Maybe It’s Time to Buy That First House

Time to buy a first home?
Now could be the right time to buy a first home.
By: RON LIEBER: yahoo.com newyorktimes.com
With house prices and mortgage rates down, the time may be right to buy a first home.
Five or 10 years from now, when the financial crisis has ended and housing prices are up smartly once more, we will look in the rearview mirror and realize that we missed a golden age for first-time home buyers.

Then, everyone who sat on their down payment savings accounts for a few years too long will kick themselves for not taking advantage of what may turn out to be the buying opportunity of a lifetime for those who can qualify for a mortgage.

Unfortunately, we do not know when this golden age will begin, because we will be able to identify a bottom to the housing market only with the benefit of hindsight. But as it does with the stock market, the moment will probably arrive when everyone is feeling the most pessimistic.

That moment is certainly getting closer. Housing prices have fallen drastically from their peak levels in many areas of the country. Rates on 30-year fixed-rate mortgages are already close to 5.5 percent, and this week there were suggestions that the federal government might try to drive them down to 4.5 percent, a truly incredible figure to be able to lock in for three decades.

Meanwhile, first-time home buyers have the same advantage they have always had, which is that they do not have to sell their old place before buying a new one. That is an added advantage in areas where many available houses simply are not moving, because the people trying to sell them will not be bidding against you.

If you’re hoping for a recovery in the housing market, you ought to be cheering on the first-time home buyers. When they purchase homes, their sellers are free to move on or move up, stimulating further sales.

But if you are a potential first-time buyer yourself, or lending or giving the down payment to one, you are probably as frightened as you are tempted by all the “For Sale” signs that have become “On Sale” signs. So let’s quickly review some of the still-grim pricing data in certain areas — and consider the reasoning offered up by first-time buyers who have forged ahead anyhow.

As is always the case with real estate, much depends on location. One study, “The Changing Prospects for Building Home Equity,” tries to predict where today’s first-time buyers in the 100 biggest metropolitan areas may actually have less home equity by 2012 as a result of continued price declines. The verdict was that buyers in 33 of the markets could see a decline by 2012, including potential six-figure drops on an average home in the New York City, Los Angeles, San Francisco and Seattle metropolitan areas.

This is obviously scary. (I’ve linked to the study, a joint effort of the Center for Economic and Policy Research and the National Low Income Housing Coalition, from the version of this article at nytimes.com/yourmoney.) It’s worth noting, however, that these predictions came before the government made its most recent move to reduce borrowing costs.

Also, the price projections in the study are based, in part, on the fact that the ratio of purchase prices to annual rents is still higher in many areas than the historical average, which is roughly 15 times rents. While past figures may well have some predictive value, I have never been convinced that first-time buyers compare a home that they could own and one that they would rent in purely or even primarily economic terms.

When Jaime and Michael Proman moved this fall to Minneapolis, his hometown, from New York City, they craved a different sort of life after two years together in a 450-square-foot studio apartment. “We didn’t want a sterile apartment feel,” said Mr. Proman, who is 28 (his wife is 26). “We wanted something that was permanent and very much a reflection of us.”

The fact is, in many parts of the country there are few if any attractive rentals for people looking to put down roots and enjoy the sort of amenities they may spot on cable television home improvement shows. Comparing a rental with a place that you may own seems almost pointless in these situations, especially for those who are now grown up enough to want to make their own decisions about décor without consulting the landlord.

Still, for anyone feeling the urge to buy, a number of practical considerations have changed in the last year or two. The basics are back, like spending no more than 28 percent of your pretax income on mortgage payments, taxes and insurance. Even if a lender does not hold you to this when you go in for preapproval, you should hold yourself to it.

You will also want to start now on any project to improve your credit score because it may take several months to get it above the 720 level that qualifies you for many of the best mortgage rates.

John Ulzheimer, president of consumer education for credit.com, a consumer credit information and application site, suggests starting to pay down and put away credit cards months before you apply for a loan. That is because the credit scoring system could penalize you if you use a lot of credit each month, even if you always pay in full. Also, check your three credit reports (it’s free) at annualcreditreport.com and dispute errors.

While no one can easily predict the likelihood of losing a job, Friday’s startling unemployment figures suggest the need for caution if you think you might be vulnerable. A. C. Panella, who teaches communications at Pasadena City College in California, waited until she had a tenure-track job before buying a home in the Highland Park section of Los Angeles with her partner, Amy Goldman, a lawyer for a nonprofit organization. “We could afford the mortgage payment on one salary, were something to come up,” Ms. Panella, 31, said. “It’s really about being able to stay within our means.”

For many first-time home buyers, that philosophy stretches to the down payment, too. Ms. Panella and her partner put down 20 percent when they bought their home in September, as did the Promans when they bought their home in the Lowry Hill neighborhood of Minneapolis.

Alison Nowak, 29, put just 3 percent down on a Federal Housing Administration-backed loan last month when she and her partner, Lacey Mamak, bought a $149,900, 800-square-foot home several miles south of where the Promans live. “Anything that is an opportunity also has a bit of risk,” she said. Her house was in foreclosure before a plumber bought it and fixed it up. “One way we mitigated it was that we bought a really tiny house in a very good neighborhood.”

One other strategy might be to buy new instead of used. Ian Shepherdson, chief United States economist for the research firm High Frequency Economics, says he believes that a steep drop-off in inventory of new homes is coming soon, thanks to a rapid decrease in home builder activity.

Since prices generally soften in the winter, it may make sense to start looking seriously once the mercury bottoms out. “If you look at new developments next spring, you may not have the choice you thought you would have or be in the bargaining position you thought you would be,” Mr. Shepherdson said. Also, if you wait after June 30, you will miss out on a $7,500 federal tax credit for income-eligible first-time home buyers that works like an interest-free loan.

Finally, allow yourself to consider how it would feel if you bought and then prices dropped another 10 or 15 percent. It might not bother you if you plan to stick around. Plenty of people seem to be making a longer commitment to their homes. According to a survey that the National Association of Realtors released last month, typical first-time buyers plan to stay in their home 10 years, up from 7 last year.

Perhaps people are more aware that they will not be able to build equity as rapidly as others did in the real estate boom. Or they simply have more confidence in hard, hometown assets now than in other markets.

“We wouldn’t let another decline bother us,” said Michael Proman. “You can never time a bottom. This is a long-term investment for us, and it truly is the best investment we have in our portfolio right now.”
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Bernanke urges action to halt foreclosures

Federal Reserve Chairman Ben Bernanke on Thursday urged more aggressive steps to halt home foreclosures and said government-funded programs could help strapped homeowners.
By: Mark Felsenthal: Reuters.com
"Despite good-faith efforts by both the private and public sectors, the foreclosure rate remains too high, with adverse consequences for both those directly involved and for the broader economy," he said at a Fed conference on housing and mortgage markets. "More needs to be done."

Bernanke said evidence that homeowner equity is an important determinant of default rates points to a need to write down loan principal to help people stay in their homes.

"Principal write-downs may need to be part of the toolkit that servicers use to achieve sustainable mortgage modifications," he said.

The U.S. economy has been in recession since December 2007, experts determined this week, with little hope for a speedy recovery as losses and defaults continue to roil housing and financial markets.

Bernanke painted a grim picture of strains for homeowners. As many as 20 percent of borrowers owe more than their homes are worth, he said. Lenders appear to be on track for 2.25 million foreclosures in 2008, compared with an annual pace of 1.0 million before the crisis, he added.

