Rates not too low; next move likely to be up

Even as they grappled with inflation worries, most Federal Reserve officials at their August meeting didn't believe the Fed's key interest rate was too low given harder-to-get credit conditions straining consumers and businesses alike.
By: JEANNINE AVERSA: Associated Press
Documents, released Tuesday, provided insight into the Fed's thinking at the Aug. 5 meeting, when central bank policymakers decided to hold its key rate steady at 2 percent for the second straight meeting. Confronted by problems at every turn - rising unemployment, shaky growth, credit troubles and creeping inflation - the Fed took a gamble that once again the best move was none at all.

"Most members did not see the current stance of policy as particularly accommodative, given that many households and businesses were facing elevated borrowing costs and reduced credit availability" due to fallout from financial market strains and economic problems, the Fed's documents stated.

But looking ahead, the next direction for rates is probably up, according to the documents.

"Although members generally anticipated that the next policy move would likely be a tightening," the timing was far from clear and depended on incoming barometers on economic growth and inflation. Many economists don't believe the Fed will start to push up rates to fend off inflation until next year.

Speaking last week at a high-profile economic conference in Jackson Hole, Wyo., Fed Chairman Ben Bernanke signaled that rates would likely stay at 2 percent at the Fed's next meeting on Sept. 16, and probably through the rest of this year. Some fear that keeping rates at this level, a four-year low, could aggravate inflation down the road.

At the August meeting, one Fed member - Richard Fisher, president of the Federal Reserve Bank of Dallas - wanted to raise rates.

Fisher favored an increased "to help restrain inflation and inflation expectations, which were at risk of drifting higher," the minutes explained. Even though financial markets remained fragile and economic growth could weaken further, Fisher "saw a greater risk to the economy from upward pressures on inflation."

But other Fed members generally anticipated that inflation would calm down, although they acknowledged there were risks to the outlook.

That's consistent with the message delivered by Bernanke last week. The Fed chief welcomed the recent drops in oil and other commodities' prices, and said he believes inflation will moderate this year and next. However, he also warned that inflation outlook remains highly uncertain.

Economic growth was "generally expected to be weak during the remainder of 2008 before recovering modestly next year," according to the Fed documents. Consumer spending, a major shaper of overall economic activity, was likely to slow as the bracing impact of the government's tax rebates wears off, Fed members suggested.

Meanwhile, heightened investor apprehension about the viability of mortgage giants Fannie Mae and Freddie Mac helped to push up mortgage rates, a development "seen as potentially exacerbating the contraction in the housing sector."

Commercial banks also reported tightening terms on nearly all categories of loans, the Fed documents said.

Separately, the Fed released information about a July 24 conference call that ultimately led the central bank to take additional steps to ease credit strains.

The Fed, among other things, extended its emergency borrowing program for investment banks into next year and said it would let commercial banks get access to longer, 84-day loans, in addition to the 28-day loans already available. The Fed announced such changes on July 30.

Some Fed members, however, wondered whether the changes might suggest the central bank saw financial markets as more fragile than expected or could make analysts think that the special programs would be made permanent, the documents said.

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Discounts and interest rates fuel home sales

Homes sales ticked up in July as many buyers, lured by deep discounts and rising interest rates, decided to pounce.
CAR.org
"Right now, I would buy until I ran out of money," said Michael Oliver, a real estate investor from Ventura.

Oliver recently purchased a tract home in Oxnard that he plans to rent, and he expects to close in a few weeks on a duplex in Ventura.

Oliver might be more enthusiastic than others, but he isn't the only one jumping in the market.

Ventura County sales for existing homes last month rose 20.6 percent from a year ago and 25.6 percent from June, California Association of Realtors reported Monday.

The median was $475,000, down from $480,340, or 1.1 percent, from June and from $682,930, or 30.4 percent, from July 2007.

The median is the midpoint, where half the homes sold for more and half for less.

Nationally, sales slide

A similar trend was seen throughout the state, with home sales surging 43.4 percent last month from a year ago, while the median fell a record 40.3 percent to $350,760, CAR reported.

Nationally, existing home sales slipped 13.2 percent from July 2007, but edged up 3.1 percent from June, according to the National Association of Realtors. The median dipped to $212,400, or 7.1 percent, from the same month a year ago.

"California's sales improved significantly in July and remained above the 400,000 level for the third consecutive month," CAR President William Brown said in a news release.

"Deeply discounted, distressed sales continue to drive volume in many regions of the state," he said. "In general, greater percentage gains occurred in lower-priced areas that had been most adversely affected by the market downturn since last 2005 and that are concurrently experiencing the biggest decline in prices."

Encouraging nonetheless'

Year-to-year sales increases ranged from 6.7 percent in the San Francisco Bay Area to 176.5 percent in the Riverside/San Bernardino region, Brown said.

While a significant percentage of the homes sold are foreclosures, the uptick in sales is "encouraging nonetheless," said Gary Painter, director of research with the USC Lusk Center for Real Estate.

However, Painter believes prices probably won't be heading up until 2010.

"It's still a transition time," he said.

The fact that there are a lot of foreclosed properties being sold will cause the median to continue to fall, which is both good news and bad news for people, Painter said. The good news, obviously, is that as prices fall, buyers are starting to make purchases.

The percentage of households that could afford to buy entry-level homes in Ventura County surged to 48 percent in the second quarter, up from 25 percent during the same period a year ago, according to CAR.

Prices being depressed

The minimum housing income needed to purchase an entry-level home at $415,250 was $79,330. The monthly payment including taxes was estimated at $2,640.

The bad news is the glut of foreclosures is depressing the price of other properties, Painter said.

Even in more prominent areas such as Thousand Oaks and Westlake Village, short sales and foreclosures are a problem, said Bob Merritt, a yacht broker who has been trying to sell his Thousand Oaks home for the past year and a half.

"It's everywhere," he said. "I don't think there's one area that's immune to it."

In order to compete with the distressed property selling for so much less, Merritt lowered his original asking price for his 2,653-square-foot, 4-bedroom, 2.5-bath home with a pool and spa from $969,000 to $799,900. But he won't go any lower.

While the typical real estate agent will weigh comparable homes in the area when setting a price, including distressed and traditional sales, the practice is "highly unfair," Merritt said, because the distressed properties are run down and abused.

Oliver, the real estate investor, said the homes he purchases to restore are typically rentals.

He added that he wouldn't consider buying and selling a tract house because it would mean trying to compete with banks that are dumping similar properties.

"I've had good luck renting," he said.

The one house he has for sale is an ocean-view home in Ventura, for $774,950, with a new kitchen and stainless steel appliances.

"I don't really compete with foreclosures," Oliver said. "There's no foreclosed ocean-view homes."

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Home-Price Watchers Hope Drop Slows

This week's housing-market data won't erase the souring situation surrounding Fannie Mae and Freddie Mac, but could bear a silver lining if the rate of price declines shows signs of moderation.
By: MAYA JACKSON RANDALL: WSJ.com
This week's housing-market data won't erase the souring situation surrounding Fannie Mae and Freddie Mac, but there still might be a way to make lemonade.

Start with the S&P/Case-Shiller home-price-index report due out Tuesday. It will likely show continued price declines across the country as the housing slump drags on. Those are the lemons. To sweeten that up, look to the rate of price declines in hard-hit markets such as those in California and Florida. If the rate of declines slows, as some experts expect, there is your sugar.

The data are likely to be "negative pretty much across the board" and home prices are unlikely to bottom out until 2009 or 2010, said Mark Vitner, a Wachovia senior economist. But Mr. Vitner expects the rate of decline in home prices to begin to moderate "at some point in the second half of the year." That could signal the worst is behind us, though Mr. Vitner says he thinks the market could easily sit at the bottom for at least a year.

