearer information to those interested in reverse mortgages, which let seniors borrow against their homes' equity.

* SB 237, by Calderon, creates a registration program for appraisal management firms.

* AB 957, by Assemblywoman Cathleen Galgiani (D-Stockton), allows buyers of foreclosed homes to choose local escrow officers, rather than being forced to use the escrow company chosen by the seller.

* AB 1160, by Assemblyman Paul Fong (D-Cupertino), requires that mortgage loan documents be written in the same language the verbal negotiations were conducted in.

http://www.latimes.com/business/la-fi-mortgage13-2009oct13,0,6365006.story

Congressional Oversight Panel Releases Assessment of Foreclosure Mitigation Efforts

noreply@blogger.com (Franklin Advantage) — Fri, 09 Oct 2009 23:15:00 +0000

Treasury's Strategy is 'Inadequate' to Address Coming Wave of Foreclosures; For Many Homeowners, Foreclosure Will Be Delayed, Not Avoided

WASHINGTON, D.C. - The Congressional Oversight Panel today released its October oversight report, "An Assessment of Foreclosure Mitigation Efforts after Six Months." The Panel expresses concern about the limited scope and scale of the Making Home Affordable program and questions whether Treasury's strategy will lead to permanent mortgage modifications for many homeowners.

Rising unemployment, weak home prices, and impending mortgage rate resets still threaten to cast millions of Americans out of their homes, with devastating effects on families, local communities, and the broader economy. One in eight mortgages is currently in foreclosure or default, and this crisis is estimated to produce 10 to 12 million foreclosures. While Treasury is still in the early stages of implementing its centerpiece foreclosure mitigation program, called the Home Affordable Modification Program (HAMP), the Panel has three concerns with the current approach.

The Panel found, "It increasingly appears that HAMP is targeted at the housing crisis as it existed six months ago, rather than as it exists right now." The program is limited to certain mortgage configurations. Many of the coming foreclosures are likely to be payment option adjustable rate mortgage and interest-only loan resets, many of which exceed HAMP eligibility limits. Treasury's strategy also makes no provision for foreclosures due to unemployment, which now appear to be one of the biggest drivers of foreclosure.

Foreclosures continue every day as Treasury ramps up the program, with foreclosure starts outpacing new HAMP trial modifications at a rate of more than two to one. Some homeowners who would have qualified for modifications may have lost their homes before the program could reach them. Even once the program is fully operational, Treasury's own projections indicate, in the best case, fewer than half of the predicted foreclosures would be avoided.

The Panel found, "The result for many homeowners could be that foreclosure is delayed, not avoided." HAMP modifications are often not permanent: For many homeowners, payments will rise after five years, and although the program is still in its early stages, only a very small proportion of trial modifications have converted into longer term modifications. The Panel is also concerned about homeowners who face negative equity or are "underwater" - that is, the value of the loan exceeds the value of their home. For many borrowers, HAMP modifications increase negative equity, a factor that appears to be associated with increased rates of re-default.

The full report can be found at cop.senate.gov. The Panel held a field hearing in Philadelphia with senior executives of Treasury, Fannie Mae, Freddie Mac, representatives for major financial institutions and housing advocates to inform the findings of this report. Testimony from the hearing can be found on the Panel's website.

The Congressional Oversight Panel was created to oversee the expenditure of the Troubled Asset Relief Program (TARP) funds authorized by Congress in the Emergency Economic Stabilization Act of 2008 (EESA) and to provide recommendations on regulatory reform. The Panel members are: former Securities and Exchange Commissioner Paul S. Atkins, Congressman Jeb Hensarling (R-TX), Richard H. Neiman, Superintendent of Banks for the State of New York, Damon Silvers, Associate General Counsel of the AFL-CIO and Elizabeth Warren, Leo Gottlieb Professor of Law at Harvard Law School.

State median home price to increase next year

noreply@blogger.com (Franklin Advantage) — Fri, 09 Oct 2009 17:27:00 +0000

By Melissa Rohlin
Los Angeles Times -October 8, 2009

Sales of foreclosures at the low end will drive the market, although fewer such resales will occur, the California Assn. of Realtors says. Median price is predicted to rise 3.3%, to $280,000.

Home prices in California will increase slightly next year as buyers snap up foreclosures and other properties at the market's low end, the California Assn. of Realtors said Wednesday.

At the same time, the number of purchases will decline slightly because there will be fewer foreclosures available.

In its annual forecast, the Realtors group predicted that the median home price in California would rise 3.3% to $280,000 next year. Sales of houses and condominiums, it said, will decrease 2.3% to about 527,500.

"We forecast that sales would be off a little bit next year because we're scheduled to lose first-time home buyers' tax credit at the end of November," said Leslie Appleton-Young, the group's chief economist.

Her group is calling for an extension of the federal tax credit, which benefited more than 1 million home buyers this year, and to make it available to all buyers.

"Expanding credit through at least part of 2010 would help an economy that's still trying to get back on its feet," Appleton-Young said.

There are two markets, she said.

In the moderate to low-end market, home prices have dropped 50% or more in some places, enabling people to buy homes that they otherwise would not have been able to afford, Appleton-Young said. In the high-end market, however, prices haven't softened, but potential buyers have less money.

The forecast says sales will be driven by distressed properties in the low end of the market, causing a shortage in the number of homes for sale at that level and a moderate home-price appreciation. It will continue to be hard to sell higher-priced houses because values have dropped and financing is hard to get.

http://www.latimes.com/business/la-fi-realtors8-2009oct08,1,6875575.story

US New: House Votes to Extend First-Time Home Buyer Tax Credit for Service Members

noreply@blogger.com (Franklin Advantage) — Thu, 08 Oct 2009 18:18:00 +0000

By Luke Mullins
Posted: October 8, 2009

Amid mounting speculation over the future of the $8,000 first-time home buyer tax credit, Congress moved today to give American service members another 12 months to claim the popular incentive. The House of Representatives voted 416 to 0 to pass the Service Members Home Ownership Tax Act of 2009, which pushes the credit's current November 30 deadline back an additional year for members of the military, Foreign Service, and intelligence corps who served at least three months of qualified overseas duty in 2009. "This bill makes sure that the brave men and women who put their lives on the line every day get to enjoy the same benefits as every other American who benefits from their service," said Rep. Charles Rangel, the New York Democrat who introduced the bill. "By extending the first-time homebuyer tax credit for service members overseas, we give these families more time to utilize the benefit, while also helping our economy continue its recovery." Here are five things you need to know about the development:

1. Missing out: The $8,000 first-time home buyer tax credit was part of President Barack Obama's $787 billion economic stimulus package, which he signed into law in February. The incentive has since been popular with home buyers; Mark Zandi, the chief economist at Moody's Economy.com, expects the program to generate as many as 400,000 additional new and existing home sales by the end of November, when the program is set to expire. But since many American service members have been living overseas, it has been difficult for them to take advantage of the program. "If you are in a conflict zone, you don't have time to get together with your spouse and family to go house shopping," says Rep. Ron Kind, a Wisconsin Democrat. Rep. Dave Camp, a Republican from Michigan, expressed similar concerns. "A lot of service members get called overseas at a moment's notice," Camp says. "And because of the time limit on the legislation now, they can't always take advantage of it, not because of anything that they did or didn't do but because of the unique nature of serving in our armed forces." The legislation the House passed today provides American service members with additional latitude to take advantage of the credit.

2. Impact: Robert Dietz, the director of tax issues for the National Association of Home Builders, estimates that the new legislation will result in an additional 10,000 home sales. (Kind projected a similar outcome.) And while these additional sales are unlikely to affect the real estate market at the national level, since service members tend to live in clusters—around Army bases, for example—the extension could end up benefiting some individual housing markets more profoundly, Dietz says. "Ordinarily, I would say 10,000 [additional home sales] is not a big deal," Dietz says. "But in this case, in certain communities—since housing is local—it could be a decent [boost]."