Government rescue efforts to date have emphasized stabilizing financial markets with capital infusions aimed at restoring bank health. But those measures have failed to stimulate any significant rebound in lending, and momentum is growing for relief for strapped homeowners.

Bernanke said that steps that stabilize the housing market will help stabilize the broader economy.

The Fed chairman said a number of proposals, all using public funds, hold promise for slowing foreclosure rates.

These include a Federal Deposit Insurance Corp plan that would reward participating lenders by sharing the cost of defaults on restructured loans. The FDIC, the bank regulatory agency that manages the fund that insures bank deposits, says the plan would prevent 1.5 million foreclosures.

The plan has the merits of standardizing the loan restructuring process and of keeping the restructured loans in the hands of the company collecting payments, meaning the government would only be involved only when a re-default occurs, he said.

Bernanke also said a program aimed at putting delinquent borrowers into new home loans insured by the Department of Housing and Urban Development's Federal Housing Administration might attract more participants if the Treasury Department bought securities issued by Ginnie Mae.

Those purchases could bring down the interest rate for those loans, currently around the relative high rate of about 8.0 percent, but would require Congress to raise the federal debt ceiling, he said.

Other proposals that have potential include having the government share the cost of reducing monthly payments for borrowers or buy delinquent or at-risk mortgages in bulk and refinance them through the FHA, Bernanke said.

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U.S. Eyes Plan to Lift Home Sales

Treasury Considers Encouraging Banks to Offer Mortgages at Rates as Low as 4.5%
By: DEBORAH SOLOMON and DAMIAN PALETTA: wsj.com
The Treasury Department is considering a plan to revitalize the U.S. home market that would push down interest rates for loans to purchase a home, according to people familiar with the matter.

The plan, which is in the development stage, would temporarily use the clout of mortgage giants Fannie Mae and Freddie Mac to encourage banks to lend at rates as low as 4.5%, more than a full point lower than prevailing rates for standard 30-year fixed-rate mortgages.

Government officials are under pressure to address falling home prices and mounting foreclosures, which underpin the financial crisis. The Treasury has struggled for months to come up with a plan that would ease the strains on borrowers without appearing to bail out homeowners and lenders.

The plan remains in discussion and may not be made final before the Bush administration's term ends in January. President-elect Barack Obama has said repeatedly that his administration would do more than the current one to help struggling homeowners but he has not offered specifics.

Treasury views this plan as potentially halting the slide in home prices by enabling borrowers to afford bigger loans, thus increasing demand and pushing up home values. The lower interest rates would be available only to borrowers who are buying a home, not those refinancing a mortgage.

Borrowers would have to qualify for a mortgage guaranteed by Fannie, Freddie or the Federal Housing Administration. Those guarantees apply to loans where borrowers can document their income and afford their monthly payments, steering the government away from backing loans considered risky.

The Treasury and the Federal Reserve are already working to bring mortgage rates down through a program announced last week in which the Fed will buy up to $600 billion of debt issued or backed by Fannie and Freddie, along with Ginnie Mae and the Federal Home Loan Banks. That move helped push down rates on 30-year mortgages, and applications to refinance have jumped, the Mortgage Bankers Association said Wednesday.

Benefit To Stocks
In this climate, stocks of banks and home builders drew more investor attention Wednesday, helping the Dow Jones Industrial Average rise 172.60 points, or 2.05%, to 8591.69, despite continued bleak economic news in the Fed's "beige book" survey of regional conditions.

The plan the Treasury is considering would encourage banks to issue new mortgages at lower rates by offering to purchase securities underpinning the loans at a price equivalent to the 4.5% rate.

The Treasury would fund the purchases by issuing Treasury debt at 3%, suggesting the government could make a profit on the difference.

The average rate on 30-year fixed-rate mortgages conforming to Fannie's and Freddie's standards was about 5.75% Wednesday, according to HSH Associates, a financial publisher. That's up from about 5.5% Monday but down from more than 6% before last week's announcement.

The plan is very similar to an idea floated in October by R. Glenn Hubbard and Christopher Mayer, academics at Columbia University's Business School. "I think a program to substantially bring down rates for homebuyers would be an incredibly valuable program, and I think it captures a real part of solving what has been an incredibly challenging dislocation in the credit markets," Mr. Mayer said in an interview. He estimated the idea under consideration could quickly help 1.5 million to 2.5 million people buy homes, giving a major boost to the housing market and broader economy.

The plan also could be good news for banks hit hard by the housing slowdown. In addition to having the government play the role of guaranteed buyer, financial institutions could pocket fees for making loans to buyers able to afford homes at the lower rates. That, in turn, could boost the economy and improve the weak outlook for other consumer loans, such as credit cards, that also are weighing heavily on the banking industry's profitability.

Normally, the rates lenders charge consumers, including home buyers, are determined by the secondary market, in which investors buy mortgages or mortgage-backed securities. But Treasury Secretary Henry Paulson views lowering mortgage rates as key to fixing the housing crisis; hence the mortgage-security-buying program announced last week.

"The most important thing we can do to mitigate foreclosures and progress through the housing correction," Mr. Paulson said in a speech Monday, "is to reduce the cost of mortgage finance, so more families can afford to buy a home and so homeowners can refinance into more affordable mortgages."

Fannie, Freddie, their regulator and the Department of Housing and Urban Development - which oversees the FHA - all declined to comment. "The Secretary has said repeatedly that we are looking at a number of options to help homeowners," said Treasury Spokeswoman Jennifer Zuccarelli.

The Refinancing Picture
On the refinancing front, the Mortgage Bankers Association said its index of refinance applications had tripled from the previous week, the largest increase since it began tracking such data in 1990. Applications to buy homes, which tend to be less sensitive to interest-rate movements, also increased, by a smaller amount.

Application volume remains lower than it was as recently as March. Last week's numbers are adjusted for a shortened holiday week, which can make comparisons more difficult.

The Treasury plan is similar to ideas previously floated by the National Association of Realtors and the lobby group for home builders, but has skeptics. "I don't think it's the answer to the foreclosure problem because that problem is a combination of negative equity with unemployment," said Mark Zandi, chief economist of Moody's Economy.com.

Mr. Paulson has been wrestling for months with ways to stem foreclosures. The Bush administration has supported mostly voluntary efforts to get the mortgage industry to help borrowers in danger of losing their homes and has resisted calls to use taxpayer money to bail out homeowners. Those voluntary efforts have had only a limited impact as home prices continue to fall and foreclosures to rise.

The administration has been split about its approach, with Federal Deposit Insurance Corp. Chairman Sheila Bair floating a proposal to use $24 billion from the government's $700 billion financial rescue fund to provide a federal guarantee on roughly two million modified mortgages.

Her plan was a hit with Democrats and some Republicans on Capitol Hill but fell flat with the White House, where some speculated the FDIC plan could cost $70 billion to $80 billion. Mr. Paulson has expressed reservations about the plan on the ground that it would spend taxpayer money, instead of investing it, and that it could encourage banks to foreclose and borrowers to halt payments. Treasury staff have been working on a plan to improve Ms. Bair's model, but Mr. Paulson has so far resisted implementing it over concerns that it costs too much and might not be all that effective.

Resolving the crisis is likely to fall to Mr. Obama. He reiterated his position on Wednesday, saying, "We've got to start helping homeowners in a serious way, prevent foreclosures." Some Treasury officials are frustrated that the Obama team has not provided more specifics about what it would like the Treasury to do to help homeowners.