At the same time, it would be souring if the rate of declines accelerates. All eyes are already on Fannie and Freddie, and data showing home prices plummeting more than expected wouldn't help the mortgage giants.

"The more housing prices fall, the more foreclosures we get and the more each one of those costs Fannie Mae and Freddie Mac," says University of Maryland business professor Peter Morici.

The week is chockablock with housing data. Existing-home-sales data, released Monday, will be interesting to watch. While economists expect a slight uptick in sales, it could be bittersweet -- the result of troubled banks having to sell foreclosed homes at a deep discount. "I think the story there is simply that you have a lot of foreclosures and banks are pricing the homes so they sell," said Global Insight U.S. Economist Patrick Newport.

On Tuesday, the Office of Federal Housing Enterprise Oversight will release its monthly home-price data through June. Additionally, the Commerce Department Tuesday releases data on July sales of new homes. Last month's decline in sales was the fifth in six months.

To get a sense of what is ahead for the broader economy, turn to the Conference Board's consumer-confidence index Tuesday. It has been stuck at low levels, reflecting consumers' fears about high energy prices, a weak labor market, home values and borrowing costs. But the recent improvement in energy prices may give it a bump, says Wachovia's Mr. Vitner. At the same time, he notes the labor market has continued to weaken, which could keep confidence low. "It will be interesting to see what we get there," he says.
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U.S. Economy: Existing Home Sales Increased 3.1 Percent in July

Home Resales in U.S. Rose 3.1% to 5 Million Rate in July as Prices Plunged.
By: Shobhana Chandra: Bloomberg.com
Sales of previously owned homes in the U.S. rose 3.1 percent in July, a gain that masked further housing weakness as inventories of unsold properties increased.

Resales advanced more than forecast to an annual rate of 5 million, with at least one-third of the purchases coming from foreclosed properties, the National Association of Realtors said today in Washington. At the same time, the median price dropped 7.1 percent from July 2007, and the number of homes for sale jumped to a record.

Sales averaged a pace of 4.95 million the past three months, the same rate as the previous period, indicating that purchases may have touched a bottom. At the same time, the glut of houses for sale means property values will probably keep dropping, putting pressure on household wealth and consumer spending.

``Existing home sales have likely stabilized,'' Michelle Meyer, an economist at Lehman Brothers Holdings Inc. in New York, said in an interview with Bloomberg Television. ``In terms of demand, we're probably close to the bottom. In terms of prices, we don't think we'll see a bottom until the end of next year.''

Treasuries, which had rallied earlier in the day, remained higher after the report. Benchmark 10-year notes yielded 3.78 percent at 11:14 a.m. in New York, from 3.87 percent at last week's close. The Standard & Poor's Supercomposite Homebuilding Index of stocks was down 1.1 percent at 285.89.

Economists' Forecasts

Resales were forecast to rise to a 4.91 million annual rate, according to the median estimate of 75 economists in a Bloomberg News survey. Projections ranged from 4.69 million to 5 million. July's sales rate was the highest since February.

Sales were down 13 percent compared with a year earlier. Resales totaled 5.65 million in 2007.

The increase in sales wasn't enough to keep up with the surge in properties coming into the market as foreclosures mount. There were a record 4.67 million unsold houses and condos on the market in July, representing 11.2 month's supply at the current sales pace, matching the highest ever. The group has said a five to six months' supply is consistent with a stable market.

The jump in inventory was driven by an increase in the supply of condos as projects started one or two years ago came on the market, the Realtors group said.

The median price of an existing home fell to $212,400 from $228,600 in July 2007.

``We are in a very tight credit-availability condition,'' Lawrence Yun, NAR's chief economist, said in a press conference. ``Inventories continue to remain very high.'' One-third to 40 percent of total sales last month reflected distressed properties, which include foreclosures, he said.

Market Composition

Resales account for about 85 percent of the market, while purchases of new homes make up the rest. Sales of existing homes are compiled from contract closings and may reflect contracts signed one or two months earlier.

For that reason, economists consider new-home sales, which are recorded when a contract is signed, a more timely barometer of the market. A report tomorrow from the Commerce Department may show new-home sales fell in July for the third consecutive month, according to the Bloomberg survey median.

Today's report showed resales of single-family homes increased 3.1 percent to a 4.39 million annual pace. Sales of condos and co-ops climbed 3.4 percent to a 610,000 rate, the most since November.

Purchases increased in three of four regions, led by a 9.7 percent jump in the West. Sales fell 0.5 percent in the South.

Tight credit conditions and ongoing declines in residential construction will weigh on economic growth in coming months, Federal Reserve policy makers said at their Aug. 5 meeting. The Fed's quarterly survey of bank loan officers showed 75 percent had made it tougher for prime borrowers to get a mortgage, more than in the April survey.

`Worry a Lot'

``I worry a lot about what's happening in housing,'' Martin Feldstein, a member of the committee that charts American business cycles, said in an interview on Bloomberg Television last week. ``The number of negative-equity homes is exploding. Housing prices will continue to go down, driven by the large oversupply of houses and the increasing number of foreclosures.''

The number of unsold previously owned homes has piled up as some owners resist lowering prices and banks repossess more properties.

For their part, builders are working to pare the inventory of new homes. Ground was broken on the fewest new houses in 17 years in July, and permits, a sign of future construction, also fell, a report from the Commerce Department last week showed.

The S&P/Case-Shiller index of home prices in 20 metropolitan areas dropped in May, extending a string of declines that started in August 2006. June figures are due tomorrow.

``Buyers are coming back into the market,'' Tom McCormick, president of Astoria Homes, said in a Bloomberg Television interview last week. ``Remarkably low'' prices do ``seem to be bringing people in off the sidelines.''

While lower home values may be reviving interest among some homebuyers, the declines also reduce household wealth, just as job losses and borrowing costs are rising. That's contributing to a slowdown in consumer spending, the biggest part of the economy.
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Efficient Appliances Save Energy - and Money

The major appliances in your home - refrigerators, clothes washers, dishwashers - account for a big chunk of your monthly utility bill.
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And if your refrigerator or washing machine is more than a decade old, you're spending a lot more on energy than you need to.
Today's major appliances don't hog energy the way older models do because they must meet minimum federal energy efficiency standards. These standards have been tightened over the years, so any new appliance you buy today has to use less energy than the model you're replacing.

For instance, if you buy one of today's most energy-efficient refrigerators, it will use less than half the energy of a model that's 12 years old or older.

Of course, efficient appliances don't just save you money; they're good for the environment. The less energy we all use, the lower our demand on power plants, which means less pollution. The trick is to figure out which models use the least energy.

Here are some guidelines.

1. Look for the Energy Star® label.
Energy Star models are the most energy efficient in any product category, exceeding the energy efficiency minimums set by the federal government. If you remember only one rule when you shop, remember to look for the Energy Star label.
In some parts of the country, utilities and state governments even sweeten the deal by offering rebates on Energy Star-rated models. Check http://www.energystar.gov for details.

2. Use the EnergyGuide label.
Some uninformed salespeople might tell you that a model you're looking at is the most efficient because it has an EnergyGuide label. Not exactly. All new appliances must carry the EnergyGuide label, either on the appliance itself or on the packaging.
The label allows you to compare the typical annual energy consumption and operating cost of different models of any type of appliance you're thinking of buying.

3. Get the right size.
Make sure the product you're buying suits your needs. Oversized air conditioners, water heaters and refrigerators waste energy and money; in many cases they also don't perform as well.

