Real Estate Outlook: Numbers Best in Months

Either way you present it total resales were essentially flat from month to month, hardly as dramatically negative as the scare headlines had it. Maybe we're at bottom, maybe not, but the fact is: Sales are not falling off the charts.
By: Kenneth R. Harney: Realty Times
Every week, it seems, there's a battle of conflicting numbers when it comes to housing.

The latest existing home sales survey from the National Association of Realtors is a perfect example. You may have seen the news reports about another bad month for resales - down for the sixth straight month, according to the Associated Press, to the "lowest level" in almost a decade.

But take a closer look: Yes, resales were lower by four tenths of one percent in January, but they were down from an upwardly-revised total for December.

Drill down just a little deeper and you find that resales of single family detached houses were actually up in the latest month - up by one-half of one percent. Condominium and cooperative sales, on the other hand, took a sharper drop - falling by 6.5 percent, and that dragged down the national sales total overall.

So the real news was mixed: Sales of detached single family units ROSE in January while condos and cooperatives were down.

Either way you present it, though, total resales were essentially flat from month to month, hardly as dramatically negative as the scare headlines had it. Maybe we're at bottom, maybe not, but the fact is: Sales are not falling off the charts.

Also last week, there were some other mildly positive economic signs: Construction starts of new houses rose by eight tenths of a percent, and home builder confidence - as measured by the Wells Fargo/National Association of Home Builders poll - rose slightly as builders reported seeing stronger flows of shopper traffic through their model homes.

Again, there's nothing dramatically positive here, but the numbers are better than they've been in months. They simply got drowned out by all the gloom-mongering.

Even the Conference Board, a research group that represents a broad spectrum of U.S. industries far beyond real estate, said things are beginning to look up for housing. Chief economist Gail Fosler said in a report last week that "the housing market correction is about over … . Housing affordability is beginning to improve, and with the recent interest rate cuts and house price declines, it should improve further."

January and February, said Fosler, "are not big months for housing, but rising affordability (plus favorable demographic trends) bode well" for the overall outlook.

Fosler's economic report preceded last week's jumps in mortgage rates - taking 30-year rates back over 6 percent - but her forecast on where housing is headed is significant.

Someone's got to call the turnaround. Fosler thinks it could start this Spring.

We'll watch and see.
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Bernanke Doesn't See Return of '70s Woes

Bernanke Dismisses Worries About US Economy Returning to '70s-Style 'Stagflation'
By: Jeannine Aversa: AP
Federal Reserve Chairman Ben Bernanke told Congress Thursday that the nation isn't "anywhere near" the dangerous stagflation situation of the 1970s.
With the economy slowing and inflation rising, fears have grown that the country could be headed for the dreaded twin evils of stagnant growth and rising prices known as "stagflation."

"I don't anticipate stagflation," Bernanke told the Senate Banking Committee. "I don't think we're anywhere near the situation that prevailed in the 1970s."

"I do expect inflation to come down," he added. "If it doesn't, we will have to react to it."

High energy prices and rising inflation do complicate the Fed's job of trying to keep the economy growing and inflation contained, Bernanke acknowledged.

Energy prices are creating "inflationary stress," Bernanke said. And, that is "complicating" the Fed's work in terms of shoring up the economy, he said. Oil prices galloped past $100 a barrel on Thursday. Gas prices, meanwhile, rose closer to records above $3 a gallon.

President Bush, at a news conference Thursday, noted the slow economic growth but said the nation isn't headed into a recession.

He rejected calls for additional stimulus efforts, instead advising patience. "Why don't we let stimulus package one, which seemed like a good idea at the time, have a chance to kick in?" Bush said at the White House.

Bernanke's testimony in the Senate caps back-to-back appearances on Capitol Hill that started in the House on Wednesday. The Fed chief's overarching economic message was the same on both days: The Fed stands ready to lower a key interest rate yet again to bolster the struggling economy.

Many fear the country is hurtling toward a recession or is in one already.

The central bank started lowering a key interest rate in September. Over just eight days in January, the Fed shaved 1.25 percentage points, the biggest one-month reduction in a quarter century. Economists and Wall Street investors predict the Fed will cut rates again at its next meeting, March 18.

Just before Bernanke testified, the government reported that the economy nearly stalled in the final quarter of last year. It grew at a pace of just 0.6 percent, a big loss of momentum compared with the prior quarter's brisk 4.9 percent growth rate.

The committee's chairman, Sen. Christopher Dodd, D-Conn., described the nation's economic situation as "very serious, if not perilous."

Dodd said: "Growth is slowing. Inflation is rising. Consumer confidence is plummeting, while indebtedness is deepening."

Bernanke indicated he is prepared to lower rates even as high oil prices heighten inflation risks.

To energize the economy the Fed cuts rates. To combat inflation, it would boost rates. Rising inflation can reduce the Fed's maneuvering room in terms of revving up a slowing economy.

"We are concerned," Bernanke said. "We are trying to balance a number of different risks against each other," he told lawmakers.

Still, Bernanke is hopeful that energy prices - and overall inflation - will moderate somewhat this year.