—Robin Sidel, Ruth Simon and James R. Hagerty contributed to this article.
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Paulson Considers New Plan to Resuscitate U.S. Housing Market

Treasury Secretary Henry Paulson is considering a new plan to reduce mortgage rates in another bid to revive the U.S. housing market, a government official said.
By: Robert Schmidt and Dawn Kopecki: Bloomberg.com
The Treasury, which already has a program to buy mortgage- backed securities issued by Fannie Mae and Freddie Mac, could step up those purchases to drive down interest rates on some loans to 4.5 percent, the official said on condition of anonymity. The plan is preliminary and could change.

The deliberations come as President-elect Barack Obama pledges fresh action to help American homeowners, and follow a $600 billion initiative announced by the Federal Reserve last week to buy mortgage debt. Mortgage applications surged by a record last week and the average rate on a 30-year fixed-rate loan dropped to 5.47 percent, the lowest level since June 2005, the Mortgage Bankers Association said yesterday.

“Lower mortgage rates will allow households to fortify their balance sheets, and we will likely see consumer spending come back a little quicker than it would otherwise,” said Mark Vitner, a senior economist at Wachovia Corp. in Charlotte, North Carolina. At the same time, “it’s not going to be an instant panacea for what ails the economy,” he said.

While lowering mortgage rates to 4.5 percent would allow most homeowners to refinance into a cheaper loan, far fewer will actually qualify, said Rajiv Setia and Nicholas Strand at Barclays Capital in New York.

Can’t Force Banks

“Over 90 percent of the mortgage universe out there would be refinancable, but you can’t force banks to lend to people,” said Setia, a fixed-income strategist for Barclays.

The Bush administration has been faulted by Democrats and consumer advocates for failing to take sufficient steps to stem record home-loan foreclosures this year. Federal Housing Finance Agency Director James Lockhart has been prodding private mortgage servicers and bond investors to cooperate with government efforts to modify or refinance loans for troubled borrowers.

Treasury “keeps nipping at the edges to come up with a wholesale response, but always ends up with a partial response,” said John Taylor, president and chief executive officer of the National Community Reinvestment Coalition in Washington. “Regardless of whatever rhetoric Paulson keeps throwing around, foreclosures continue to go up.”

Brookly McLaughlin, a Treasury spokeswoman in Washington, declined to comment.

Paulson’s Deals

Paulson last December brokered a deal with banks and mortgage servicers to fix interest rates on some subprime loans for five years. He put together an industry-led coalition called “Hope Now” to help Americans at risk of losing their homes. He first resisted, then accepted, foreclosure relief as part of the $168 billion economic-stimulus package passed in February.

House prices in 20 U.S. cities declined in September at the fastest pace on record. The S&P/Case-Shiller home-price index dropped 17.4 percent from a year earlier. Foreclosure filings in October were up 25 percent from a year ago, according to RealtyTrac Inc., a seller of default data.

Washington-based Fannie and McLean, Virginia-based Freddie, seized by FHFA on Sept. 6 after examiners found the companies’ capital to be too low or of poor quality, own or guarantee about $5.2 trillion of the $12 trillion U.S. home-loan market.

Only Helps Agencies

Strand, Barclay’s head of agency mortgage bond strategy, said between 20 percent and 25 percent of U.S. loans originated in 2006 and 2007 are currently under water and wouldn’t qualify for refinancing through Fannie and Freddie, which require borrowers to maintain at least 3 percent equity in their homes.

“So this would help, but it only helps agency borrowers,” Strand said. “I don’t see how this would help other non-agency borrowers who essentially can’t even get a mortgage at this point.”

Agency mortgage securities are guaranteed by federally chartered Fannie or Freddie, or by government agency Ginnie Mae.

Yields over benchmarks on agency mortgage bonds have widened as mortgage rates tumbled. The difference between yields on Washington-based Fannie’s current-coupon 30-year fixed-rate mortgage bonds and 10-year Treasuries widened to as high as 208 basis points yesterday, the closing level the day before the Fed’s announcement. A basis point is 0.01 percentage point.

Bloomberg current-coupon indexes represent the average of yields for the two groups of mortgage bonds with prices just above and below face value, the ones lenders typically package new loans into. The spread helps determine the rates offered to homeowners on new prime mortgages of $417,000 or less in most areas, and up to $625,500 in high-cost locations.

Increasing Portfolios

When taking over Fannie and Freddie, the largest U.S. mortgage-finance companies, Paulson said that he would direct the firms to increase their $1.5 trillion mortgage-asset portfolios and have his department start buying their home-loan bonds to help lower the cost of home financing.

Last week, the Fed announced plans to buy as much as $500 billion of agency mortgage securities, as well as $100 billion of Fannie, Freddie and Federal Home Loan Bank corporate debt.

Amid Congressional criticism of “Hope Now,” Paulson asked lawmakers in July to authorize him to purchase equity stakes in Fannie Mae and Freddie Mac as a way of boosting confidence in the mortgage lenders and expanding credit. At the time, he told Congress he wouldn’t need to use the authority because simply having it would be enough - less than two months later he was forced to take the two over.

Paulson then pushed Congress to pass a $700 billion plan to buy toxic mortgage investments from banks, recognition that previous plans to aid the financial and housing markets had failed. He has used almost half of the Troubled Asset Relief Program to inject capital into financial firms, which has yet to result in an increase in bank lending.

Lawmakers criticized his announcement last month to abandon the original intent of the TARP, saying Paulson had failed to use the funds to aid homeowners. The Treasury chief last week reiterated that his department was studying ways to use TARP money to stabilize the housing market.
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Obama vows to green the White House

He hopes to show the American people that gaining greater energy efficiency in your home is "not that hard."
By: Megan Treacy: Yahoo! Green
In his interview with Barbara Walters, Barack Obama said one of his first tasks when he moves into the White House is to make it green.

Obama said he plans to sit down with the chief usher and evaluate the mansion's energy efficiency. He hopes to show the American people that gaining greater energy efficiency in your home is "not that hard."

A lot of people have proposed ideas on how Obama could make the White House eco-friendly, like turning the lawn into an organic garden, but this step that he is taking is most important. If he's going to ask the American people to conserve and make changes in their homes, he also has to do it.

I'd personally like to see him install energy and lighting-management systems, which have been proven to go a long way in cutting energy use and costs. Also, installing some renewable energy sources like solar PVs or rooftop wind turbines would be a great example.

We'll be watching closely to see what changes he ultimately makes.
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Top 10 Things to Expect in the Housing Market in 2009

Prepare yourself for the challenges - and opportunities - of 2009 by getting familiar with what to expect in the housing market.
By: FrontDoor.com
Following the too-good-to-be-true housing boom in the first half of this decade, 2008was a dose of reality. The subprime mortgage crisis and the collapse of major financial institutions made this year a tough one for real estate. Expect 2009 to be filled with more change and adjustment in home values and expectations.
On a positive note, help is on the way from the Feds, and some experts say a slow recovery could begin in late 2009. Prepare yourself for the challenges - and opportunities - of 2009 by getting familiar with what to expect in the housing market.

1. Continued market adjustments.
With home prices in some markets having reached astronomical levels, it was inevitable a reset button be pushed. Sellers will continue to be challenged in 2009 as the inflated pricing of years past adjusts to normal levels. With banks and builders willing to slash prices to sell a backlog of foreclosures and new homes, individual sellers will have to price their homes competitively.