4. Whenever possible choose appliances that run on natural gas rather than electricity.
Usually it's more efficient to burn natural gas where it's needed - in your home - than to burn it at a power plant, convert the heat to electricity and then send the electricity over wires to your house. Look for dryers, stoves and water heaters that run on natural gas.

5. Think long term.
Many of the most energy-efficient appliances cost more initially, but they'll save you money in the long run. Expect to keep most major appliances between 10 and 20 years.
A more efficient appliance soon pays for itself; lower monthly utility bills over the lifetime of the appliance will more than offset a higher purchase price.

In addition, the latest resource-efficient clothes washers and dishwashers not only save electricity, they also use a lot less water and can reduce your water bill.

Below is more specific information to keep in mind if you're in the market for any of the following major appliances.

Next: Buying Guide – Fridges and Washers
Refrigerators
If you are thinking of replacing an old appliance, the refrigerator is a good place to start. New refrigerators consume 75 percent less energy than those produced in the late 1970s. A family replacing a 1980 vintage fridge with one that meets today's standards will save more than $100 a year in utility costs.
Go one step further and buy an Energy Star-qualified model, and your new refrigerator will save you an additional 15 percent or more by employing better insulation, more efficient compressors and more precise temperature control and defrost mechanisms.

Energy-Saving Purchasing Tips:
· Refrigerators with freezers on top use 10 to 15 percent less energy than a side-by-side model of equivalent size.
· Generally, the larger the refrigerator, the greater the energy consumption. But one large refrigerator will use less energy than two smaller ones with the same total volume or a smaller fridge plus a separate freezer.

Clothes Washers
The energy efficiency of standard top-loading washers has doubled over the last two decades, mostly by decreasing the amount of water used. (Most of a washer's energy consumption goes to heating water.)
Front-loading washers have also become more readily available. They generally use less water than top-loaders because they don't have to totally submerge clothes. Their tumbling action constantly lifts water and drops it back down onto clothing.

Energy Star top-loaders, however, can be just as efficient as front loaders. Look for the EnergyGuide or Energy Star labels to compare efficiencies.

Replacing a pre-1994 washer with an Energy Star model can save a family $110 a year on utility bills. Energy Star washers use 50 percent less energy than other standard models, and only 18 to 25 gallons of water for a full-sized load, compared to 40 gallons for standard full-size washers.

Many Energy Star models also advertise lower fabric wear, better stain removal and briefer drying times.

Energy-Saving Purchasing Tips:
· Choose the right size washer. A smaller washer may be more efficient for small households. But if you have a large family and have to do multiple loads in a washer that's too small for your needs, you could lose any possible energy savings.
· Look for a washer with adjustable water levels. This gives you the option of using less water to wash small loads.
· Choose a washer with a faster spin speed. This allows more water to be removed after the wash, reducing the drying time and your dryer's energy use.
Use a gas dryer rather than an electric dryer where possible.

Dishwashers
A new dishwasher is not only more efficient than older models, but it's also better at getting dishes clean. Manufacturers no longer recommend that you pre-wash your dishes. Simply scrape the remaining food off your plates and place them in the machine as is. This will save you time and save money on your water bill.
The most efficient dishwashers use less hot water, have energy-efficient motors and use sensors to determine the length of the wash cycle and the water temperature needed to do the job.

The newest Energy Star dishwashers are 25 percent more efficient than the minimum federal standards. Replacing a pre-1994 dishwasher with an Energy Star model can save $25 a year on utility costs.

Energy-Saving Purchasing Tips:
· Choose a dishwasher with a "light wash" or "energy-saving" wash cycle. It uses less water and operates for a shorter period of time for dishes that are just slightly soiled.
· Look for dishwashers that have an energy-saving cycle that allows dishes to be air-dried with circulation fans, rather than heat-dried with energy-wasting heating coils.

Next: Buying Guide – AC and Water Heaters
Room Air Conditioners
The most efficient room air conditioners have higher-efficiency compressors, fan motors and heat-transfer surfaces than previous models. A high-efficiency unit reduces energy consumption by 20 to 50 percent.
Replacing a 10-year-old model with an Energy Star model can cut energy bills by an average of $14 a year.

Energy-Saving Purchasing Tips:
· Remember, the biggest unit isn't always the best choice, especially for small areas. A smaller unit running for a long period of time operates more efficiently and is more effective at decreasing humidity than a larger unit that goes on and off frequently.
· If you're comparing several similar units, choose the one with the highest Energy Efficiency Ratio. You can find the EER on the unit or its packaging. The minimum EER required by federal law is 9.7; the most efficient air conditioners of 2003 have an EER of 11.7.
Central Air Conditioners
If your central air conditioning system is more than 10 years old, replacing it with an Energy Star model could reduce your energy consumption for cooling by 20 percent.

Energy-Saving Purchasing Tips:
· Look for the seasonal energy efficiency ratio (SEER). Old units typically have a SEER of 6 or 7. In 2006, new standards go into effect, raising the minimum SEER for central air conditioners to 13. Energy Star models already meet the SEER 13 standard, and also perform more efficiently when it's hot.
· For maximum efficiency on the hottest days, the air conditioner should have a thermal expansion valve (TVX), and the high temperature rating (EER) on your unit should be at least 11.6.
· For optimal performance, buy a matched system of indoor unit, condenser and even thermostat.
· Get a reliable contractor to make sure your new unit is the right size for your home, and have it professionally installed. Even the most efficient system can't make up for the energy loss due to improper sizing and poor installation.
· Have your contractor make sure all your ducts are sealed and insulated. Duct tests require a fan and a pressure gauge - they cannot be done by sight.

Water Heaters
Water heating is typically the third largest energy expense in your home, accounting for about 14 percent of your energy bill.
An old water heater can operate for years at very low efficiency before it finally fails. If your gas water heater is more than 10 years old, it probably operates at less than 50 percent efficiency.

Energy-Saving Purchasing Tips:
· Calculate how much hot water your household uses at peak times. Figure that a clothes washer on hot wash/hot rinse can use about 32 gallons of hot water; a shower, 20 gallons. Washing dishes by hand can use 10 to 15 gallons, and automatic dishwashers, about 8 gallons.
· Match this figure with the "first hour rating" (FHR) on the EnergyGuide label. The FHR measures how many gallons of hot water your heater can deliver during a busy hour. Don't be misled by the size of the tank - it doesn't necessarily correlate with FHR.
· Once you've found the right FHR range for your household, check the unit's Energy Factor (EF), which rates efficiency. A high-efficiency gas model would have an EF around 0.8.
· A natural gas unit will cost less to operate than electric.

Next: Buying Guide – Electronics and More
Home Electronics
For most products, the Energy Star label is your assurance that the product will operate more efficiently than a standard model. But Energy Star TVs, audio equipment, telephones, computers and printers earn the label primarily because they draw only a small amount of power when not in use - regardless of the amount of power they consume when operating.
When buying electronics, do look for the Energy Star label, but also keep a few general caveats in mind.

Energy-Saving Purchasing Tips:
· Ink jet printers tend to be more energy-efficient than lasers.
· LCD televisions and monitors draw less power than CRT or plasma screens.
· Small lightweight power supplies tend to be more energy efficient than large, heavy transformer-based power supplies.

More Smart Shopping Tips
· Check for incentives. Some states offer rewards for buying the most energy-efficient appliances.
Connecticut and California, for example, have rebate programs that will refund part of the purchase price of certain new energy-efficient appliances. Maryland eliminates sales tax on some appliances with the Energy Star label.