And, he expresses hope that the economy will turn stronger in the second half of this year, helped by the Fed's rate reductions and the recently enacted rescue package of rebates for people and tax breaks for businesses.

"I realize that my testimony wasn't the most cheerful thing you'll hear today ... but I do very much believe that the U.S. economy will return to a strong growth path with price stability," Bernanke said.

Sen. Richard Shelby, R-Ala., however, worried that rising inflation could make it harder for the Fed to steady the wobbly economy.

Shelby wondered "how much more room the Federal Reserve will have to provide further monetary accommodation without threatening long-term price stability, which is very important to all of us."

He added: "While it's difficult to see our nation's economy experience minimal growth, the consequences of failing to restrain inflation will be far more painful and more difficult to unwind."

Bernanke, however, said the Fed's No. 1 battle right now is to shore up the economy. "At the moment, the greater risks are to the downside," Bernanke said, referring to shaky economic growth and turmoil in financial markets.
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Lawmakers Plan Another Housing-Related Stimulus Bill

Top Democrats intend to take up a second stimulus package focused on housing-related issues - a potent political issue this year.
By: Sarah Lueck: The Wall Street Journal Online
A tax break for home builders and higher caps on state mortgage-revenue bonds are among the proposals Senate Democrats plan to take up this month to address the troubled housing market.

With one economic-stimulus bill now signed into law, top Democrats said they intend to turn to a second package focused on housing-related matters -- a potent political issue this election year.

It is unclear how far the bill might get, although it may at least provide fodder for political finger-pointing. Despite the bipartisan aura that sped passage of the first stimulus bill, some parts of this one are likely to draw criticism from Republicans, especially a change in bankruptcy law that would allow judges to alter the terms of certain mortgages. The House Judiciary Committee passed a similar proposal late last year, and the banking industry has lobbied hard against it. The White House has resisted a second stimulus bill.

The first stimulus bill "was absolutely necessary, but it isn't sufficient," said Sen. Richard Durbin (D., Ill.), the majority whip. Senate Majority Leader Harry Reid of Nevada said he would bring the bill to the Senate floor the week after next.

In the House, nonhousing measures such as an extension of unemployment benefits have drawn interest. "We all have our ideas," said House Speaker Nancy Pelosi (D., Calif.) when asked about the Senate proposal. "But I don't think we should confine it to just that tactic."

Some of Senate Democrats' proposals are popular in both parties, such as a tax break allowing companies with operating losses this year or the two previous years to apply them to past years for a refund. That could please home builders, who attacked the first bill. "As far as we are concerned, Congress hasn't done enough to help the housing market," said Jerry Howard, chief executive of the National Association of Home Builders. This week the group cut off congressional campaign donations.

The group is also pushing for a tax credit for home buyers. A similar measure in the 1970s helped clear a glut of unsold new homes, said David Seiders, its chief economist. Sen. Johnny Isakson (R., Ga.) is pushing a tax-credit proposal, but it doesn't yet have traction with Democrats.

In a move that could help attract Republicans, Mr. Reid said the revenue lost to the tax break wouldn't be offset, as normally required under House and Senate budget rules. He said he hoped to get Republican support for the package.

A spokesman for Senate Minority Leader Mitch McConnell (R., Ky.), said Republicans "look forward to this discussion" and want to make sure "we don't tax and spend our economy into a dangerous slowdown."

Another provision would allot an additional $10 billion in bond authority so housing-finance agencies can give more help to people refinancing subprime loans or first-time buyers. President Bush recently backed this idea.

The bill also includes $4 billion in block grants so localities with high foreclosure rates can buy and rehabilitate unoccupied property and $200 million for pre-foreclosure housing counselors.

-Damian Paletta contributed to this article.
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Bernanke says economic outlook is worse

Federal Reserve Chairman Ben Bernanke told Congress Thursday the economy is deteriorating and signaled a readiness to keep on lowering a key interest rate to shore things up.
By: JEANNINE AVERSA: AP Associated Press
Bernanke also told the Senate Banking Committee that the one-two punch of housing and credit crises has greatly strained the economy. And he forecast sluggish growth in the near term. Bernanke also noted that hiring has slowed and that people are likely to tighten their belts further because of high energy prices and plummeting home values.

"The outlook for the economy has worsened in recent months, and the downside risks to growth have increased," Bernanke said. "To date, the largest economic effects of the financial turmoil appear to have been on the housing market, which, as you know, has deteriorated significantly over the past two years or so."

Bernanke also told senators that the "virtual shutdown" of the market for subprime mortgages given to people with blemished credit histories or low incomes — and a reluctance by skittish lenders to make "jumbo" home loans exceeding $417,000 — have aggravated problems in the housing market.

Unsold homes have piled up and foreclosures have climbed to record highs.

"Further cuts in homebuilding and in related activities are likely," Bernanke cautioned.

Given all the dangers facing the economy, he said, the Fed "will act in a timely manner as needed to support growth and to provide adequate insurance against downside risks." Bernanke indicated that additional rate cuts were likely. Still, he voiced hope that economic growth will improve later this year.