2. Action from the Obama administration.
Obama's plan to help the housing sector includes a 10 percent mortgage tax credit for homeowners who don't itemize their taxes and a crackdown on abusive lending practices.


3. More assistance programs for homeowners in danger of foreclosure.
While the federal government is attempting to reduce foreclosures, a report released by the Joint Economic Committee predicts 2 million foreclosures in 2009. Homeowners who are at risk should take steps to avoid foreclosure.


4. Some calm to the chaos of the banks' restructuring.
This should cause loan modifications and short sales to get easier, and will also (eventually) decrease the number of bank-owned properties on the market.


5. Thorough reviews of mortgage applications.
Before the subprime mortgage debacle, you didn't have to prove you could afford to borrow $200,000 for a home and you didn't need a down payment. Those days of sketchy lending practices are gone. Lenders now require potential borrowers to provide extensive income and expense documentation. Homebuyers with the best credit will get the lowest interest rates. Take steps now to get your finances in order and boost your credit score.


6. Low prices and low interest rates.
2009 could be the time for reluctant homebuyers to act, as this is perhaps the last year of the best buying opportunity in recorded economic history.


7. Cool tech tricks and tools for the real estate obsessed.
As homebuyers turn to the Web more and more for their real estate needs, video, webcasts and mobile search tools are becoming more prevalent. Sellers should consider using these cutting-edge tools to make their homes stand out.


8. Wiser consumers.
After facing this foreclosure crisis, buyers, sellers, real estate agents and even tenants will have a deeper understanding of real estate, mortgage and credit, which they can use to make better decisions and be more self-protective in the future.


9. Leaner, greener homebuying.
Across the board, homebuying is becoming more eco-friendly, from transactions being conducted digitally to buyers opting for smaller homes within walking distance of school and work.


10. An increase in consumer confidence.
As the year goes on and we near the projected end of the recession, sellers can breathe a sigh of relief as buyers regain confidence in the market.
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Borrowers look for a 'taste of the bailout pie'

Consumers flock to cheaper mortgages after Federal action
By: Dina ElBoghdady: washingtonpost.com
Would-be mortgage borrowers have rushed to refinance their loans and even weighed plans to buy homes following the government's move this week to loosen consumer lending.

With interest rates suddenly plummeting, "the phone is ringing, the e-mails keep coming," said Jennifer Du Plessis, a mortgage adviser at Prosperity Mortgage, the lending arm of Long & Foster. "Real estate agents are hovering outside our office saying: 'I've got another client who wants to refinance.'"

"Our loan officers were here well past midnight," Bob Walters of Internet lender Quicken Loans said regarding Tuesday, when the government announced its plan. Quicken received $400 million worth of mortgage applications that day, more than quadrupling the number of loans from the day before, he said. It was on track to meet that number yesterday, too.

Vivianne Couts, a Northern Virginia real estate agent, said one of her clients had planned to buy a house in Fairfax County this spring but yesterday sent her an e-mail saying, "Interest rates are low. I don't know what's going to happen in the future, so let's go for it."

'Taste of the bailout pie'
Almost immediately after the Federal Reserve announced plans Tuesday to buy a sizable chunk of mortgage-based securities, interest rates dropped to the mid-5 percent range and stayed there through yesterday. The move is giving borrowers a "taste of the bailout pie," said analyst Mike Larson of Weiss Research. Until now, most government mortgage initiatives have been aimed at lenders or at distressed borrowers.

Rates on a 30-year fixed-rate mortgage dropped a quarter of a percentage point from Monday to 5.76 percent yesterday - the lowest since early February, according to research firm HSH Associates.

Lenders said most inquiries came from clients eager to refinance because they were angst-ridden about the economy or their jobs and wanted to get any savings they could find. When interest rates drop, the first borrowers to take advantage tend to be refinancers, because there's little hassle or downside.

However, whether those refinancers will actually get this week's rates remains to be seen.

Some may not have the credit scores necessary. For instance, many credit card companies have been slashing credit lines in a way that could hurt credit scores, Du Plessis said.

"If the credit card company reduces your line limit down to your balance, that kills your credit score," she said.

Given the drop in home values in many pockets of this region, others who hope to refinance may not have the home equity they thought they had. "Locking in the rate is just the first step," said Brian Bonnet, president of Signature Mortgage Services in Alexandria. "Deteriorating home values are the next hurdle."

Fretting about his mortgage
That's what worries Bob Walker, a Loudoun County resident who wants to refinance.

Walker has been fretting about his mortgage since his twins -- a boy and girl -- were born in August. He has an adjustable-rate mortgage that is due to reset in two years and he's yearning for the predictability of a fixed-rate mortgage.

He's not worried about his credit score, but he's not so sure about the value of his home.

"I've got to admit, I have no idea what my home is worth," Walker said. "It's really hit or miss. I'm fearful about that."

Would-be home buyers face additional limitations. "The reason many people are not buying homes is not that the cost of mortgage financing has gone up, but because the availability of credit has gone down," Larson said. If you can't qualify because you don't have strong credit or a big enough down payment, he said, "it doesn't matter if rates are 7 percent or 3 percent."

None of this has discouraged Tom Powell of Winchester, who has been shopping for a home in Leesburg for six months.

The area was too expensive for Powell and his wife, Carmen, a few years ago. But with home prices dropping, he thinks it's now within reach.

Powell has made not-so-serious offers on homes in the past. But Tuesday, when he got word of the interest rate drop, he made a "very serious" offer on a four-bedroom house.

"We hope we can get something done before the rates kick back up again," Powell said. "We're moving fast.'

'Euphoric'
Others were able to benefit from the lower rates with no effort at all. Mark Fegani of OlympiaWest Mortgage Group in Vienna said his office has been calling clients whose loans are already in the pipeline to tell them about the lower rates.

"Those calls are euphoric," Fegani said. "They love that, like: 'Wow, I don't have to do anything?' "

In the past few months, rates have swung wildly, sometimes within hours. Following the government's takeover of Fannie Mae and Freddie Mac in early September, rates fell, then climbed again. Some loan officers say this drop may be just as fleeting, while others say it may last a while.

It's the uncertainty that frustrates lenders and borrowers alike.

"I've got a whole slew of people on my wall here who told me: 'Call when it gets to 5.5 percent,' " said Brian FitzGerald, executive vice president of Presidential Bank in Bethesda. "So now I'm calling them, and they say: 'Do you think it's going to get any lower?' "

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U.S. Mortgage Rates Fall on $600 Billion Fed Plan

U.S. mortgage rates fell more than three-quarters of a percentage point today after the Federal Reserve said it will buy as much as $600 billion of debt.
By: Kathleen M. Howley: Bloomberg.com
The average U.S. rate for a 30-year fixed mortgage ended the day at about 5.5 percent after falling to as low as 5.25 percent, according to Bankrate Inc. It was 6.38 percent this morning, North Palm Beach, Florida-based Bankrate said, based on a wider sampling than the so-called overnight rate published on its Web site.

The Fed said it will purchase mortgage-backed securities issued by Fannie Mae, Freddie Mac and Ginnie Mae, a government agency that insures bonds. Today’s lower rates indicate the central bankers may have achieved their goal of bringing liquidity to mortgage markets, said Neal Soss, chief economist at Credit Suisse Group in New York and a former aide to Fed chief Paul Volcker.