Check with your local utility and the Energy Star Rebate Locator to find out if cash rebates or other incentives are available in your area, or see our state-by-state listing.

· Use the Internet. Several websites contain additional useful information. The EPA's Energy Star website has information on appliance models that carry the Energy Star label and where you can buy them.
The American Council for an Energy Efficient Economy publishes a yearly list of the most energy-efficient appliances.

And the Consortium for Energy Efficiency has information on programs promoting energy efficiency in the home.

Next: Setting the Standard
NRDC: Setting the Standard
Energy efficiency standards may not be as high profile as saving endangered species or cleaning up toxic waste, but they are a hugely important cause for environmentalists.
Since their inception, these standards have saved consumers over $200 billion -- about $2,000 per household -- while cutting electricity use 5 percent and reducing levels of pollution that come from the power plants that produce the electricity by over 2 percent.

These savings are projected to more than double over the next 20 years even without new action. If NRDC's recommendations for new and updated standards are adopted, these savings will more than triple.

NRDC's energy program has played an important role in creating the framework under which continued improvements in appliance energy efficiency have occurred. NRDC led the negotiations that crafted the National Appliance Energy Conservation Act (1987), the law that impelled manufacturers to develop today's energy-efficient appliances.

In the early 1990s, David Goldstein, co-director of NRDC's energy program, proposed the Super Efficiency Refrigerator Program, which spurred development of the new refrigerator technology from which consumers are benefiting today.

Similar programs are offered by the Consortium for Energy Efficiency. David was awarded a 2002 MacArthur Fellowship for his innovative work proving that energy efficiency makes good economic sense.

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Seven Tips for Creating Eco-Fabulous Interiors

Use these ideas to help turn any space into a stylish, inviting and eco-friendly venue, whether you're remodeling a home or designing for a special event.
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1. Decorate With Plants
Plants can act as natural air filters, removing harmful chemicals like benzene and carbon monoxide from the indoor air. And they look great too, giving your home a more natural and vibrant feel. The best plants for improving indoor air quality include the peace lily, bamboo palm and gerbera daisy.

2. Maximize Daylight
Maximizing daylight - through skylights, open shades, and south-facing windows - substitutes electrical lighting with the natural light of the sun, saving money and preventing the emission of air pollutants and greenhouse gasses.

3. Use Energy-Efficient Lighting
Compact fluorescent light (CFL) bulbs use a third of the energy of regular incandescent bulbs and last up to ten times longer. Replacing a traditional incandescent bulb with a CFL can save you more than $30 over the lifetime of the bulb and prevent the emission of air pollutants and greenhouse gases that contribute to global warming. Look for the Energy Star label.

4. Choose FSC Wood Products
Much of the wood that we buy comes from unsustainable operations in endangered forests, including the Canadian Boreal, Cumberland Plateau, and the rainforests of Borneo. The Forest Stewardship Council (FSC) is the only credible international certification organization for sustainably harvested wood and wood products. Look for the FSC label.

5. Select Efficient Windows
Windows are a significant source of heat loss in the winter and unwanted heat in the summer. Energy-efficient windows are lined with special coatings that reflect heat and provide superior insulation, keeping your home warmer in the winter and cooler in the summer. Efficient windows save money on reduced heating and cooling bills and prevent the emission of greenhouse gases. Look for the Energy Star label.

6. Opt for Low VOC Products
Many common household products, including paints, carpets and furniture, emit volatile organic compounds (VOCs) that can be harmful to human health. When buying these products, look for those with a low VOC content.

7. Buy Locally
Locally produced products travel fewer miles to their end destination, resulting in less air and global warming pollution from transportation.
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Selling a Home in Short Order - More Owners Settling For Deals

The number of troubled homeowners able to sell their houses for less than their debt on the property is increasing.
By: Sanford Nax: RISMEDIA
It’s called short selling and comes as lenders, overwhelmed with foreclosures, are more willing to make deals, and as real estate agents become more skilled in navigating the complicated transactions.

The number of houses sold in July in Fresno and Clovis through short sales-where a lender accepts less than what is owed on the loan-totaled 30, up from 19 in June. Short sales in just those two months topped the 46 in all of 2007, said Don Scordino, president of the Fresno Association of Realtors.

The story is similar in Visalia, where real estate broker Nancy Riggs said many banks are organizing short-sale divisions to handle the soaring number of requests.

A short sale is often treated as an option to avoid foreclosure. A homeowner can no longer afford the mortgage for whatever reason-perhaps the interest reset because it was one of many variable-interest mortgages approved by lenders-so he or she decides to negotiate with the bank to sell the property before foreclosure occurs.

The seller accepts an offer subject to bank approval and requests a short-sale package from the lender. That package consists of paperwork required from the seller that points to financial hardship. If accepted, the bank writes off the loss-assuming the homeowner owes more than what the house sells for-at the close of escrow as a cost of doing business.

Riggs estimated that 17% of the 800 houses for sale in Visalia are potential short sales.

Whether those homes close as short sales remains to be seen. Real estate agents say the process can be difficult, time-consuming and frustrating. By some estimates, fewer than 10% of all short-sale attempts succeed, although Realtors expect that percentage to increase.

“There is nothing short about a short sale,” said Ken Neufeld, a London Properties agent who is spending a large chunk of time trying to close two of them.

A typical short sale often includes real estate agents representing buyer and seller, a negotiator who decides the price and a third agent who presents an independent value.

And because banks are often under-staffed and overworked, paperwork is sometimes lost or directed to the wrong person. “In the two I’m working, the bank lost the offers twice,” Neufeld said. “Then they have to input it into the system and that can take three to four weeks. Then they have to appoint a negotiator,” which may not happen for a month into the process.

Buyers often get frustrated and buy another property.

That said, more lenders are willing to consider short sales to avoid any more losses. “Banks are finally getting religion and maybe catching onto the program,” Neufeld said.

A short sale often is not a lender’s first choice. “We have seen an increase in requests for short sales, but we don’t think it should be the first option for someone who intends to stay in their home,” said Dave Bradley, a Bank of America spokesman.

A bank often would rather work with homeowners in structuring some kind of workout or loan modification. Bradley said Bank of America, which recently acquired troubled lender Countrywide Financial, has committed almost 4,000 employees to help troubled borrowers and hopes to modify at least $40 billion in problem loans over the next two years.

Bradley said many customers who request a short sale don’t realize other options could be available, even though the bank attempts to contact homeowners an average of 17 times between the first late payment and foreclosure proceedings.

But workouts only succeed if the borrower has a reasonable chance of recovery.

“If there is lost income and they can’t make any type of reasonable payment, there is no conversation to be had,” said Martha Lucey, president of ByDesign Financial Solutions in Fresno, a nonprofit financial counseling service.

Thus, a short sale may be the best solution. The seller lessens the damage to his or her credit.

In addition, banks don’t have to carry an asset that is continuing to lose value, said Patrick Prince of Westland Realty & Investment in Fresno.

Prince is one of the leaders in the area when it comes to short sales, completing almost 50% of those he attempts on behalf of sellers and buyers. “It’s changing, but I don’t know if it is for better or worse,” he said. “Some banks get it and some absolutely don’t.”

He is pursuing eight short sales. He’s been trying to close one deal since March where lenders have a first and second loan, and where the mortgage insurer wants the seller, his client, to keep making payments on a $30,000 note for the next 20 years before it releases the lien.

That means the sellers would be paying $125 per month for a house they don’t live in. “They either take that or it’s foreclosure,” Prince said, uncertain what the outcome will be.

“It’s totally ridiculous, but then I’ve also had an instance where I had approval in two days from the time the package got to the right person,” he said.