3. Costs: The housing tax credit components of the bill are projected to trigger a $77 million loss of federal revenue over the next 10 years. Other parts of the bill, however, generate enough new income—by raising penalties associated with late filings of certain partnership and corporation documents, for example—to ensure that it will not add to the government's yawning budget deficits. "It's revenue neutral," Camp says. "It was fully paid for.

4. Political outlook: From here, the action now moves to the Senate, which must also pass the measure before it can be signed by the president. "I would expect it is going to receive wide bipartisan support," Kind says. "It's the least that our government can do for our service men and women." Scott Talbott, a top lobbyist for the Financial Services Roundtable, agrees. "It probably has even better odds in the Senate," he says. "Service men and women need it as much as anyone."

5. Extension for all first-time buyers: The development comes as lawmakers step up their efforts to extend the tax credit for all first-time homebuyers. The issue was raised yesterday during a meeting at the White House between congressional leaders and President Obama." We need to continue working toward ensuring that more families can stay in their current homes and continue efforts to strengthen the housing market by extending the homebuyer tax credit," Senate Majority Leader Harry Reid, a Democrat from Nevada, said after the meeting. Senator Johnny Isakson, a Republican from Georgia, has introduced legislation that would extend the credit for an additional year. Reid, meanwhile, has endorsed a bill introduced by Maryland Sen. Ben Cardin, a Democrat, pushing the deadline back for six months. Talbott says the six-month extension is "very likely" to become a reality. "It threads the needles of politics and costs," Talbott says. "The U.S. economy and the housing market desperately need it."

http://www.usnews.com/money/blogs/the-home-front/2009/10/08/house-votes-to-extend-first-time-home-buyer-tax-credit-for-service-members.html

Strategic defaults gain among homeowners underwater with home value

noreply@blogger.com (Franklin Advantage) — Sat, 03 Oct 2009 15:47:00 +0000

By Margaret Collins
Bloomberg News

Scott Conroy pays the mortgage every month on his one-bedroom condominium in San Diego, even though it's worth 33 percent less than what he owes and it may take more than a decade to break even.

Homeowners like Conroy who can afford their payments are weighing whether to sell and pay the difference, stick it out until housing prices recover or walk away.

In the U.S., 26 percent of borrowers owe more than their home is worth, said Karen Weaver, global head of securitization research for Deutsche Bank Securities. In parts of California, Florida and Nevada, it's as high as 75 percent.

So-called strategic defaults, in which homeowners stop paying their mortgages while remaining current on other debts, rose 128 percent to 588,000 last year, according to Experian, a credit-checking company, and Oliver Wyman, a New York consulting firm. Two-thirds of those who walked away defaulted on their primary residences.

"You're looking at an extremely long horizon in order to see a return of home values to where they were at their peak," said Stan Humphries, chief economist for Zillow.com, the Seattle real-estate data service. "It could be 15 to 20 years in some markets."

Trickle for now

Strategic defaulters represent about 4 percent of all homeowners underwater. That trickle could become a flood as the likelihood recedes that home prices will soon return to their peak values, said Rick Sharga, senior vice president of Irvine, Calif.-based RealtyTrac, an online seller of real-estate data.

In San Diego, home values are down about 40 percent since March 2006, according to the S&P/Case-Shiller monthly index. Prices have rebounded for three consecutive months, returning to the October 2002 level, before the start of the housing boom.

Nationwide, home values are what they were in September 2003, according to the Case-Shiller index as of July.

"You have to ask yourself: 'Are you just renting the home from the bank?' " said Michael Joe, a foreclosure expert at the Legal Aid Center of Southern Nevada. "Would it be cheaper to walk away and rent across the street?"

Conroy, 32, and his wife purchased their home for $385,000 in March 2006, a month before marrying. The property was reassessed this summer for $250,000.

Conroy said he and his wife are trying to save, knowing they may have to move to a bigger place within 18 months to start a family.

"We've given up on this dream of having equity in our home. We don't expect to walk away with cash in hand; we expect to pay."

More homeowners may opt to take a hit to their credit score rather than come up with cash to cover the loss, especially in California and the nine other U.S. states where the legal repercussions of foreclosures are less than in other parts of the country, said Sharga.
Ten states are so-called non-recourse, prohibiting deficiency judgments after most home foreclosures: Alaska, Arizona, California, Hawaii, Minnesota, Montana, North Dakota, Oklahoma, Oregon and Washington, according to the Boston-based National Consumer Law Center. The bank can repossess your home in those states, not other assets, to settle the debt.

In California, a second-mortgage holder may try to pursue a delinquent borrower to repay through litigation, said Rick Brooks, a financial adviser with the San Diego-based wealth-advisory firm Blankinship & Foster. Banks generally prefer not to sue because it can easily cost $60,000 or more, said Debra Guzov, co-founder of the New York law firm Guzov Ofsink.
Banks may be more willing to accept foreclosure alternatives, such as a short sale or deed-in-lieu of foreclosure, in states where a lender can't sue for personal assets, said Brad Geisen, chief executive officer of Foreclsure.com, based in Boca Raton, Fla.

In a short sale, the borrower finds a buyer for the home at an acceptable price and the bank agrees to forgive the difference, said Greg McBride, senior financial analyst with Bankrate. In a deed-in-lieu of foreclosure, the bank sells the home after a similar debt negotiation.

Tax break

A 2007 law exempts from tax up to $2 million of debt forgiven in a foreclosure or similar proceeding for a primary residence, according to Internal Revenue Service spokesman Eric Smith. The tax break extends to 2012.

The lender's willingness to negotiate varies and depends on the loan balance, condition of the property, location and resale opportunities, said Alberta Hultman, CEO of USFN, an association of mortgage-banking attorneys based in Tustin, Calif.

Short sales or deeds-in-lieu of foreclosures are considered the same as a foreclosure on your credit score, said Craig Watts, spokesman for FICO Corp., owner of the credit-scoring formula most widely used by U.S. lenders.

A foreclosure remains on a credit report for seven years. Credit scores can begin to rebound in as little as two years if bills are paid on time, according to FICO.

"You really want to think through the inability to borrow and higher rates that you'll pay," Christopher Van Slyke, a partner at Trovena, a wealth-management firm in La Jolla, Calif., said of walking away.

"If you don't have the gun to your head, then stay right where you are," said Cheryl Morhauser, a financial adviser based in Nevada City, Calif., whose clients' average net worth is $1.5 million to $3 million.

Not selling

Jennifer Albaugh, 34, plans to keep her Las Vegas home, where prices have dropped 49 percent since she bought it in December 2004, according to the Case-Shiller index.

Albaugh, who owns a fabric store, might have sold her 3,000-square-foot house for as much as $550,000 four years ago, she said. Today she owes more than $300,000 on her mortgage and says her house isn't worth close to that.

She and her husband are still looking to buy a bigger home for their two kids, especially while rates are low, and might turn their current home into a vacation rental.

"Walking out of your house to get a better deal down the street is just not the right thing to do," she said. "It hurts everybody."

Morality and social stigmas play an important role in whether someone who can afford the payments will walk away, said Paola Sapienza, professor of finance at Northwestern University's business school, in a July study on strategic defaults. Eighty-one percent of 1,646 homeowners interviewed said it was morally wrong, the study found.

"If you know someone who's done it, you're way more likely to do it," Sapienza said. "That's the scariest part, is that there might be some contagion part of this."

Albaugh and Conroy, the San Diego homeowner, said they're frustrated by the lack of help for homeowners who keep paying.