“These are not the assets that have caused all the trouble - these are quality mortgages that have been orphaned because investors have been reluctant to part with cash,” Soss said in an interview. “The government stepping in to buy them up may hasten the day when we finally find a bottom in housing.”

The central bank pledged to purchase up to $500 billion in so- called agency debt as well as up to $100 billion in direct debt of Fannie Mae and Freddie Mac, the world’s two largest mortgage buyers, and Federal Home Loan Banks.

“This action is being taken to reduce the cost and increase the availability of credit for the purchase of houses, which in turn should support housing markets and foster improved conditions in financial markets more generally,” the Fed said in the announcement it posted on its Web site.

Fannie and Freddie have about $1.7 trillion of corporate debt outstanding and $4.1 trillion of mortgage-backed securities.

“You’ll see a pickup in demand for housing,” said Bob Walters, chief economist of Quicken Loans in Livonia, Michigan. “We should see interest rates stay at these levels and maybe drop a little bit.”
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NEWS ALERT - Paulson Unveils $800 Billion Plan to Ease Credit Crunch

“A very strong statement of support for the housing market”
By: David Lightman: RISMEDIA
Treasury Secretary Henry Paulson, warning that “millions of Americans cannot find affordable financing for basic credit needs,” announced a major expansion of the federal bailout on today as much as $800 billion to make mortgages and consumer credit more available and affordable.

The government will buy up to $600 billion in mortgage-backed assets, and, in a separate action, lend up to $200 billion to investors who have bought securities backed by consumer loans such as credit cards, auto and student loans, in a bid to free up consumer credit.

Paulson, speaking at a Washington news conference, hailed the housing aid as “a very strong statement of support for the housing market. … Mortgage spreads have … not come down as much as they might, but I would say mortgage financing has remained … available and it has not risen nearly as fast as the cost of other credit.”

The latest expansion of the federal bailout came as new data underscored how shaky the U.S. economy is.

The Standard & Poor’s/Case-Shiller national home price sales index dropped 16.6 percent in the third quarter. The Gross Domestic Product, the value of the nation’s goods and services, shrank 0.5 percent from July through September, the Commerce Department reported Tuesday, revising its initial 0.3 percent shrinkage estimate downward.

Under the plan announced Tuesday, the Federal Reserve plans to buy up to $100 billion in direct obligations from mortgage finance giants Fannie Mae and Freddie Mac and the Federal Home Loan Banks.

It also will purchase another $500 billion in mortgage-backed securities, which consist of mortgage loans that are packaged together and sold to investors. These securities, viewed as toxic now because so many mortgages are going unpaid, are at the heart of what’s weighing down troubled banks. Purchasing them is intended to free up bank lending, which would spur the economy.

In addition, Paulson said Treasury will provide $20 billion of credit protection to the Fed from last month’s $700 billion financial rescue package. The protection will be part of a new Fed program that could lend as much as $200 billion to investors in securities backed by credit card, auto and other loans.

Paulson noted that “credit market stresses led to a steep decline in the third quarter of 2008, and the market essentially came to a halt in October.”

Compounding the problem, he said, was that “credit card rates are climbing, making it more expensive for families to finance everyday purchases. This lack of affordable consumer credit undermines consumer spending (and) as a result weakens our economy.”

The new fund aimed at freeing up credit, Paulson said, “will enable a broad range of institutions to step up their lending, enabling borrowers to have access to lower cost consumer financing and small business loans.”

Paulson said he worked closely on Tuesday’s plans with Treasury Secretary-designate Timothy Geithner, currently president of the New York Federal Reserve Bank. President-elect Barack Obama nominated Geithner to the post on Monday.

Paulson called Geithner “very well positioned” to oversee the economic relief effort, “because he understands everything we have in place today, and participated very actively in helping put it in place.”

Paulson also issued a plea for patience: “The fact is, we now have the tools and the capacity to stabilize the system and work to get credit flowing again-and it will take awhile to do that.”

© 2008, McClatchy-Tribune Information Services.
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Efforts expand to help financially distressed homeowners

Two mass-market loan modification programs are aimed at preventing foreclosures. But critics say they don't solve the problem and could have a corrosive effect on borrowers.
By: Kenneth R. Harney: latimes.com
You may have seen headlines about the latest public and private efforts to help financially distressed homeowners cope with their mortgage payments. But you might not have caught key details that could affect you or people you know - now or in the recession months ahead.

One of the most ambitious mass-market loan modification programs was outlined Nov. 11 by the Federal Housing Finance Agency - overseer of Fannie Mae and Freddie Mac - along with the 33 banks and mortgage servicers that make up the private-sector Hope Now Alliance.

The program, scheduled to start nationwide Dec. 15, is aimed at thousands of subprime mortgage holders and other borrowers who are three months or more behind on their payments and slipping fast toward foreclosure. To be eligible for intervention, homeowners need to document that they can handle mortgage payments of as much as 38% of their monthly gross income.

They also need to demonstrate that they have experienced some form of financial reversal that made them delinquent on their payments and prove that they did not intentionally go into default just to get better terms.

If they can pass through these hoops, borrowers may qualify for reduced interest rates, deferrals of principal payments or extended loan terms - whatever combination it takes to get them an affordable payment with their current income.

Even though the formal kickoff isn't until next month, participating lenders say they want to hear as soon as possible from potential beneficiaries. If homeowners can't connect directly, they can work through the Hope Now Alliance (www.hopenow.com) or the U.S. Department of Housing and Urban Development (www.hud.gov/foreclosure). Hope Now also has a toll-free hotline - (888)995-4673 - staffed by counselors.

The same day that the new federally assisted mass-modification effort was announced, one of the largest lenders and servicers, Citigroup Inc., unveiled a program designed to catch at-risk homeowners before they fall behind.

Citigroup will reach out to an estimated 500,000 mortgage customers who are not delinquent but who appear to be at risk - either because their credit files show signs of financial stress or because their homes are in markets that Citigroup believes face serious economic strains and job losses in the coming year.

The bank said it expected to complete as much as $20 billion in "preemptive" mortgage modifications in the next six months using rate reductions, term extensions and even reductions in principal debt balances in select situations. Citigroup also intends to halt foreclosures during the coming months for owners who have sufficient income to handle modified monthly loan payments at some level and are working in good faith with the bank to save their houses.

Although the two new programs target different segments of homeowners - the walking wounded and those heading for the line of fire - both make use of a streamlined, formula-based systematic approach for mass modifications advocated by FDIC Chairwoman Sheila Bair.

Most mortgage industry executives and economists believe the foreclosure crisis is so serious that only wholesale remedial approaches can prevent home losses from piling up. But not everyone agrees with the new programs or the loan modification options they offer to homeowners.

For example, some experts are critical of the government's requirement for three months of delinquency, contending that it could have corrosive effects on borrowers who are straining to keep up with payments but still making them on time.

Other critics say mass-market modifications are bound to produce high rates of recidivism - essentially waves of remodifications or foreclosures in the coming years as homeowners with hastily modified mortgages find that they cannot afford even those lower rates and better terms. That simply pushes the problem down the road, rather than solving it.

Bottom line for borrowers: Definitely pursue a loan modification if you qualify and need one. But talk with your servicer to make sure that the revised terms you're signing up for are realistic for your economic situation and not likely to be just a temporary patch.