Scordino said more agents are getting trained in short sales, so that will help more deals close.

Prince said a key is to price the property according to its value, not the loan amount.

“If the house is worth $300,000 and the loan is $450,000, the bank only cares about the appraisal,” he said.
Read more!

Home Prices Fall, Buyers Moving In

As house prices swoon in some outlying areas, bargain hunters are swooping in.
Bargains attract investors to outlying areas.
By: HOWARD FINE: Los Angeles Business Journal Online
Median home prices have plummeted below $160,000 in several Antelope Valley ZIP codes, and home-sales volumes in several of those areas in July nearly doubled from year-ago levels, according to figures compiled from county records for the Business Journal.

Most purchases are by first-time homebuyers, but local real estate agents report increasing numbers are by investors looking for great deals.

“We’ve had some comments from investors: ‘Anything under $115,000 or $120,000 that’s less than 15 years old, we’ll take,’ with almost no questions asked,” said Bob Stickney, general manager for Century 21/Doug Anderson & Associates in Lancaster.

Stickney said sales activity in his office is quickly approaching the levels reached in 2005, at the peak of the housing boom. About one-fourth of the clients on the buyer side are investors with no intention of living in the home but are eager for a good deal.

This surge in activity at the bargain-basement level is the key factor driving down the countywide median price. According to the figures supplied to the Business Journal by Melville, N.Y.-based HomeData Corp., L.A. County’s median price in July fell 28 percent to $420,000 from July 2007. It was the lowest median price since $409,000 in May 2004. The number of homes that sold in July in the county was down 17 percent from the same month last year.

Meanwhile, the median price of a condo was $395,000, down 12 percent from a year ago. Condominium sales volume was up 6.4 percent year over year in July.

The increase in sales of condos, which generally sell for less than single-family homes, is further evidence that sales of low-end units have picked up steam in recent months, especially in areas that have been hardest hit by distressed home sales.

At the same time, home sales in high-end neighborhoods have slowed or even fallen, with sales volume in some pricey ZIP codes on L.A.’s Westside falling about 20 percent. Prices of Westside homes in the $1 million-$2 million range have fallen about 10 percent year over year, according to one local Realtor.

The surge in low-end home sales and the slowing of high-end home sales are combining to force L.A. County’s median home price down more than normal. That’s the opposite situation from a year ago, when sales of high-end homes were propping up the median price. In fact, the median price in July 2007 was $585,000 – the peak price – even though the number of homes that sold dropped.

As a result, the recent numbers present a somewhat skewed picture, said Steve Cauley, director of research at the Ziman Center for Real Estate at UCLA.

“I doubt that most homes that are put on the market today are worth 30 percent less than if they were put on the market a year ago,” Cauley said. “It’s this shift in transactions from the high end to the low end that’s helping to skew the median.”

This might be good news for bargain hunters and some first-time homebuyers, but it underscores the problems that some neighborhoods are experiencing with lots of foreclosed homes and collapsing prices, according to Christopher Thornberg, principal with Beacon Economics in Los Angeles. Also, there’s little indication that middle-class homes are out of their funk.

“The market isn’t moving – except for distressed sales where the bottom feeders are coming in,” Thornberg said.

Exploding numbers of distressed properties – where the homes are foreclosed by lenders, or mortgage debt exceeds a property’s market value – are driving activity in the Antelope Valley.
About 55 percent to 60 percent of sales there are hardship cases, Stickney said. Many other units that show up in the sales numbers are in recently constructed housing tracts, where builders are unloading homes at sharply reduced prices.

He said most of his clients are renters looking to buy their first home. As prices soared, they couldn’t afford to buy. Now, they see the prospect of their monthly mortgages being less than their current monthly rental payments.

The allure is even sweeter if the prospective homebuyer qualifies for a Federal Housing Administration loan that requires only a 3 percent down payment and the seller is willing to kick in most of the closing costs. On a $120,000 home, a 3 percent down payment is only $3,600.

As an example of what’s happening in the Antelope Valley, the median home price plunged 43 percent between July 2007 and July 2008 to $151,000 in Lancaster’s 93534 ZIP code, which covers the downtown core and consists of largely older and cheaper housing stock. Home sales volume, meanwhile, shot up 104 percent to 53 units.

Newer developments in Lancaster and Palmdale are also declining in price. On Palmdale’s east side, the 93550 ZIP code, the median price has fallen 46 percent year-over-year to $169,000, while home sales skyrocketed by 91 percent to 90 units.

“This median price range has finally dipped to the point where the median income earner in the Antelope Valley can afford it and they are coming out of the woodwork,” said Mark Troth, a Realtor with Troth Realtors/GMAC Real Estate and chairman of the Antelope Valley Chamber of Commerce.

Investors return

The biggest surprise for Stickney and other Antelope Valley Realtors is the speed with which investors have come back into the market. They expected it would be several years before buyers ventured back.

But prices have fallen so far so rapidly that deals are appearing that look too good to pass up. And not just in the Antelope Valley, but in other parts of the state hard hit by the mortgage crisis and falling real estate values.

For example, in San Diego, Silver Portal Capital LLC, a small real estate investment bank, is raising $150 million to buy foreclosed properties, according to the Wall Street Journal. Most of the money is coming from pension fund advisers and other investors.

Robert Kleinhenz, deputy chief economist for the California Association of Realtors, said his association is seeing higher levels of buyer interest in areas of the state hardest hit by the mortgage crisis.

“The Central Valley, northern Santa Barbara County, the Inland Empire, they’re all seeing the same thing,” he said.
Meanwhile, sales in high-end neighborhoods started to soften after last summer’s credit crunch, when it became much more difficult to obtain jumbo mortgage loans, while activity in low-end markets such as the Antelope Valley or the Inland Empire has picked up only recently, he said.

On the Westside, the softening of high-end neighborhoods has become apparent to Realtors, starting first with homes in the $1 million-$2 million range and moving up the price chain.

“In the $1 million price range, our year-over-year prices are probably off about 10 percent,” said Mike Nourmand, president of Nourmand & Associates Realtors in Beverly Hills.

Sellers in this price range are now having to give more and larger “credits” for minor repairs or improvements on their properties. Nourmand said that thanks to more stringent loan underwriting standards, these credits must now be factored into the closing price. That has contributed to the median price decline.

Looking ahead, both Nourmand and Kleinhenz expect more softening in the high-end market.
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Californians to Get Refunds From Kivckback Suit

Hundreds of thousands of Californians are expected to share in a $35 million settlement of a lawsuit that accuses some of the nation’s largest real estate brokers of taking kickbacks.
REALTOR®Magazine
A federal judge in Los Angeles still must sign the agreement.

The lawsuit accuses brokers from an array of major companies, including Coldwell Banker, Century 21, ERA and RE/MAX, of accepting kickbacks for referring business to Property I.D. Corp. Property I.D., is a Los Angeles-based company that provides fire, floods, earthquake, and landslide hazard reports.

The suit alleges that brokers received $25 for every client steered to straw companies set up to disguise the kickbacks.

Under the settlement terms announced Friday by the U.S. Department of Housing and Urban Development, the firms denied wrongdoing but agreed to give customers who bought the reports from 1996 to 2006 a full refund – typically about $100.
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Should you buy a home now?