"It seems like the banks are more willing to work with people who aren't making their payments rather than people who are," Conroy said

http://seattletimes.nwsource.com/html/realestate/2009989796_realstrategic04.html

Case Shiller Report Higher Home Prices in July

noreply@blogger.com (Franklin Advantage) — Tue, 29 Sep 2009 21:01:00 +0000

Home prices continued to stabilize in 18 of the 20 metropolitan areas surveyed in July, an industry survey showed Tuesday. Thirteen of the 20 metro areas have seen prices increase for three or more consecutive months, indicating that the deflationary spiral in the housing market has likely come to an end. (Well, assuming you don't live in Las Vegas...)

“No matter how you measure it, house prices looked to have bottomed, which is the much-needed ingredient required to bake this housing market recovery,” said Jennifer Lee from BMO Capital Markets.

The S&P Case-Shiller Home Price Index said averages prices improved by 1.6% in July. That puts the annual decline in the 20-city composite at -13.3%, an improvement from the -15.4% print in June and the record -19.0% print in January. To put that in perspective, July’s prices are roughly similar to prices in the autumn of 2003.

“The rate of annual decline in home price values continues to decelerate and we now seem to be witnessing some sustained monthly increases across many of the markets” said David Blitzer, chairman of the S&P’s Index Committee.

Each of the 20 metro areas showed an improvement in the annual rates of decline. And when compared to June, only two cities ― Seattle and Las Vegas ― continued to see prices fall. The crisis is Las Vegas is particularly stark: since peaking in August 2006, home prices there have deflated 54.8%, including a 1.15% drop in July.

On average, prices in the 20-city composite have fallen 32.6% since peaking in Q2 2006.

Looking ahead, Blitzer was generally optimistic that prices bottomed out earlier in the year, but there are still lingering concerns that the new floor could be broken once the government unwinds various incentive programs.

“These figures continue to support an indication of stabilization in national real estate values, but we do need to be cautious in coming months to assess whether the housing market will weather the expiration of the Federal First-Time Buyer’s Tax Credit in November, anticipated higher unemployment rates and a possible increase in foreclosures,” Blitzer said.

TD economist Ian Pollick was similarly cautious on whether prices would continue to climb.

“To the degree that the housing market was the culprit behind the entire credit crunch, it is encouraging to see another monthly improvement in the headline index,” he said. “However, the U.S. housing market still has a long way to go before fully cleansing itself.”

New Home Sales Up as Old Invenmtory Purged

noreply@blogger.com (Franklin Advantage) — Fri, 25 Sep 2009 19:19:00 +0000

New home sales increased for the fifth straight month in August, but the 0.7% gain didn’t match the median estimate of +1.6%. The annual pace of sales is now 429,000, 3.4% below the August 2008 rate.

Not only were sales lower than expected, they were also so lopsided that only one of the four areas even experienced growth. Sales in the West jumped 12.1%, but sales fell 16.3% in Northeast and 5.8% in the Midwest, activity in the South was flat.

There was some good news though: five months of sales increases has caused excess inventory to dwindle. At the current sales place there are just 7.3 months’ worth of supply on the market, compared with 7.6 months’ in July and 12.4 months’ at the beginning of the ear.

“Virtually all of the remaining excess is in completed homes, rather than in homes still under construction,” said analysts from Nomura. They also noted that with raw inventory at 262k units, overhang is at the lowest level in 25 years.

The cutback has come at a price though . . . literally. The median sales price of new houses sold in in the month dropped to $195,200, a significant decline from the $215,600 price in July. Since its peak, prices have deflated 25.7%.

Elsewhere in the report, revisions added 1.8% to the sales pace for May and June, but July’s dramatic 9.6% surge was trimmed to 6.5%.

“The recovery road, as is glaringly evident today, is fraught with bumps and potholes,” said Jennifer Lee, economist at BMO. “But, we are still on that road.”

Existing Home Sales Slide in August Unexpectedly

noreply@blogger.com (Franklin Advantage) — Thu, 24 Sep 2009 17:21:00 +0000

The National Association of Realtors said sales of existing homes fell 2.7% in August, pushing the annual rate to 5.10 million units from 5.24 million in July.

Compared to 12 months ago that pace is up 3.4%, but analysts were expecting a 2.1% boost this month due to low mortgage rates and the soon-expiring tax credit for first-time homeowners.

The monthly slide in the index, which tracks sales of single-family homes, town homes, condominiums and co-ops, follows four months of gains that saw a cumulative 15.2% gain in sales.

Single-family home sales fell 2.8%, the first monthly decrease since March, while condominium and co-op sales slipped 1.6%.

Jennifer Lee, economist at BMO, called the numbers “disappointing” but added that the broad story of improvement hasn’t changed. “Given the six-month streak of increases in pending home sales, look for some retracement in the September data,” she predicted.

Regionally, sales fell in all four areas. Sales in the Northeast declined 2.2%, while those in the Midwest fell 6.6%. In the South, existing home sales were down 3.1%, and in the West sales declined 2.7%.

“Home sales retrenched from a very strong improvement in July but continue to be much higher than before the stimulus,” said Lawrence Yun, chief economist at the NAR. Despite the monthly slide, Yun said the tax credit was “having the intended impact.”

Indeed, 30% of all sales were from first-time homebuyers. Foreclosure-related sales also accounted for nearly a third of sales.

“The decline demonstrates we can’t take a housing rebound for granted,” Yun added. He attributed the monthly decrease to “rising numbers of contracts entering the system, with some fallouts and a backlog contributing to a longer closing process.”

If there was good news in the report, it was that inventories were slashed by 10.8% to 3.62 million, marking the biggest cutback in 10 months. At the current sales pace there are now 8.5-months of supply on the market, which is the lowest level of overhang since April 2007, and not far above the healthy ratio of 6 months.

Prices too have been stabilizing. Still, homebuyers continue to benefit from a deflated market as the median price for all housing has fallen 12.5% since August 2008. It’s unlikely prices will go up any time soon, especially as the foreclosure crisis continues (yesterday, the Wall Street Journal reported there were at least 1.2 million loans 90 days delinquent, none of which had entered the foreclosure process.)

July FHFA Home Price Index Marginally Improved

noreply@blogger.com (Franklin Advantage) — Tue, 22 Sep 2009 19:25:00 +0000

Home prices bottomed out in the second quarter but prices are not rising as quickly as forecasters had assumed, an industry survey said Tuesday.

The Federal Housing Finance Agency’s House Price Index, which compiles data on single-family homes, rose by 0.3% in July, half the pace expected by analysts. The previously reported 0.5% advance in June was trimmed to just +0.1%.

Despite the revisions, the overall story hasn’t changed. July marks the third consecutive month that prices have gone up, meaning the median price bottomed out in April. Since its peak in April 2007, prices fell 11.5% over two years. Over the past 12 months, the index has slid 4.2%.

Those figures are relatively modest when compared to the Case-Shiller index, whose peak-to-trough ratio saw home prices fall by one-third. Markets put more weight on the Case-Shiller index because it is more comprehensive, whereas the FHFA only reports on homes whose mortgages have been guaranteed by Freddie Mac or Fannie Mae, the government-sponsored entities that buy and securitize mortgages.

“The FHFA index misses all of the homes in places such as California and Florida which had significant non-traditional financing, such as subprime, alt-A, adjustable rate or jumbo mortgages,” said Joseph LaVorgna, chief US economist at Deutsche Bank.

Looking forward, prices should remain firm. With credit tight and the unemployment rate at 9.7%, few are expecting the housing re-inflate any time soon. Indeed, if the government fails to stop the ongoing crisis of foreclosures, the decline in home prices could resume.