Harney is a syndicated columnist for the Washington Post Writers Group.
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Home Prices Rise in Some Metros, Buyers More Active in Other Areas

Four out of five metropolitan areas recorded lower home prices in the third quarter from a year earlier, while existing-home sales fell in 32 states from the second quarter, according to the latest quarterly survey by the National Association of Realtors(R).
RISMEDIA
In the third quarter, 28 out of 152 metropolitan statistical areas(1) showed increases in median existing single-family home prices from the same quarter in 2007; four were unchanged and 120 metros experienced declines.RISMEDIA, Nov. 19, 2008- NAR’s track of metro area home prices dates back to 1979.

NAR President Charles McMillan, a broker with Coldwell Banker Residential Brokerage in Dallas-Fort Worth, said price comparisons in many areas are like apples and oranges. “A very large proportion of distressed home sales are taking place at discounted prices compared to more normal conditions a year ago,” McMillan said. “It’s very challenging to understand proper valuation, given the differences between distressed sales and a larger share of traditional homes in sound condition. Under these circumstances, it’s extremely important for consumers to be armed with the professional expertise Realtors(R) offer.”

Distressed sales — foreclosures and short sales — accounted for 35 to 40 percent of transactions in the third quarter, pulling down the national median existing single-family price to $200,500, which is 9.0 percent lower than the third quarter of 2007. A year ago, when there were significantly fewer distressed transactions, the median price was $220,300. The median price is where half of the homes sold for more and half sold for less.

Total state existing-home sales, including single-family and condo, were at a seasonally adjusted annual rate(2) of 5.04 million units in the third quarter, up 2.6 percent from 4.91 million units in the second quarter, but remain 7.7 percent below the 5.46 million-unit pace in the third quarter of 2007.

Lawrence Yun, NAR chief economist, said conditions continue to range widely. “A pattern of sharply higher sales in areas with large price declines is well established,” Yun said. “Affordability conditions have consistently been a major factor in driving sales. Historically during recessions, buyers have responded to incentives and it’s important for government to keep that in the forefront of stimulus decisions.”

According to Freddie Mac, the national average commitment rate on a 30-year conventional fixed-rate mortgage rose to 6.32 percent in the third quarter from 6.09 percent in the second quarter; the rate was 6.55 percent in the third quarter of 2007. Last week, Freddie Mac reported the 30-year fixed fell to 6.14 percent.

The largest sales gain during the third quarter was in Arizona, up 28.3 percent from the second quarter, followed by California which rose 28.1 percent and Nevada, up 26.2 percent.

The steepest declines in single-family home prices in the third quarter were in three California markets: the Riverside-San Bernardino-Ontario area, where the median price of $227,200 dropped 39.4 percent from a year ago, followed by Sacramento-Arden-Arcade-Roseville at $212,000, down 36.8 percent from the third quarter of 2007, and San Diego-Carlsbad-San Marcos, where the price dropped 36.0 percent to $377,300.

“These areas have seen some of the strongest sales gains with some reports of multiple bidding,” Yun said.

The largest single-family home price increase in the third quarter was in the Elmira, N.Y., area, where the median price of $105,000 rose 12.5 percent from a year ago. Next was Decatur, Ill., at $93,400, up 8.7 percent from the third quarter of 2007, followed by the Bloomington-Normal, Ill., area, where the third-quarter median price increased 8.1 percent to $168,400.

The typical seller purchased their home six years ago and is experiencing net equity gains. The national increase in value since the third quarter of 2002 is 18.3 percent, which is a median gain of $31,000. Even with the current downward price distortion, 90 percent of metro areas are showing six-year price gains.

Median third-quarter metro area single-family home prices ranged from an affordable $65,800 in the Saginaw-Saginaw Township North area of Michigan to $650,000 in the San Jose-Sunnyvale-Santa Clara area of California. The second most expensive area was San Francisco-Oakland-Fremont, at $615,700, followed by Honolulu at $615,000.

Other affordable markets include the Youngstown-Warren-Boardman area of Ohio and Pennsylvania at $74,300, and South Bend-Mishawaka, Ind., at $88,000.

In the condo sector, metro area condominium and cooperative prices — covering changes in 57 metro areas — showed the national median existing-condo price was $210,800 in the third quarter, down 7.1 percent from $227,000 in the third quarter of 2007. Sixteen metros showed annual increases in the median condo price and 41 areas had price declines.

The strongest condo price increases were in the Dallas-Fort Worth-Arlington area, where the third quarter price of $149,900 rose 11.1 percent from a year earlier, followed by Bismarck, N.D., at $148,000, up 11.0 percent, and the Houston-Baytown-Sugar Land area, where the median condo price of $134,100 rose 8.1 percent from the third quarter of 2007.

Metro area median existing-condo prices in the third quarter ranged from $112,600 in the Greensboro-High Point, N.C., area to $456,300 in the San Francisco-Oakland-Fremont area. The second most expensive condo market reported was the New York-Wayne-White Plains area of New York and New Jersey at $324,000, followed by Honolulu at $322,000.

Other affordable condo markets include the Indianapolis area at $113,500 and the Cincinnati-Middletown area of Ohio, Kentucky and Indiana, at $117,300 in the third quarter.

Regionally, existing-home sales in the West rose 13.1 percent in the third quarter to an annual rate of 1.15 million and are 12.4 percent above a year ago.

The median existing single-family home price in the West was $266,300 in the third quarter, which is 21.4 percent below the third quarter of 2007. The only reported metro price increase in the West was in Farmington, N.M., at $193,600, up 1.7 percent from a year ago.

In the Midwest, existing-home sales rose 2.7 percent in the third quarter to a pace of 1.15 million but remain 10.6 percent below a year ago.

The median existing single-family home price in the Midwest declined 5.5 percent to $159,900 in the third quarter from the same period in 2007. After Decatur and Bloomington-Normal, the next strongest metro price increase in the Midwest was in the Wichita, Kan., area, where the median price of $125,300 was 5.5 percent higher than a year ago, followed by Champaign-Urbana, Ill., at $146,400, up 2.7 percent.

In the South, existing-home sales slipped 1.4 percent in the third quarter to an annual rate of 1.87 million and are 13.8 percent lower than the same period in 2007.

The median existing single-family home price in the South was $174,200 in the third quarter, down 3.7 percent from a year earlier. The strongest price increase in the South was in the Tulsa, Okla., area, at $139,800, up 5.1 percent from a year ago, followed by Amarillo, Texas, with a 4.2 percent gain to $128,300, and the New Orleans-Metairie-Kenner area of Louisiana at $166,800, up 4.1 percent.

In the Northeast, existing-home sales declined 1.6 percent in the third quarter to a level of 863,000 units and are 11.7 percent below a year ago.

The median existing single-family home price in the Northeast fell 6.5 percent to $267,700 in the third quarter from the same period in 2007. After Elmira, the strongest price increase in the Northeast was in the Trenton-Ewing, N.J., area, at $342,500, up 4.2 percent from the third quarter of 2007, followed by Buffalo-Niagara Falls, N.Y., with a median price of $114,200, up 3.0 percent.

Regional median home prices include rural areas and samples of many smaller metros that are not included in this report; the regional percentage changes do not necessarily parallel changes in the larger metro areas. The only valid comparisons for median prices are with the same period a year earlier due to seasonality in buying patterns. Quarter-to-quarter comparisons do not compensate for seasonal changes, especially for the timing of family buying patterns.

NAR began tracking of metropolitan area median single-family home prices in 1979; the metro area condo price series was launched at the beginning of 2006, with several years of historic data.