The drop in prices may mean it's time to jump in. Or is it too soon? Experts offer pros and cons.
By: Peter Y. Hong: Los Angeles.com
Southern California median home sale prices are down about 30% from their peak. That's about as far as they fell in the 1990s real estate downturn, and enough of a decline to have many asking: Is it time to buy? Some are already answering with their checkbooks. In the inland areas where prices have crashed hardest, buyers are slowly returning. But many of those who study housing markets say the worst is yet to come for real estate. Buy now, they warn, and you'll regret it as prices continue falling. Others contend that prices are low enough that renters who aspire to own should buy now so they can start building their equity. Predicting price trends is a dodgy business, and there's no one right answer for everyone. But if you are thinking about buying now, here are some pros and cons to consider.

Buyer beware

The main argument against buying a home now is that values are still spiraling downward. Stay on the sidelines and you'll be able to buy that dream home for a much lower price than now - about 25% less in Los Angeles County, predicts Celia Chen, director of housing economics for Moody's Economy.com.

Chen bases that guess on several factors, including the high inventory of unsold homes and the gap between current prices and income.

During the housing boom that began in the late 1990s, the relationship between home prices and incomes grew increasingly out of whack. Mortgage lenders offered subprime loans with low introductory teaser rates, as well as "no-documentation" loans that didn't even verify a borrower's income.

This allowed people to buy more expensive homes than they could afford, helping inflate values. But many of those loans have gone into default as teaser rates expired and borrowers couldn't make their payments. And lenders are no longer handing out loans to people who can't demonstrate their ability to repay them.

That has made the relationship between home values and incomes relevant again, economists say.

More than half of the adults in the Los Angeles metropolitan area own their homes. But because of the price run-up that began in the late 1990s, fewer than 11% of adults in the L.A. area earn enough to buy a median-priced home of $412,000, according to a National Assn. of Home Builders index.

As recently as 2001, when the median was lower, that figure was about 38%.

Los Angeles economist Christopher Thornberg believes that home prices will stabilize when homes are affordable to about 25% of the adult population. For that to happen in Southern California, home prices would have to come down 20% to 35% from their current levels, Thornberg said.

"There's no way in hell the house you buy now will be more expensive next year," he said.

Home prices are also relatively high compared with rents. The ratio of home prices to annual rents in the Los Angeles area was 20 as of March 31, meaning the median home sale price was 20 times a year's rent for a comparable property, according to Moody's Economy.com.

The 15-year average ratio in Los Angeles is 16.4.

It's true that rent checks don't generate returns. But renters can take the money they would have spent on a down payment and invest it in stocks, mutual funds or other investments (20% down on the median-priced Los Angeles home would be about $82,000) and are spared the costs of home maintenance and repairs.

Another reason not to buy is the current economic uncertainty. The mortgage payment that looks affordable now will be harder to make if you lose your job.

"You want to have enough savings or cash flow to weather a downsizing in the workforce," said Judi Martindale, a San Luis Obispo financial planner. If not, she said, keep renting.

Those who would depend on their homes as a form of retirement savings also should hold off, Martindale said. A house is not liquid, and relatively few who plan to generate cash by downsizing to a cheaper home in the future actually do so, she said.

"It's very difficult for people to move down" when the time comes, she said.

Why wait?

Those who say now is a good time emphasize the benefits of homeownership. The market may or may not be near the bottom, but take that off the table, these people say. Instead, consider the advantages of owning versus renting.

As long as you can afford your mortgage, for instance, you won't be evicted. With a fixed-rate mortgage, your payments remain the same over time, while rents generally rise. Over time, you can build equity in your home and own it free and clear - and then won't have to worry about monthly payments at all.

There's also the advantage of living in an environment that you control, where you can remodel or decorate as you please, without having to seek a landlord's permission.

"Houses are lifestyle assets, not investments," said Brent Kessel, a Pacific Palisades financial planner. Kessel believes that those waiting for a market bottom may be approaching homeownership the wrong way. As long as one stays within one's means, the financial risks of homeownership diminish over time.

"Make a purchase decision based on your lifestyle, not the market," he advises.

Margaret Smith, a Claremont financial planner and former university economist, takes it a step further, saying that a home is almost always a smart investment, even if values do temporarily decline.

Smith and her husband, Gary Smith, a Pomona College economist, say buying is practically a sure bet when you would pay less for a monthly mortgage and other home costs than what it would cost to rent the home.

They call that monthly savings the "home dividend" and say it will offset a short-term decline in a home's value. The monthly rent savings not only is money in your pocket but also can be invested elsewhere.

Even if your mortgage payment and expenses start out higher than comparable rent, the payment becomes relatively cheaper as rents increase - provided it is a fixed-rate loan. "You can certainly turn a negative into a positive over time," Margaret Smith said.

In addition, mortgage interest and property taxes can be deducted from income taxes, potentially shaving thousands off annual home costs.

Even though mortgage rates have crept up, lower prices mean you could actually pay less monthly for a home than you would have a few months ago. The typical monthly mortgage payment in Southern California for a home purchased in June was estimated at $1,671, according to DataQuick. That's based on the median price for Southern California and a 20% down payment. That was down 35% from the same month last year and, adjusted for inflation, was the lowest in five years. That monthly payment does not include taxes, insurance and maintenance costs.

By Smith's formula, the home dividend for someone who buys a $355,000 home (the Southern California median) would be nearly $1,000 after one year compared with renting a home for $2,000 a month.

That is, the buyer - even with the added expenses of homeownership - would spend less on his or her housing costs than rent because of mortgage interest deductions.

"Stop fixating on short-term price moves; think about long-term rent savings," Gary Smith said.

If someone delays buying a house that would produce rent savings to hold out for a better price, the delay would mean losing those savings - and the loss could be compounded if prices went up instead.

"Buying a house is risky, but waiting is risky too," Gary Smith said.

Words to the wise

Whether you decide to buy a house now or wait awhile, real estate experts say you should keep in mind the following:

* Don't count on price appreciation.

If you can't afford a house now, don't presume you'll be able to tap an increase in your home equity to refinance it - that's a mistake made by many people who are now in foreclosure.

Likewise, don't divert retirement savings to buy more house than you can afford, expecting to make up the shortfall later through a jump in home values.

* Don't expect a house to make you financially stable.

Experts advise home buyers to have a steady and reliable income stream; don't buy in the belief that simply owning a home will provide financial stability.

* Don't buy if you think you may be moving soon.

If you're not sure how long you are going to live in a house, move slowly. If you are forced to sell after a short time, any price appreciation may be outweighed by closing costs and agent commissions - and prices could decline.

Typically, people should avoid buying a home unless they plan to live in it for at least five years, advises Richard Green, director of USC's Lusk Center for Real Estate, but a safer target these days may be seven or eight years.

Green, who recently relocated from Washington, D.C., is wrapping up a home purchase in Pasadena. He's not worried about prices falling further because he and his wife plan to stay at least 20 years.

"This was the house we wanted to live in," he said. "A house can be like a car, something you use and enjoy and have for a while. Whether it goes up or down in value may not be so important."

Even Thornberg sees that there may be good reasons to buy now, regardless of price.

"Maybe you have a baby coming up," he said, "and don't want to be in an apartment."
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Housing rescue on track to pass Senate by Saturday

The Senate cleared the last hurdle Friday to passing a housing rescue aimed at sparing hundreds of thousands of homeowners from foreclosure and bolstering troubled mortgage giants Fannie Mae and Freddie Mac.
By: JULIE HIRSCHFELD DAVIS: AP: Associated Press
The 80-13 test vote showed broad support for the election-year package and put it on track to pass the Senate by Saturday. The White House says President Bush will sign it, having earlier dropped a threat to veto it over $3.9 billion in neighborhood grants.

The bill — regarded as the most significant housing legislation in a generation — is designed to help an estimated 400,000 homeowners escape foreclosure by letting them refinance into more affordable loans backed by the Federal Housing Administration.