Monthly prices from June to July by region:

Pacific: +1.6%
Middle Atlantic: +1.0%
South Atlantic: +0.6%
Mountain: +0.3%
West North Central: +0.3%
East South Central: -0.9%
East North Central: -0.3%
West South Central: -0.2%
New England: -0.1%

FHA Announces Several Policy Changes

noreply@blogger.com (Franklin Advantage) — Fri, 18 Sep 2009 18:28:00 +0000

The Federal Housing Administration (FHA) today announced several significant policy changes that are intended to improve their exposure to risk. The changes, effective January 1, include:

Modification of Procedures for Streamline Refinance Transactions
Adoption of Home Valuation Code of Conduct Guidelines (some not all)
Updated Appraisal Validity Period
New Appraisal Portability Regs
New Requirement of Lenders to Submit of Audited Financial Statements for Review
Adjustments to the Approval Process for Participation in FHA Loan Origination
Increased Net-Worth Requirements for Lenders

Grabbing the attention of mortgage professionals was FHA's decision to adopt language from HVCC appraisal guidelines. The HVCC, which has been the subject of heated debate within the industry, was implemented by Fannie Mae and Freddie Mac on May 1, 2009. At that time the FHA decided not to adhere to the policy. This undoubtedly increased demand for FHA loan products as originators quickly learned of the multitude of problems associated with HVCC. The new requirements will prohibit any commissioned based lender staff member from ordering an FHA appraisal.

FHA will not require the use of AMCs or other third party organizations for appraisal ordering, if lenders do use AMCs and/or other third party organizations FHA-approved lenders must ensure that:

FHA Appraisers are not prohibited by the lender, AMC or other third party, from recording the fee the appraiser was paid for the performance of the appraisal in the appraisal report.
FHA Roster appraisers are compensated at a rate that is customary and reasonable for appraisal services performed in the market area of the property being appraised.
The fee for the actual completion of an FHA appraisal may not include a fee for management of the appraisal process or any activity other than the performance of the appraisal.
Any management fees charged by an AMC or other third party must be for actual services related to ordering, processing or reviewing of appraisals performed for FHA financing.
AMC and other third party fees must not exceed what is customary and reasonable for such services provided in the market area of the property being appraised.

FHA issued five new mortgage letters explaining the policy changes. Here are links to each mortgagee letter:

Mortgagee Letter 09-28: Appraiser Independence
Mortgagee Letter 09-29: Appraisal Portability
Mortgagee Letter 09-30: Appraisal Validity Periods
Mortgagee Letter 09-31: Strengthening Counter Party Risk Periods
Mortgagee Letter 09-32: Revised Streamline Refinance Transactions

Here are a few other notable changes...
(Excerpts taken directly from Mortgagee Letters)

Appraisals

In cases where a borrower has switched lenders, FHA did not allow a new appraisal to be ordered. Instead the first lender was required, at the borrower’s request, to transfer the case to the second lender. This guideline generally slowed the loan process as the original lender often times was unwilling to transfer the case in a timely manner.

The new guideline, effective January 1, allows a second appraisal to be ordered by the second lender under the following limited circumstances:

1. The first appraisal contains material deficiencies as determined by the Direct Endorsement underwriter for the second lender.

2. The appraiser performing the first appraisal is on the second lender’s exclusionary list of appraisers.

3. Failure of the first lender to provide a copy of the appraisal to the second lender in a timely manner would cause a delay in closing, posing potential harm to the borrower.Potential harm includes events outside the control of the borrower such as loss of interest rate lock, purchase contract deadline, foreclosure proceedings, and late fees.

FHA also reduced the length of time that an appraisal could be considered valid for collateral underwriting. Previously, FHA considered an appraisal written within the last six months to be an acceptable property valuation. Today's announcement reduces that period from six months to four.

Advertising

FHA-approved mortgagees must use their HUD registered business names in all advertisements and promotional materials related to FHA programs. HUD registered business names include any alias or “doing business as” (DBA) on file with FHA. FHA-approved mortgagees must keep copies of all advertisements and promotional materials for a period of two years from the date that the materials are circulated or used to advertise.

Who can work with FHA and FHA originated loans

A lender or mortgagee shall not have any officer, partner, director, principal, manager, supervisor, loan processor, loan underwriter, or loan originator of the applicant mortgagee who is:

(1) currently suspended, debarred, under a limited denial of participation (LDP), or otherwise restricted under part 25 of title 24 of the Code of Federal Regulations, 2 Code of Federal Regulations, part 180 as implemented by part 2424, or any successor regulations to such parts, or under similar provisions of any other Federal agency;

(2) under indictment for, or has been convicted of, an offense that reflects adversely upon the applicant’s integrity, competence or fitness to meet the responsibilities of an approved mortgagee;

(3) subject to unresolved findings contained in a Department of Housing and Urban Development or other governmental audit, investigation, or review;

(4) engaged in business practices that do not conform to generally accepted practices of prudent mortgagees or that demonstrate irresponsibility;

(5) convicted of, or who has pled guilty or nolo contendre to, a felony related to participation in the real estate or mortgage loan industry—(i) during the 7-year period preceding the date of the application for licensing and registration; or (ii) at any time preceding such date of application, if such felony involved an act of fraud, dishonesty, or a breach of trust, or money laundering;

(6) in violation of provisions of the S.A.F.E. Mortgage Licensing Act of 2008 (12 U.S.C. 5101 et seq.) or any applicable provision of State law; or

(7) in violation of any other requirement as established by the Secretary.

Streamline Refinance Transactions

At the time of loan application, the borrower must have made at least 6 payments on the FHA-insured mortgage being refinanced.At the time of loan application, the borrower must exhibit an acceptable payment history as described below.

1) For mortgages with less than a 12 months payment history, the borrower must have made all mortgage payments within the month due.

2) For mortgages with a 12 months payment history or greater, the borrower must have:

a) Experienced no more than one 30 day late payment in the preceding 12 months,

AND

b) Made all mortgage payments within the month due for the three months prior to the date of loan application.

The lender must determine that there is a net tangible benefit as a result of the streamline refinance transaction, with or without an appraisal. Net tangible benefit is defined as:

reduction in the total mortgage payment (principal, interest, taxes and insurances, homeowners’ association fees, ground rents, special assessments and all subordinate liens),
refinancing from an adjustable rate mortgage (ARM) to a fixed rate mortgage,

reducing the term of the mortgage

If a credit score is available, the lender must enter the credit score into FHA Connection. If more than one credit score is available, lenders must enter all available credit scores.If subordinate financing is remaining in place, the maximum combined loan-to-value ratio is 125 percent.

For streamline refinance transactions WITHOUT an appraisal, the CLTV is based on the original appraised value of the property.

For streamline refinance transactions WITH an appraisal, the CLTV is based on the new appraised value.

Revised Streamline Refinance Transactions WITHOUT an AppraisalThe maximum insurable mortgage cannot exceed:

The outstanding principal balance minus the applicable refund of the UFMIP,

PLUS

The new UFMIP that will be charged on the refinance.

Revised Streamline Transaction WITH an AppraisalThe maximum insurable mortgage is the lower of:

1) Outstanding principal balance minus the applicable refund of UFMIP, plus closing costs, prepaid items to establish the escrow account and the new UFMIP that will be charge on the refinance;

2) 97.75 percent of the appraised value of the property plus the new UFMIP that will be charged on the refinance.Discount points may not be included in the new mortgage. If the borrower has agreed to pay discount points, the lender must verify the borrower has the assets to pay them along with any other financing costs that are not included in the new mortgage amount.

Further Changes Currently Being Considered:

Modify Mortgagee Approval and Participation in FHA Loan Origination

Lenders seeking approval to originate, underwrite, or service an FHA loan must meet the eligibility criteria for a supervised or non-supervised mortgagee. Mortgagees with this approval status must assume liability for all the loans they originate and/or underwrite. Loan Correspondents (mortgage brokers) will continue to be able to originate FHA-insured loans through their relationships with approved mortgagees; however they will no longer receive independent FHA approval for origination eligibility.