Because there is a concentration of condos in high-cost metro areas, the national median condo price sometimes is higher than the median single-family price. In a given market area, condos typically cost less than single-family homes. As the reporting sample expands in the future, additional area will be included in the condo price report.

(2)The seasonally adjusted annual rate for a particular quarter represents what the total number of actual sales for a year would be if the relative sales pace for that quarter was maintained for four consecutive quarters. Total home sales include single family, townhomes, condominiums and co-operative housing. NAR began tracking the state sales series in 1981.

Seasonally adjusted rates are used in reporting quarterly data to factor out seasonal variations in resale activity. For example, sales volume normally is higher in the summer and relatively light in winter, primarily because of differences in the weather and household buying patterns.

Fourth quarter metro area home price and state resale data will be released February 12.
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Real Estate Outlook: Housing in Recovery

With all the turbulence and losses in stocks and bad economic news in the headlines lately, you can easily lose perspective on what's really going on in the real estate sector.
By: Kenneth R. Harney: Realty Times
For example, new mortgage applications increased last week by 12 percent, according to the Mortgage Bankers Association. Applications from people looking to buy houses with FHA loans were up by 15.3 percent, while applications from purchasers seeking conventional mortgages rose by six and a half percent.

How could that be, with all the grim economic news? Well, remember that there is a huge pent-up demand simmering away out there for housing - especially from first-time buyers who want to scoop up low-priced deals.

When fixed interest rates drop - and last week they were down by a quarter of a percentage point - those buyers start doing the math and getting into the market with offers.

Fixed thirty year rates fell from six and a half percent to 6.24 percent during the week. Fifteen year rates broke below six percent to 5.9 percent, down from 6.14 percent.

Another piece of positive news you may not have noticed: Pending home sales were higher than year-earlier levels for the second straight month - 1.6 percent higher than September 2007 .

Although pending sales contracts were down slightly for the month, in the western states they wee up by 3.7 percent, and now stand at an extraordinary 39.7 percent higher than they were at the same time in 2007.

At the National Association of Realtors' convention in Orlando, chief economist Lawrence Yun, warned the delegates not to expect a housing recovery overnight, certainly not with unemployment on the rise. But he projected a slow, steady, multi-year upward trend, with 5.02 million total sales this year, 5.3 million for 2009, and 5.6 million for 2010.

Already sales are up significantly in major markets in many parts of the U.S. Yun specifically mentioned the west coast of Florida, the Phoenix area, Virginia, Long Island New York, Kansas City, Minnesota and Idaho.

So here's the key point to keep in mind as you try to make sense of the headlines: The stock market is NOT the housing market. It's on a whole different set of tracks. And it's been in a highly volatile state for more than a month.

Housing, on the other hand, has already endured its painful correction for two and a half years … is now pretty much stabilized … and is slowing moving toward its cyclical recovery.
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Southland October home sales climb to highest level of the year

Southern California home sales rose unseasonably last month from September as buyers shook off gloomy financial news and took advantage of often-steep discounts.
DQNews.com
The median sale price fell to $300,000 - a 67-month low - as foreclosures once again accounted for half of all resales, a real estate information service reported.

A total of 21,532 new and resale houses and condos closed escrow in the six-county Southland in October - the highest for any month this year. Last month's sales rose 5.0 percent from 20,497 in September and jumped a record 66.7 percent from 12,913 in October 2007, according to San Diego-based MDA DataQuick, a real estate information service.

Fueled by lower prices, Southland sales have risen on a year-over-year basis for four consecutive months, breaking a 33-month streak of annual declines.

October home sales dropped below September's in 11 of the past 20 years, when the change between the two months averaged -1.2 percent. October has never been the peak month for sales in any year back to 1988, when DataQuick's statistics begin.

"You could easily imagine a meaningful decline in sales last month, given the seasonal norm and the dire financial news that potential buyers had to ponder in September. But we have yet to see any big, sudden drop in the number of transactions closing escrow. It tells us there were a lot of very serious buyers in the market during late summer and early fall - buyers who consider housing a relatively good buy or investment," said John Walsh, DataQuick president.

He added: "Whether the worst of the housing correction is behind us will depend largely on the depths of this economic downturn, especially with regard to job losses. Also important will be the outcome of recently announced efforts to reverse the tide of foreclosures."

October's home sales total was the highest in 20 months but was still the second-lowest for an October since 1996. Last month's sales were 12.4 percent lower than the 21-year average for October sales.

Last month's record annual sales increase reflects two things: Very weak sales a year ago on the heels of the August credit crunch and earlier subprime meltdown, and this year's big sales gains in inland markets where prices have fallen 30 percent or more. Depreciation in such areas has triggered record foreclosures, which tend to sell at a discount, attracting bargain hunters.

Fifty-one percent of existing homes that closed escrow in October were foreclosed on at some point in the prior 12 months. That's up from a revised 50.0 percent in September and 16.0 percent in October 2007.

At the county level, these "foreclosure resales" ranged from 39.2 percent of October existing home sales in Orange County to 67.7 percent in Riverside County. In Los Angeles County foreclosure resales were 40.3 percent of sales; in San Diego 48.6 percent; San Bernardino 65.2 percent and in Ventura County 47.0 percent.

High foreclosure resale levels help explain the Southland's $300,000 median sale price in October, the lowest since it was $298,000 in April 2003. Last month's median was 2.8 percent lower than $308,500 in September and 32.6 percent lower than $445,000 in October 2007. The October median stood 40.6 percent below the peak $505,000 median reached in spring and summer of last year.

Several factors explain the plunge in the median price, the point where half of the homes sold for less and half for more: Regionwide home price depreciation; much slower high-end sales; and the rising market share of foreclosure resales, which tend to be located in mid-to lower-cost areas.

Many of the region's relatively affordable neighborhoods saw October sales more than double from a year ago. Use of FHA-insured loans allowing a down payment of as little as 3 percent represented nearly one-third of all Southland purchase loans last month, up from 2 percent a year earlier.

Meanwhile, use of larger mortgages known as "jumbo loans," common in higher-cost coastal neighborhoods, is still far below normal. Before the credit crunch hit in August 2007, 40 percent of Southland sales were financed with jumbos, then defined as over $417,000. Last month just 13.1 percent of purchase loans were over $417,000.

MDA DataQuick is a division of MDA Lending Solutions, a subsidiary of Vancouver-based MacDonald Dettwiler and Associates. MDA DataQuick monitors real estate activity nationwide and provides information to consumers, educational institutions, public agencies, lending institutions, title companies and industry analysts.

The typical monthly mortgage payment that Southern California buyers committed themselves to paying was $1,413 last month, down from $1,458 the previous month, and down from $2,115 a year ago. Adjusted for inflation, current payments are 33.9 percent below typical payments in the spring of 1989, the peak of the prior real estate cycle. They are 45.8 percent below the current cycle's peak in June 2006.

Indicators of market distress continue to move in different directions. Foreclosure activity is at or near record levels, financing with adjustable-rate mortgages is near the all-time low, as is financing with multiple mortgages. Down payment sizes and flipping rates are stable, non-owner occupied buying activity appears flat but might be emerging, MDA DataQuick reported.