It was set to clear Congress as a private company reported that the number of households facing the foreclosure process more than doubled in the second quarter of 2008 compared with a year ago. Irvine, Calif.-based RealtyTrac, Inc., said that 739,714 homes received at least one foreclosure-related notice during the quarter, or one in every 171 U.S. households.

"The American people can begin to see they're going to get some relief and some help from their Congress," said Sen. Christopher J. Dodd, D-Conn., the Banking Committee chairman.

The plan gives the Treasury Department power to spend unlimited amounts to prop up Fannie and Freddie, should they need it, to calm investor fears about their financial stability at a time of rising foreclosures and falling home values. Treasury Secretary Henry M. Paulson calls the authority a "backstop" which he has no intention of using.

Paulson's request for the emergency power helped forge a bipartisan deal on the legislation, which also creates a new regulator with tighter controls on the government-sponsored mortgage firms — something Republicans have long sought.

Democrats also won key concessions as part of the compromise, including a permanent affordable housing program to be financed by Fannie and Freddie profits and the $3.9 billion in grants for buying and fixing up foreclosed properties in neighborhoods hit hardest by the housing crisis.

Many conservative Republicans are vehemently opposed to the foreclosure rescue, which they call a bailout of irresponsible homeowners and unscrupulous lenders. They are equally furious about the help for Fannie Mae and Freddie Mac, companies they say enjoy lavish profits in good times and wield their outsized political clout to resist regulation while depending on the government to bail them out should they falter.

Sen. Jim DeMint, R-S.C., was single-handedly delaying a final vote on the package until Saturday unless Democrats allowed a vote on barring the two firms from lobbying and making political contributions.

Dodd called Republican efforts to delay the measure's passage "tragic" given how many people are losing their homes each day.

More than three-quarters of Republicans voted against the measure when it passed the House on Wednesday.
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Confessions of a Subprime Lender: 3 Bad Loans

Subprime lender reveals scams and bad loans.
By: Les Christie: CNNMoney.com
A mortgage lender talks about scams and bad loans he was part of.

In his new book, author and ex-lender Richard Bitner owns up to some of his worst mistakes, offering an inside look at how his firm issued bad mortgages.

Richard Bitner opened his own mortgage shop in 2000, and had the good fortune to bail out of the business in 2005, before the housing crisis hit.

He saw the shoddy lending practices that got us into this crisis first hand, and has chronicled them in his book, "Confessions of a Subprime Lender." By the time he quit, said Bitner, "Lending practices had gone from borderline questionable to almost ludicrous."

He and his two partners ran Dallas-based Kellner Mortgage Investment, a small subprime lender that issued about $250 million in loans annually. The firm worked through independent mortgage brokers, and then sold the loans it closed to investors or to larger lenders, such as Countrywide Financial, which was recently bought by Bank of America.

Bitner, like so many other subprime lenders, was drawn to the field by the fat profits it promised - these loans paid three to five times more than prime loans. But, says the 41 year-old married father of two, he also took pride in the idea that he was helping people with damaged credit become homeowners.

Still, things eventually got out of control.

The Last Straw

One of Bitner's last clients, which he says was turning point for him, was Johnny Cutter and his wife Patti, from South Carolina. The deal illustrated what had become the fundamental problem with subprime lending: Nobody was bothering to determine whether borrowers could actually afford to make their payments. And so the Cutters, like millions of others, became a foreclosure waiting to happen.

"What really got to me," said Bitner, "is that we [usually] put people in positions to not fail. This loan didn't fit that."

The Cutters wanted a loan to buy a newly built, 1,800 square-foot house, but had been turned down for a mortgage twice because of bad credit. After that, they scrimped for three years and saved enough for a 5% down payment.

But, they still had only $2,200 in combined net monthly income, poor credit and employment histories, almost zero savings and no history of even paying rent. Their mortgage payment, property taxes and insurance came to $1,500, leaving them just $700 a month for all other expenses.

Patti fell ill right after the closing and the couple never made a single payment. Since the Cutters defaulted immediately, Kellner Mortgage was contractually obligated to buy the loan back from the investor it was sold to. That was a huge expense for the small lender.

When Bitner reviewed the loan to find out where his company went wrong he was shocked to see that, technically, no mistakes were made.

Neither the borrower nor the mortgage broker did anything dishonest or fraudulent to obtain the loan. The home's appraised value was correct, and the income stated on the application was accurate.

But the fact was that the Cutters simply didn't have enough income to handle this mortgage - the loan never would have been approved a few years earlier.

Their debt-to-income ratio was 54%, way higher than the 36% that most mortgage lenders recommend. But Kellner Mortgage made the loan because the firm knew that loose investor guidelines meant that the mortgage could be resold, at a profit of course.

"We were ultimately driven by the investor guidelines," said Bitner. "If it fit we closed the loan. It was an indication of how far the industry was willing to go."

In the end, the Cutter deal cost Kellner Mortgage $90,000.

Pump and Dump

In another highly regrettable deal, Bitner's company was simply scammed.

A criminal crew found a house, bought it for $140,000, and then resold it to a straw buyer for way more than it was worth - $220,000. To get a mortgage, the buyer used an appraisal for an entirely different, and much more valuable, property.

"The broker, buyer, appraiser, and realtor all conspired to perpetrate this fraud," said Bitner. Indeed, just about all the documentation was falsified.

The group collected the $220,000, and, minus their $140,000 outlay, disappeared with $80,000.

Kellner Mortgage wasn't aware of any problem until the investor that bought the loan set about investigating when it went unpaid. The investor sent Kellner a letter detailing the ruse and demanding that Bitner's firm make good on the loan.

Said Bitner, "You read through this letter and you see that the income statement was phony and the appraisal was on another house and you say to yourself, 'Am I a moron?'"

That cost the company about $100,000.

The Whole Truth

Of course, brokers dying to make deals also played a big role in pushing bad loans. Often they withheld or misrepresented information lenders needed to accurately assess a loan's risk.

"With so much money involved, people were willing to fudge to make deals work," Bitner said.

The Robinson's broker was a perfect example. The couple, who were divorcing, wanted to refinance their home, which had increased in value, and to take out $25,000 of that added home equity as cash. The plan was that Mrs. Robinson would keep the house and Mr. Robinson would get the cash.

Although the Robinson's told their broker about their split, the broker chose to not inform Kellner Mortgage of that detail, which would have been a deal breaker. Mrs. Robinson could never qualify for the mortgage based on her income alone, and indeed she defaulted soon after the loan went through, costing Bitner's company $75,000.

While dishonesty was rampant, the mortgage brokerage industry also suffered from plain incompetence. Many of the new brokers flooding the industry just knew the basics.

Bitner said his loan coordinator at Kellner, Annie Nguyen, once told him, "I had a loan officer ask me if we really needed an appraisal before closing. I thought he was joking."

Clearly, he wasn't.

The lack of professionalism, the crazy loans, the finagle factor and the open fraud finally drove Bitner from the business. Although he escaped the worst of the mortgage meltdown, the company he founded did not; it folded in early 2007.

You can find it memorialized on the Implode-O-Meter, an online list of mortgage lenders that have shut down since late 2006. Look for number 44.
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Fed adopts plan to curb shady mortgage practices

The Federal Reserve has adopted rules to give home buyers more protection from the types of shady lending practices that have contributed to the housing crisis and propelled foreclosures to record highs.
By: JEANNINE AVERSA: AP Associated Press
Chairman Ben Bernanke and his central bank colleagues approved a plan Monday that would crack down on dubious lending practices that have hurt many of the riskiest "subprime" borrowers — people with tarnished credit histories or low incomes.