These policy changes will require the FHA approved mortgagee to assume responsibility and liability for the FHA insured loan underwritten and closed by the approved mortgagee. These changes align FHA with the GSEs and will potentially increase the number of loan correspondents (mortgage brokers) who are eligible to originate FHA-insured loans while providing for more effective oversight of loan correspondents through the FHA approved mortgagees.

Increase Net-Worth Requirements for Mortgagees

The FHA plans to propose to increase the net worth requirement for approved mortgagees to meet industry standards. The requirement is currently at $250,000 and has not been increased since 1993. HUD is proposing an initial increase of approximately $1,000,000 that would be in place within one year of the enactment of this rule. To maintain consistency with industry standards, HUD may propose that the net worth requirements be increased further in future years to a level comparable to those required by GSEs and other market institutions. These changes will help to ensure that FHA lenders are sufficiently capitalized to meet potential needs, thereby permitting HUD to mitigate losses and decrease risks to the FHA insurance fund.

Bernanke says recession is very likely over

noreply@blogger.com (Franklin Advantage) — Tue, 15 Sep 2009 19:57:00 +0000

WASHINGTON — Federal Reserve Chairman Ben Bernanke said Tuesday the worst recession since the 1930s is probably over, although he cautioned that pain — especially for the nearly 15 million unemployed Americans — will persist.

Bernanke said the economy likely is growing now, but he warned that won't be sufficient to prevent the unemployment rate, now at a 26-year high of 9.7 percent, from rising.

"From a technical perspective, the recession is very likely over at this point," Bernanke said in responding to questions at the Brookings Institution. "It's still going to feel like a very weak economy for some time because many people will still find that their job security and their employment status is not what they wish it was."

The recession, which started in December 2007, has claimed a net total of 6.9 million jobs.
With expectations for a lethargic recovery, the Fed predicts that unemployment will top 10 percent this year. The post-World War II high was 10.8 percent at the end of 1982.
Some economists say it will take at least four years for the jobless rate to drop down to a more normal range of 5 percent.

Even if the economy logs "moderate" growth in 2010, unemployment is likely to stay elevated, Bernanke suggested. "Unfortunately, unemployment will be slow to come down. It will come down but it may take some time," he said. "Obviously, that's a very serious concern."

Drugmaker Eli Lilly & Co. said Monday that it will cut 5,500 jobs over the next two years, 14 percent of its work force, as it restructures the company into five units.

Still, Bernanke's declaration that the recession likely ended marked his most optimistic assessment yet of the economy. And his remarks came on the same day that the government report that retail sales jumped 2.7 percent in August, the most in more than three years.

Last month, Bernanke told a Fed conference in Wyoming that economic activity appears to be "leveling out" after declining sharply at the end of last year and into the beginning of this year. He also said that the global economy was just "beginning to emerge" from recession.

Bernanke's speech to at Brookings was identical to the one he delivered at the Fed conference.
Analysts predict the U.S. economy is growing in the current quarter, which ends Sept. 30, at an annual rate of 3 to 4 percent. It shrank at a 1 percent pace in the second quarter, much slower than in previous quarters.

Bernanke said the economy is coping with "ongoing headwinds," including hard-to-get-credit for consumers and businesses, and households saving more, spending less and trimming their debt. Those forces can weigh down the recovery, he said.

Other analysts worry that falling house prices could hamper the broader rebound, especially if they cause consumers to tighten their belts.

While many on Wall Street have been encouraged by early signs of stabilization in U.S. home prices and hope the housing market may have hit bottom, others aren't so sure.

Deutsche Bank analyst Karen Weaver on Tuesday predicted that national home prices won't stop sliding until next summer and likely will fall another 10.5 percent from this summer's levels. Bigger declines are expected in cites like New York, Salt Lake City, Fort Lauderdale, Fla., and Baltimore.

Against that backdrop, Michael Williams, dean of Touro College's Graduate School of Business, disagreed with Bernanke's assessment that the recession probably ended. Williams maintains that troubles in both the residential and commercial real-estate markets are prolonging the downturn.

Williams believes the economy is still shrinking and won't turn around until later next year. "This recession lingers," he said.

Meanwhile, Bernanke said he is optimistic that Congress will enact a revamp of the nation's financial rule book to prevent a future crisis from happening.

"I feel quite confident that a comprehensive reform will be forthcoming," Bernanke said.
President Barack Obama on Monday urged Congress to enact legislation this year.

"This has just been too big a calamity and too serious a problem" over the past year, with the near meltdown of the U.S. financial system, for Congress not to take action, Bernanke added.

He spoke one year after Lehman Brothers filed for bankruptcy, the largest in U.S. history. It's collapse roiled financial markets worldwide, nearly halted the flow of credit and almost brought down the entire U.S. financial system

Why it's time to invest in real estate - SmartMoney

noreply@blogger.com (Franklin Advantage) — Fri, 11 Sep 2009 19:13:00 +0000

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 more than $250,000. He said he'd never expected to be able to buy anything on a driver's salary, let alone something that nice.

Late last month, 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.

Trying to buy at a bottom

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%.

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.

The flipping days are over

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 buying into real-estate investment trusts or buying shares in homebuilders and other housing-related businesses, such as Home Depot.

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 homeownership 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 homeownership and getting what may well turn out to be the deals of their lives.

By James B. Stewart, SmartMoney

As Loan Modifications Fall Short, Foreclosures Loom

noreply@blogger.com (Franklin Advantage) — Wed, 09 Sep 2009 22:36:00 +0000

Only 12 percent of U.S. homeowners eligible for loan modifications under the Obama administration's housing rescue plan have had their mortgages reworked, and millions more foreclosures are coming, the Treasury Department said on Wednesday.

A Treasury report showed 360,165 people had their monthly payments reduced through August, up from 235,247 through July, but a senior Treasury official conceded much more must be done to soften the impact of a severe and prolonged housing crisis.

Treasury has begun releasing monthly reports on the loan modification program, called the Home Affordable Modification Program or HAMP.

In July, it said that just 9 percent of the estimated number of homeowners eligible had had their loans modified, so Treasury's assistant secretary for financial institutions, Michael Barr, was able to claim modest progress in August.

He told a House Financial Services subcommittee that the program launched in February, which brings banks and loan servicers together with at-risk homeowners, was on target to help a half million Americans homeowners by November 1.

But that is a small start on a huge problem at the heart of U.S. economic woes.
Barr said that "even if HAMP is a total success, we should still expect millions of foreclosures" as administration and industry efforts continue to stabilize a crisis-stricken housing sector.
Barr said a strong housing market was "crucial" to a sustained U.S. economic recovery and described the slump in prices and demand in the housing sector as being "at the center of our financial crisis and economic downturn."

He noted that analysts anticipate more than six million Americans could lose their homes in the next three years.

"Much more remains to be done and we will continue to work with other agencies, regulators and the private sector to reach as many families as possible," Barr said.

The Treasury report showed that some lenders had not helped any of their borrowers who were eligible for loan modifications. Others had helped varying numbers of those who were 60 or more days delinquent on their mortgages, ranging up to 100 percent for one bank that only had one eligible borrower.

Housing Market Recovery Bound

noreply@blogger.com (Franklin Advantage) — Wed, 09 Sep 2009 15:51:00 +0000

Recent data illustrating steady house prices and rising sales for weeks have led economists and analysts alike to indicate a perceived bottom — or stabilization, at the least — in the US housing market.

New market analysis out of Credit Suisse suggests the US residential housing sector may be past the point of stabilization and is now recovering vital signs.