Sales Volume Median Price
All homes Oct-07 Oct-08 %Chng Oct-07 Oct-08 %Chng
Los Angeles 4,368 6,824 56.20% $500,000 $355,000 -29.00%
Orange 1,700 2,833 66.60% $573,750 $420,000 -26.80%
Riverside 2,377 4,619 94.30% $356,300 $230,000 -35.40%
San Bernardino 1,603 2,856 78.20% $330,000 $200,000 -39.40%
San Diego 2,327 3,598 54.60% $460,000 $323,500 -29.70%
Ventura 538 802 49.10% $535,000 $375,000 -29.90%
SoCal 12,913 21,532 66.70% $445,000 $300,000 -32.60%
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Paulson: Financial Rescue Is Working

Paulson Remains Reluctant on Auto Maker, Homeowner Aid.
WALL STREET JOURNAL ONLINE
Rescue Is Working, Treasury Secretary Says; 'Turned the Corner' on Stabilization Efforts.

The Treasury secretary said the U.S. has "turned the corner" in preventing a financial collapse, but expressed reservations about aiding auto makers.

Treasury Secretary Henry Paulson expressed fresh reservations Tuesday about tapping a $700 billion bailout pool to aid auto makers and provide mortgage guarantees to help stem soaring home foreclosures.

Mr. Paulson and Federal Reserve Chairman Ben Bernanke defended their management of the bailout program on Capitol Hill, just one week after the administration officially abandoned its original rescue strategy of buying assets from financial institutions.

The U.S. has "turned a corner" in averting a financial collapse, but more work needs to be done to get things back to normal, Mr. Paulson told the House Financial Services Committee.

He also cautioned against using some of the bailout money to provide guarantees for mortgages at risk of falling into foreclosure, but said the administration will look for ways to provide foreclosure relief.

In a break with the administration, Federal Deposit Insurance Corp. Chairman Sheila Bair, also testifying before the panel, pressed anew for using $24 billion of the bailout money to help some American households avoid foreclosure. As foreclosures mount, the government is "clearly falling behind the curve," she warned.

Mr. Paulson also said that although having a U.S. auto company fail during such a fragile time for the economy would not be a "good thing," he remains opposed to diverting $25 billion of the bailout money to aid Detroit as the panel's chairman Rep. Barney Frank, and other Democrats want.

There are "other ways" to help battered auto makers, Mr. Paulson said. "I don't see this as the purpose" of the bailout program, which is intended to stabilize jittery financial markets and get lending flowing more freely again, which eventually should help revive the ailing economy, he said. (See the full text of Paulson's prepared remarks.)

Focusing the bailout program on infusing billions into banks - and possibly other types of companies - to pump up their capital and bolster lending to customers was deemed a faster and more effective approach to stabilizing the financial system than the original centerpiece of the plan, Mr. Paulson said.

Buying financial institutions' toxic debts would have required a "massive commitment" of the bailout money, Mr. Paulson told the panel. As economic and financial conditions quickly worsened, it became clear that the first installment of the money - $350 billion - for that purpose "simply isn't enough firepower," he said.

It's crucial that the administration be nimble in assessing changing conditions and adapt the bailout strategy accordingly, the Treasury chief said. "If we have learned anything throughout this year, we have learned that this financial crisis is unpredictable and difficult to counteract," Mr. Paulson said.

Stemming Foreclosures
Ms. Bair, meanwhile, stressed the government needs to do more to prevent the record cascade of foreclosures.

"Much more aggressive intervention is needed if we are to curb the damage to our neighborhoods and broaden economic health," Ms. Bair said in prepared remarks before the House committee.

The FDIC and the Bush administration for weeks have battled over a Bair-favored plan to more aggressively address the foreclosure issue. Last week, the administration joined with Fannie Mae and Freddie Mac to announce a much more limited plan to address troubled mortgages that has already been panned by many lawmakers who say it doesn't do enough to deal with the crisis.

More broadly, Ms. Bair said the banking industry continues to have a liquidity problem.

"This problem originally arose from uncertainty about the value of mortgage-related assets, but credit concerns have broadened over time, making banks reluctant to lend to each other or lend to consumers and businesses," Ms. Bair said in her remarks.

Ms. Bair said the FDIC, when it supervises the banks it regulates, plans to assess whether firms are using the capital they receive from the federal government to lend back into the economy.

"These considerations are consistent with the precept that the highest and best use of bank capital in the present crisis is to support lending activity," she said.

Ms. Bair also said the FDIC is considering changes to its temporary program to guarantee the senior unsecured debt issued by banks, which it will consider at a board meeting on Friday. "For example, we are considering suggestions with regard to whether the debt guarantee program should cover very short-term funding or whether we should have a tiered fee structure based upon the maturity of the debt guaranteed," Ms. Bair said.

Confusing Signals
Last week, Mr. Paulson changed course and said the government wouldn't use any of the $700 billion to buy bad assets from banks. That had been the focus of the plan Messrs. Paulson and Bernanke originally pitched to lawmakers.

"There is no playbook for responding to turmoil we have never faced," Mr. Paulson said. "We adjusted our strategy to reflect the facts of a severe market crisis."

But lawmakers worried the administration was sending confusing signals to taxpayers and Wall Street investors.

"We all understand that when conditions on the ground change, policy makers must be agile enough to adjust to those changed circumstances," said Rep. Spencer Bachus. "But changing too quickly, without adequately explaining why you've changed or what you're going to do next, risks sending mixed signals to a marketplace that is in dire need of certainty and a sense of direction."

Going forward, the ability of Treasury to use the bailout program for capital injections and to take other steps to stabilize the financial system - including any actions needed to prevent the disorderly failure of a major financial institution - "will be critical for restoring confidence and promoting the return of credit markets to more normal functioning," Mr. Bernanke told the panel.

Mr. Paulson said the department will focus on rolling out a capital injection program to pour $250 billion into banks in return for partial ownership stakes in them.

Treasury also will search for new ways to boost the availability of auto loans, student loans and credit cards, which have been become harder to get due to the credit crisis.

Specifically, the department along with the Federal Reserve, is exploring using some of the bailout money to bankroll a new loan facility designed to help companies that issue credit cards, make student loans and finance car purchases. Mr. Paulson said he expected putting up only a "relatively modest share" of the bailout money for this facility.

Mr. Bernanke said there are "some signs that credit markets, while still quite strained, are improving." Overall credit conditions, he warned, "are still far from normal, with risk spreads remaining very elevated and banks reporting that they continued to tighten lending standards through October."

"There has been little or no bond issuance by lower-rated corporations or securitization of consumer loans in recent weeks," Mr. Bernanke said.

So far, the Treasury Department has pledged $250 billion for banks and has agreed to devote $40 billion to troubled insurer American International Group -- its first slice of funds going to a company other than a bank. That leaves just $60 billion available from Congress' first bailout installment of $350 billion.

Mr. Paulson said he is not planning to initiate another capital injection program beyond those already announced. Thus he's unlikely to tap the remaining $350 billion before the Bush administration leaves office on Jan. 20. That would mean the incoming administration of President-elect Barack Obama would decide whether and how the money should be spent.

The idea behind the capital injection program is for banks to use the money to rebuild reserves and lend more freely to customers. However, banks do have the leeway to use the money for other things, such as buying other banks, paying dividends to investors or bonuses to executives. That has touched a nerve with some lawmakers.

Locked-up lending is a prime reason why the U.S. is suffering through the worst financial crisis since the 1930s. All the fallout from the housing, credit and financial crises have badly hurt the economy, which is almost certainly in recession, analysts say.

—Michael Crittenden, Brian Blackstone and the Associated Press contributed to this article.
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