In that regard, the plan would:

• bar lenders from making loans without proof of a borrower's income.

• require lenders to make sure risky borrowers set aside money to pay for taxes and insurance.

• restrict lenders from penalizing risky borrowers who pay loans off early. Such "prepayment" penalties are banned if the payment can change during the initial four years of the mortgage. In other cases, a penalty can't be imposed in the first two years of the mortgage.

• prohibit lenders from making a loan without considering a borrower's ability to repay a home loan from sources other than the home's value. The borrower need not have to prove that the lender engaged in a "pattern or practice" for this to be deemed a violation. That marks a change — sought by consumer advocates — from the Fed's initial proposal and should make it easier for borrowers to lodge a complaint.

"Rates of mortgage delinquencies and foreclosures have been increasing rapidly lately, imposing large costs on borrowers, their communities and the national economy," Bernanke said.

"Although the high rate of delinquency has a number of causes, it seems clear that unfair or deceptive acts and practices by lenders resulted in the extension of many loans, particularly high-cost loans, that were inappropriate for or misled the borrower," he added.

For all mortgages, the plan would require advertising to contain additional information about rates, monthly payments and other loan features, and it would curtail certain deceptive or misleading advertising practices.

Other practices also would be clamped down on. Lenders, for instance, have to credit a mortgage payment to the homeowner's account on the day it is received. And, brokers and others are forbidden from "coercing or encouraging" an appraiser to misrepresent the value of a home.

Consumer groups initially complained that the new rules are not strong enough. Lenders worry they are too tough, could limit mortgage options for people and made it harder for some to obtain financing.

The new lending rules may not get a test for some time because there are fewer home buyers these days, given all the problems in the housing and credit markets. Also, some of the shady practices — along with some lenders — have not survived, felled by the mortgage meltdown.

"Clearly this is closing the barn door after the fact," said Susan Wachter, a professor of real estate and finance at the University of Pennsylvania's Wharton School of Business. Yet, she said, "this is a very important move. It absolutely will make a difference going forward."

Much will hinge on effective enforcement.

The plan would apply to new loans made by thousands of lenders, including banks and brokers. It would not cover current loans.

Those different lenders fall under a patchwork of regulators at the federal and state levels. So it will be up to each of these authorities to enforce the new provisions.

Fed Governor Randall Kroszner, the central bank's point person on the new rules, said the Fed's goal was to protect borrowers from unfair or deceptive practices while also not impeding the flow of credit.

The Fed's rules, he said, should "better protect consumers, while preserving their access to credit as they make some of the most important financial decisions of their lives."
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Government shuts down mortgage lender IndyMac

IndyMac Bank's assets were seized by federal regulators on Friday after the mortgage lender succumbed to the pressures of tighter credit, tumbling home prices and rising foreclosures.
By: Alex Veiga: AP Associated Press
Office of Thrift Supervision steps in and closes IndyMac Bank; FDIC takes over operations.

IndyMac Bank's assets were seized by federal regulators on Friday after the mortgage lender succumbed to the pressures of tighter credit, tumbling home prices and rising foreclosures.

The bank is the largest regulated thrift to fail and the second largest financial institution to close in U.S. history, regulators said.

The Office of Thrift Supervision said it transferred IndyMac's operations to the Federal Deposit Insurance Corporation because it did not think the lender could meet its depositors' demands.

IndyMac customers with funds in the bank were limited to taking out money via automated teller machines over the weekend, debit card transactions or checks, regulators said.

Other bank services, such as online banking and phone banking were scheduled to be made available on Monday.

"This institution failed today due to a liquidity crisis," OTS Director John Reich said.

The lender's failure came the same day that financial markets plunged when investors tried to gauge whether the government would have to save mortgage giants Fannie Mae and Freddie Mac.

Shares of Fannie and Freddie dropped to 17-year lows before the stocks recovered somewhat. Wall Street is growing more convinced that the government will have to bail out the country's biggest mortgage financiers, whose failure could deal a tremendous blow to the already staggering economy.

The FDIC estimated that its takeover of IndyMac would cost between $4 billion and $8 billion.

IndyMac's collapse is second only to that of Continental Illinois National Bank, which had nearly $40 billion in assets when it failed in 1984, according to the FDIC.

News of the takeover distressed Alan Sands, who showed up at the company's headquarters in Pasadena, Calif., to find out when he could withdraw his funds.

"Hopefully the FDIC insurance will take care of it," said Sands, of El Monte, Calif. "I'm also kind of kicking myself for not taking care of this sooner, sooner as in the last couple of days."

A couple of dozen customers could be seen outside the building, reading fliers handed out by FDIC staff. The agency set up a toll-free number for bank customers to call.

IndyMac Bancorp Inc., the holding company for IndyMac Bank, has been struggling to raise capital as the housing slump deepens.

IndyMac had $32.01 billion in assets as of March 31.

A spokesman for the lender referred media queries to the FDIC.

The banking regulator said it closed IndyMac after customers began a run on the lender following the June 26 release of a letter by Sen. Charles Schumer, D-N.Y., urging several bank regulatory agencies that they take steps to prevent IndyMac's collapse.

In the 11 days that followed the letter's release, depositors took out more than $1.3 billion, regulators said.

In a statement Friday, Schumer said IndyMac's failure was due to long-standing practices by the bank, not recent events.

"If OTS had done its job as regulator and not let IndyMac's poor and loose lending practices continue, we wouldn't be where we are today," Schumer said. "Instead of pointing false fingers of blame, OTS should start doing its job to prevent future IndyMacs."

The FDIC planned to reopen the bank on Monday as IndyMac Federal Bank, FSB.

Deposits are insured up to $100,000 per depositor.

As of March 31, IndyMac had total deposits of $19.06 billion.

Some 10,000 depositors had funds in excess of the insured limit, for a total of $1 billion in potentially uninsured funds, the FDIC said.

Customers with uninsured deposits could begin making appointments to file a claim with the FDIC on Monday. The agency said it would pay unsecured depositors an advance dividend equal to half of the uninsured amount.

During a conference call with reporters, FDIC Chairman Sheila C. Bair said the agency would cover all insured deposits and then try to recover its costs by selling IndyMac's assets.

"We anticipate trying to market the institution as a whole bank," Bair said. "How much money we derive from that will depend on who gets paid what."

Holders of unsecured IndyMac debt may not fully recover their investment, Bair said.

"Generally if a creditor is secured, they are at the top of the claims priority," she said. "If they are unsecured, they're pretty low on the claims priority and probably will take some type of haircut with this, but we have not had a chance to do a thorough analysis to know ... how extensive those losses will be."

IndyMac spent the last two weeks trying to reassure customers that it was not near default.

On Monday, IndyMac announced it had stopped accepting new loan submissions and planned to slash 3,800 jobs, or more than half of its work force -- the largest employee cuts in company history.

In the letter to shareholders, IndyMac Chairman and Chief Executive Michael W. Perry said the drastic measures were made in conjunction with banking regulators to improve the company's financial footing and "meet our mutual goal of keeping Indymac safe and sound through this crisis period."

The plan was supposed to generate roughly $5 billion to $10 billion per year of new loans backed by government-sponsored mortgage companies, Perry said at the time.

But the run on its deposits ultimately short-circuited the strategy, prompting regulators to take action Friday.

Associated Press writer Raquel Maria Dillon in Pasadena contributed to this report.

FDIC IndyMac page: http://www.fdic.gov/bank/individual/failed/IndyMac.html

Toll-Free Customer line: 1-866-806-5919.
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