Demand is returning on higher affordability and the federal first-time homebuyer tax credit, according to Martin Bernhard, of Credit Suisse’s private banking, investment services and products divisions.

“On a national level, we think that the turning point could have been reached,” he said.
But several factors including unemployment rates and foreclosure levels post-moratoria may pressure these positive developments, Bernhard said in market commentary last week.
The US unemployment rate rose to 9.7% in August, posing an ongoing risk to the recovering in housing demand as consumers remain financially pressured.

New house supply is low as housing construction slips. Weak demand for new houses may reduce inventory in the months ahead, Bernhard said.

The existing house side of the market — which is about 10 times as large as the market for new homes, according to Credit Suisse — remains pressured by levels of foreclosure inventory. Foreclosure sales, which weigh on overall resale house prices, may further depress the market.
The risks posed by the foreclosure pipeline may pressure prices in the short term, but the pricing correction achieved poses long-term investment benefits.

“Given the sharp correction in house prices over the last three years, we think that there now exist interesting investment opportunities in the US housing sector,” Bernhard said. “But risks remain due to rising unemployment and foreclosure sales. We thus recommend investors to concentrate on regions with relative robust housing market fundamentals and positive long-term outlooks such as Texas.”

Other regional US existing home markets where increasing levels of supply outweigh weak demand may not bottom quite so early. Overall US financials continue to appear strong, however.

The US Q209 earnings season surprised global financial market observers, contributing to an overall expectation that the global recession is nearing an end.

Option ARM Shoe Set to Fall?

noreply@blogger.com (Franklin Advantage) — Wed, 09 Sep 2009 15:43:00 +0000

More bad mortgage news may be lurking around the corner according to information released on Tuesday by Fitch Ratings.

The ratings firm revealed that some $134 billion in ARM Residential Mortgage Backed Securities (RMBS) are due to recast by the end of 2010, raising the possibility of another wave of mortgage defaults among a group of loans that have already demonstrated a good deal of weakness.

The loans in question are Option ARMs; those mortgages in which the borrower has a monthly choice, make a full payment of principal and interest, a payment equivalent to interest only, or a payment less than the total amount of interest due. In the later case, the unpaid interest balance is added to principal. 94 percent of Option ARM borrowers have utilized the minimum monthly payment and allowed their loans to negatively amortize.

This negative amortization feature of options has made them a cause for concern for some time, one reason that Fitch has only rated about 5 percent of the $189 billion of Option ARMs outstanding. As the homeowner continues to make minimum or minimal payments and the principal balance increases, the loan eventually hits a pre-set cap of 110 to 125 percent of the original loan balance, and event that triggers a recast. When the loan recasts, the required monthly payment on the loan immediately changes from the minimum permitted under the option to a payment amount sufficient to amortize the principal and interest. This new payment is, on average, 63 percent higher than the original minimum payment and may be as much as 100 percent higher depending on the type of loan, the amount of the cap, interest rate behavior and other variables. Under the terms of Option ARM loans, even if regular payments are made, the loan automatically recasts at 60 months.

Fitch reports that, of the 88 percent of Option ARMs originated between 2004 and 2007 have not yet recast. In spite of the fact that the original payments are in effect, 37 percent of these are either 90 days or more delinquent, in foreclosure or already foreclosed. Of the entire universe of Option ARMs 46 percent are running 30 days delinquent or more even though only 12 percent have recast.

Fitch Managing Director and U.S. RMBS Group Head Huxley Somerville said on Tuesday, “Having not demonstrated their ability to make payments at the full rate, option ARM borrowers are at the greatest risk of default resulting from payment shock.”

Lenders have already modified approximately 3.5 percent of the one million option loans in anticipation of payment shock. Modifications have included term extensions, interest rate cuts, conversion to interest only loans and other changes. The 90+ day delinquency rate among those modified loans is running at a lower pace of 24 percent but Fitch expects that large numbers of these loans will also default when they recast because monthly payments will still drastically increase.

Fitch had expected losses on the loans to range between 35%-45%, depending on the collateral quality of the underlying mortgage loans. In addition to expectations of higher defaults, severities have also contributed to higher expected lifetime losses. Fitch has observed that loss severities on Option ARMs have increased significantly to an average of approximately 60% from 40% a year ago. Exacerbating the problem is the high concentration of the option loans in states where home prices continue to decline. 75 percent of the loans are on collateral located in California, Florida, Nevada, and Arizona where home prices have declined an average of 48 percent since early 2006. Loan-to-value ratios have increased from the original average of 79 percent to 126 percent today, meaning that many of these borrowers will be unable to refinance to avoid upcoming rate shock.

Fitch Ratings also announced launch of new Credit Default Swaps of Asset Backed Securities broad market indices for U.S. subprime assets. The company said it is issuing the five new indices as home prices and subprime asset values show signs of stabilization.

Fitch's total market U.S. subprime Index stood at 8.34 as of Sept. 1. Though higher than the all-time low of 7.27 on May 1, the index is still significantly lower than the opening value of 42.56 on Nov. 1, 2007.

According to Fitch, the five new indices, which are presented as cash prices, will provide a total market view of all vintages as well as vintage specific indices. They will be made available within Fitch Solutions ABCDS pricing service.

'In general, the synthetic subprime market is still seeing more activity than its cash equivalent and hence can be used as an effective proxy for asset values,' said Author and Managing Director Thomas Aubrey. 'Fitch Solutions' new indices will fill a gap by helping market participants with broader trend analysis and improving relative valuation techniques across different asset classes.'

FHA Does Not Need Congressional Help

noreply@blogger.com (Franklin Advantage) — Tue, 08 Sep 2009 18:07:00 +0000

In the face of rumors that its capital reserve ratio is nearing the danger point, the head of the Federal Housing Administration (FHA) says that his agency does not need help from Congress.
The Wall Street Journal reported this morning that the agency, part of the U.S. Department of Housing and Urban Development (HUD), might fall below the 2 percent capital reserve ratio demanded by Congress because of rising defaults on mortgage loans it insured.

Responding to the Journal article, FHA Commissioner David Stevens this morning said, "Even if that level falls below 2 percent, FHA continues to hold more than $30 billion in its reserves today, or more than 5 percent of its insurance in force. Given this reserve level, FHA will not need a congressional subsidy even if the congressional capital reserve calculation falls below 2 percent."

Mortgage loans insured by the government have soared to the highest levels in two decades as borrowers have taken advantage of down payment requirements for FHA loans which are lower than those for other mortgages.

In the past two years, the number of loans insured by the FHA has soared and its market share reached 23% in the second quarter, up from 2.7% in 2006. FHA-backed loans outstanding totaled $429 billion in fiscal 2008, a number projected to hit $627 billion this year.

At the same time, defaults in FHA insured loans are depleting its reserves. According to the Journal, 7.8 percent of FHA loans were 90 days or more late or in foreclosure. This is comparable to the national average, but because of the low down payment requirement, sometimes as low as 3.5 percent, a borrower is less likely to hang on and try to save his home and FHA takes a bigger hit.

Should the reserve funds fall to dangerous levels, the FHA could either raise the premiums that borrowers pay for the agency guarantee or petition Congress for taxpayer funds to boost agency reserves

"FHA's full faith and credit insurance means that there is no risk to homeowners or bondholders independent of the congressional capital reserve requirement," Stevens said, adding that FHA continued to generate income for taxpayers.

Department of Housing and Urban Development Secretary Shaun Donovan said in June, "there's a better than even chance that we will stay above the two percent reserve threshold. That suggests, not just for the 2010 business, but overall for the portfolio, that we'll more than likely to stay out of a broader need for any taxpayer funding."

According to the Journal, the only thing the agency is obligated to do is notify Congress if it falls below capital requirement. This could, however lead to a demand that FHA reduce its lending which is credited with helping to improve house sales.

The FHA's mandated 2 percent reserve means a minimum of $3 billion during the current fiscal year and $4 billion next year. The agency's assets have increased from $27 billion to around $31 billion in the past year. A recent audit put the value of the fund at $12.9 billion last year or around 3 percent of all FHA backed loans.

The new math of FICO credit scores

noreply@blogger.com (Franklin Advantage) — Fri, 04 Sep 2009 18:56:00 +0000

By MarketWatch

Even the most responsible borrowers slip up sometimes.

Maybe a utility bill went unpaid after you moved and the missed payment went into collections. Or perhaps there are unpaid library fines or parking tickets in collections that are hanging onto your credit history and affecting your FICO credit score, which is widely used.

With the newest version of the FICO credit-scoring system, however, minor delinquencies are now overlooked in calculating creditworthiness.

Under the updated scoring model, called FICO 08, small missed payments lingering in collections with original amounts of $100 or less will no longer do damage to your credit score.

Consumers also are less likely to be penalized for any single delinquency if it occurred two or more years ago -- and if their credit history is otherwise unblemished, says FICO, which developed the FICO scoring system.

"There's more flexibility with missing a payment," said Careen Foster, the director of global scoring product management for FICO. "If you have a more habitual pattern of paying accounts late . . . you're more likely to get penalized for that."

If a consumer's credit usage is high, that will be more likely to hurt his or her score with FICO 08. But getting close to your credit-card limits -- even if you always pay on time -- is penalized in some way in every FICO score, not only the recent edition, Foster said.

The new system has been available at all three credit bureaus -- Experian, TransUnion and Equifax -- since last month.

The changes were made to provide lenders with a better risk assessment of borrowers, said John Ulzheimer, the president of consumer education for Credit.com, a consumer education and advocacy site. FICO decided that one small library fine didn't really predict whether a consumer was likely to default, for example.

With the changes, individuals who pose a low credit risk will probably see their scores rise a bit, and those who are high risk could see their scores drop, he adds.

FICO 08 also addresses "piggybacking," a practice used by credit-repair companies to help people improve their scores, Ulzheimer said. In piggybacking, an individual pays to become an authorized user on a stranger's account. The account holder gets paid for allowing the person to be associated with the account, and the new authorized user is able to improve his or her credit score.

"It was a practice to . . . misrepresent what your credit looks like to your bank," Foster said.
FICO 08 aims to single out individuals who are named as authorized sources through deceptive means, Ulzheimer said. Those people won't see their credit scores rise as a result. But the scores of legitimate authorized users will be treated as they always have been.

Not all lenders use the model

Borrowers shouldn't expect their credit to be graded by this new scale on every loan application. Not all lenders have adopted the new model, though more than 400 lenders are using or testing FICO 08, the company said.
In a statement, Equifax said, "Currently, many lenders and businesses are validating the new score within their systems, and adoption will vary by financial institution based on business requirements and market need."

Many credit-card companies, auto lenders, regional banks and credit unions may have already adopted FICO 08, Ulzheimer said. But for mortgages, lenders doing traditional conforming loans backed by Freddie Mac and Fannie Mae likely haven't made the move yet, he said. That's because they're waiting for Freddie and Fannie to approve its use. Freddie Mac and Fannie Mae "are essentially the lender . . . they're the ones that set the underwriting criteria," he said.

Ulzheimer said he expects Freddie and Fannie to adopt FICO 08 by the end of the year. Fannie declined to comment on FICO 08; Freddie wasn't able to provide a comment prior to publication.

Be proactive about your credit

While FICO 08 will help consumers' credit scores in some cases, people still should take steps to improve their credit. Granted, it's impossible for consumers to calculate their FICO scores themselves, said Rodney Anderson, of Rodney Anderson Lending Services in Plano, Texas.

"It's almost like the Coca-Cola formula. No one has access to the Coca-Cola formula, no one has access to the FICO formula," he said.

But by being proactive, you can start to work toward a higher score, something that will serve you well every time you apply for a loan.

Some suggestions:
Monitor your credit reports and correct errors. Don't just look for negative events on your record; also examine your credit limits to make sure they're accurate. Credit limits that appear lower on the report than they actually are have the potential to hurt your score, Anderson said.

Pay bills on time and keep card balances low. Your payment history, and the amount you owe on your accounts as a ratio of the amount of credit you have access to, are important components of your score, Foster said. FICO 08 is more sensitive to high credit usage, and consumers may see a lower score if their reported balance on one or more cards is near the account's limit.

Take on new credit only when you need it. Some credit cards come with great offers, including a percentage off your bill if you sign up at the cash register. If you accept, make sure you're getting a big enough benefit to make it worthwhile -- taking on additional credit could end up dinging your score, Foster said.

This article was reported by Amy Hoak for MarketWatch.
http://articles.moneycentral.msn.com/Banking/YourCreditRating/the-new-math-of-FICO-credit-scores.aspx

Foreclosure Starts Increase

noreply@blogger.com (Franklin Advantage) — Fri, 04 Sep 2009 16:24:00 +0000

Foreclosure starts increased to 283,682 in July from 251,340 a month earlier, outnumbering the 253,673 workout plans offered to borrowers during that, according to foreclosure prevention group Hope Now. Both repayment plans and loan modification plans slipped during the month, with the latter falling from 93,921 in June to 80,167; repayment plans declined to 173,506 from 211,882.

The alliance attributed the fall to the implementation of Obama’s Home Affordable Modification Program (HAMP); the Treasury reported that servicers initiated 230,000 trial modifications in July. “Successful trial loan modifications that complete the 90 day Home Affordable Modification Program (HAMP) payment terms and completely documented as final modifications will be included in future HOPE NOW modification data,” HAMP said in a release. “It is anticipated that modification numbers will increase in HOPE NOW industry survey reports in the coming months. The industry remains committed to the administration’s goal of completing 500,000 loan modifications by November 1, 2009.”

Completed foreclosure sales decreased slightly form 92,661 to 89,173 in July, but 60-day plus delinquencies climbed to 5.9 percent, representing 3.1 million homeowners. Fewer than 40 percent of foreclosure starts resulted in a foreclosure sale last month, an improvement from the near-50 percent seen a year earlier. Last month, 211,714 of the 283,682 foreclosure starts were considered “prime” loans; similarly, 59,341 of the 89,173 foreclosure sales were deemed prime.

MBA proposes alternative to Fannie and Freddie

noreply@blogger.com (Franklin Advantage) — Thu, 03 Sep 2009 17:33:00 +0000

SAN FRANCISCO (MarketWatch) -- Fannie Mae and Freddie Mac should be turned into smaller, private companies that create mortgage securities with an explicit guarantee from the government, the Mortgage Bankers Association said Wednesday.

Fannie and Freddie shares fell more than 15% after the MBA released its proposal Wednesday morning.

The proposal would create of a new type of mortgage-backed security with two parts. The first would have a loan-level guarantee provided by the new privately owned companies, which would be government chartered and regulated as mortgage credit-guarantor entities, or MCGEs, the association said.

The second part of the mortgage-backed security would have an explicit government guarantee focused on the credit risks embedded in them, the MBA said.

Fannie and Freddie's infrastructure, including their technology, staff, standard documents and relationships, could be used as the foundation for one or more MCGEs, the industry group added.

The proposal would change the current system, in which Fannie and Freddie package home loans into securities and guarantee them. As the companies grew, investors were comforted by an assumption that the U.S. government would bail the companies out if they ran into trouble.

But some foreign investors lost confidence in that implicit government backing last year as Fannie and Freddie strained under the weight of rising mortgage defaults and foreclosures, along with losses from huge mortgage-related investment portfolios the companies had accumulated.
The implicit backing finally became explicit as the government bailed out Fannie and Freddie last year. The two companies are now controlled and owned by the government, but they have become an even more important part of the U.S. mortgage market as private lenders have pulled back.

The MBA said Wednesday that its proposal is an effort to revive the private, secondary mortgage market.

"It's now been more than two years since the secondary mortgage market collapsed," Michael Berman, MBA's vice chairman, said in a statement. "Rebuilding the secondary market is critical to restoring liquidity and confidence."

"The government has an important, limited role to play to ensure a stable flow of funds for mortgages," he added

Act fast! Homebuyer tax credit ends soon -CNN

noreply@blogger.com (Franklin Advantage) — Mon, 31 Aug 2009 03:04:00 +0000

NEW YORK (CNNMoney.com) -- Use any metaphor you want: the ticking clock, sands running through the hourglass or pages falling away from the calendar. The fact is, time is running out to claim the $8,000 first-time homebuyerstax credit.

Passed earlier this year as part of the economic stimulus package, the credit is good for up to $8,000, or 10% of the purchase price, and applies to people who have not owned a home in the previous three years. (There are some income restrictions.) The best part: Unlike a similar program from 2008, the credit does not have to be repaid.

The bad part: It ends on Dec. 1.

Because it usually takes around 90 days to close on a house after a contract is signed, buyers have very little time left to act. As of Thurs., Aug. 27, there were only 96 days left before the credit ends.

"Buyers have to get a home under contract very, very soon," said Tom Kunz, CEO of Century 21. "They probably should get out looking."

Sense of urgency

What they will find may surprise them: Many of the prime properties have already been snapped up. Home sales have been on the upswing, and inventories are so depleted in hot markets that first-time buyers are struggling to find homes in their price range.

In Whittier, Calif., for example, there are few repossessed homes for sale. Those are easy to buy because there isn't a lot of red tape and the bank wants to get rid of them as quickly as possible. Instead, most of the properties are short sales, where the sellers have to convince their lender to let them sell the house for less than they owe.

"That's why there's such a sense of urgency now," said Irma Tapper, a Century 21 real estate agent in Whittier. "The banks have to approve short sales, and they're taking three to six months to do that."

That means a first timer putting a bid on a short-sale might not get an answer form the bank until well after the Dec. 1 deadline for the tax credit. So when an actual repossession listing hits the markets, it creates a feeding frenzy.

Chuck Whitehead, who runs the Coldwell Banker agency in Temecula, Calif., said one recent listing hit the market on a Friday and by Monday there were 57 bids.

The National Association of Realtors attributes much of this activity to the first-time buyer tax credit. It estimates that 1.8 million buyers will file for the credit, and 350,000 of them wouldn't have been able to buy without it.

"It makes a big difference because most of these clients are in a lower price range," said Michelle Edmunds, an agent with Coldwell Banker in Temecula, Calf., who has closed sales for six first-time buyers. "The houses they buy need work and normally they wouldn't want to move in because of the [less than perfect] conditions the homes are in."

That is true for Wesley Forsythe. This June, the 30-year-old computer consultant and his girlfriend bought a row house in the Fishtown section of Philadelphia. Since he paid just $80,000 for the three-bedroom, two-bath place, the credit acted like a 10% discount.

"It allowed us to expand our price range and plan additional renovations," he said. "My mortgage is several hundred dollars less than what my new rent would have been."

Forsythe applied for the credit immediately after closing, filing an amended 2008 tax return. The IRS cut him a check in less than seven weeks. He's spending it now on new hardwood floors, repainting most of the interior and renovating a bathroom. He's stretching the cash by doing much of the work himself.

Cash for Clunkers effect

Of course, analysts worry that this frenzy will dry up once the tax credit expires. They argue that without the incentive, much of the pressure on homebuyers to act quickly will vanish, and the nascent housing recovery could slump.

In many ways the tax credit is similar to the Cash for Clunkers program that ended this week. Already, auto dealers are anticipating that car sales will evaporate after accelerating during the program.

"It's just like Cash for Clunkers," said Robert Dye, a senior economist for PNC Financial Services Group. "It runs the risk of a let-down as the program runs its course."

Johnny Isakson, R-Ga., who is a former real estate broker, is pushing legislation to extend the tax credit through next year, increase it to $15,000, include non-first-time homebuyers, and remove income restrictions.

The effort has drawn strong industry support.

"We need to stimulate the move-up buyer," said Century 21's Kunz, "so it works its way up the pricing food chain. That's what we need to get inventory moving again."

$8,000 Tax Credit Boosts California Home Sales

noreply@blogger.com (Franklin Advantage) — Fri, 28 Aug 2009 17:49:00 +0000

The first-time homebuyer tax credit played a major role in boosting home sales in California last month, according to C.A.R., the California Association of Realtors. Last month, existing, single-family home sales increase 12 percent from July 2008; they were up 8.1 percent from June.

“The federal tax credit for first-time buyers played a critical role in the purchase decision of many buyers,” said C.A.R. President James Liptak. “Nearly 40 percent of first-time buyers said they would not have purchased a home if the tax credit was not offered.

“Because the tax credit has helped so many first-time buyers become homeowners, it is critical that Congress extends the credit beyond the Dec. 1 deadline, and includes all buyers, not just first-timers. Meanwhile, the median price of an existing single-family home increased 3.9 percent from June to $285,480, though prices were still off 19.6 percent from a year earlier.

“July marked the fifth consecutive month of month-to-month increases in the median price,” said C.A.R. Vice President and Chief Economist Leslie Appleton-Young. “This was the largest increase on record for the month of July based on statistics dating back to 1979. The yearly decline in July also was the smallest in the past 19 months.”

New Home Sales Jump 9.4% in July

noreply@blogger.com (Franklin Advantage) — Wed, 26 Aug 2009 16:25:00 +0000

Data suggesting that the economy is stabilizing continues to pile in this week, most recently in the housing market. New Home Sales advanced by 9.6% in July, beating expectations for a 5% increase and following up on a 9.1% advance in the prior month.

July marks the fourth consecutive monthly increase, pushing the annual pace of sales to 433,000 -- the first time same sales have passed the 400k mark since October. The annual rate is still 13.4% below the pace in July 2008, yet that compares nicely with the 19.1% annual decline reported in June.

“This report was surprisingly strong, and helps to further the story that the U.S. housing market has now reached a stabilization point,” said Ian Pollick, strategist at TD Securities. He added that “housing conditions remain favorable due to low mortgage rates, deep discounts and a rosier economic outlook.”

Excess overhang also got slashed by an entire month’s worth. At the current sales pace there are 7.5 months worth of inventory on the market, compared with 8.5 months in June. Overhang peaked in January at 12.1 months, and then fell in four of the past five months.

According to analysts at RDQ, the number of unsold new homes, in absolute numbers, is the lowest since March 1993.

The report carried plenty of revisions, but all were positive. The sales pace in June was revised up 11k to 395k, while May is now 362k (from 346k), and April is now 345k (from 338k).
“The fact that there were upward revisions to the prior three months and July's gain is the fourth in a row speaks volumes to the housing recovery,” commented Jennifer Lee from BMO.

Sales in the Northeast advanced by nearly one-third (32.4%), while sales in the South climbed 16.2%, and sales in the West inched up 1%. In the Midwest, however, sales dropped 7.6%.
As for housing prices, the median during the month was $210,100, about equivalent to the figure in June and broadly in line with prices seen in 2009.

Market reaction was immediate: equities were unmoved earlier in the morning when Durable Goods posted a positive, albeit lopsided, surprise. But minutes after the housing data all three major indexes jumped forward into the green.