Bernanke's Hill appearance with Treasury Secretary Henry Paulson and Christopher Cox, chairman of the Security and Exchange Commission, came amid escalating worry that the economy may be drifting into recession. The troubles in the housing and credit markets alone threaten to push the economy into its first recession since 2001 — if it hasn't fallen into one already.

Bernanke and Paulson don't believe the country will fall into a recession. Their forecasts still call for growth, albeit slow growth, they said. However, the pair did say Thursday that the administration and the Fed are expected to downgrade their economic forecasts for this year.

"It would be less, but I do believe we'll keep growing," Paulson said. Bernanke said a new Fed forecast due next week will "show lower projections of growth ....growth looks to be weak, but still positive."

On Wall Street, Bernanke's bearish assessment pulled stocks lower. The Dow Jones industrials were down more than 100 points in afternoon trading.

The Federal Reserve, which started lowering a key interest rate in September, has recently turned much more aggressive. Over the span of just eight days in January, it slashed rates by 1.25 percentage points — the biggest one-month rate reduction in a quarter-century. Economists and Wall Street investors believe the Fed will cut rates even more at its next meeting in March and probably again in April.

"Our economy is clearly in trouble," said the committee's chairman, Sen. Christopher Dodd, D-Conn. Restoring investor and consumer confidence, he said, is critical "if we are going to get back on our feet again."

Bernanke said his forecast is for the economy to continue to endure a "period of sluggish growth." That would be "followed by a somewhat stronger pace of growth starting later this year" as the effects of the Fed's rate cuts and a newly enacted stimulus package begin to be felt. The $168 billion package, which includes rebates for people and tax breaks for businesses, was speedily passed by Congress last week and signed into law on Wednesday by President Bush.

Sen. Richard Shelby, R-Ala., was skeptical, saying he thought the energizing impact of rebates would be "negligible" and likened the action to "pouring a glass of water into the ocean."

Even though Bernanke's forecast envisions an improving economic picture later this year, the Fed chief said it was nonetheless "important to recognize that downside risks to growth remain, including the possibilities that the housing market or the labor market may deteriorate to an extent beyond that currently anticipated" or that credit will become even harder to secure.

That's why, for now, Bernanke indicated the Fed is still inclined to lower interest rates.

Yet, that could change, depending on how the economy and inflation unfold.

"A critical task for the Federal Reserve over the course of this year will be to assess whether the stance of monetary policy is properly calibrated to foster our mandated objectives" of promoting healthy employment and economic growth while keeping inflation under control.

Sen. Robert Menendez, D-N.J., criticized policymakers for what he believed was a too slow response to the housing crisis. "We count on those at the top ... to sound an alarm," during a crisis, he said. Instead, "what we got was a snooze button ... we've been behind the curve."

Noting spreading credit problems, Sen. Charles Schumer, D-N.Y., asked whether policymakers underestimated the severity of the situation.

Replied Paulson: "It's one thing to identify a problem. It's another thing to know exactly what to do about it."

Lax credit standards during the days of the housing boom provided the spark that led to the current economic woes, Paulson said. "We had a dry forest out there," the secretary said.

Meanwhile, Paulson said the administration's efforts to help people at risk of losing their homes is paying off.

Paulson said that in the final three months of last year, more than 470,000 homeowners got help from companies servicing their mortgages and almost 30 percent of those received a loan modification. He insisted the administration was working hard to help, and called the problems facing some struggling homeowners "heartrending."

In terms of clues for an economic turnaround, Bernanke said the Fed would need to see signs of stabilization in the housing and labor markets and improvements in credit markets. For now, he said, the Fed doesn't expect a "rip roaring" jobs market. Employers in January cut jobs for the first time in more than four years.
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Developers target land near Hollywood sign

Owners want to sell the 138-acre ridge near the sign. Opponents say it would mar one of L.A.'s most famous landmarks.
By: Bob Pool: Los Angeles Times
Owners of Cahuenga Peak say the city hasn't come up with funds to buy the $22-million residentially zoned land, so it's up for sale. 'That mountain should not be cluttered,' a councilman says.

They're sticking a "For Sale" sign next to the Hollywood sign.

A Chicago investment group said Tuesday that Los Angeles officials have failed to come up with the cash to preserve the mountaintop next to the iconic sign, so it has put the ridge up for sale.

Cahuenga Peak, which boasts a panoramic view, will carry a $22-million price tag, its current owners said.

The 138-acre mountaintop is zoned for five luxury homes, according to investment group partner Keith Dickson. "It could be used for one large home or a family compound," he said.

Dickson's Fox River Financial Resources acquired the mountaintop in 2002 from the estate of Howard Hughes for $1,675,000.

The eccentric tycoon had purchased it in 1940 with plans to build a love nest for actress Ginger Rogers.

But she balked at that idea, fearing that the reclusive Hughes would "lock me up in a hilltop house and never let me see anyone," as Rogers later put it.

The impending listing is already generating loud protests from city officials and Hollywood residents, who say building homes on Cahuenga Peak would mar one of L.A.'s most famous views and scar a pristine hilltop with homes.

"That mountain should not be cluttered," said L.A. Councilman Tom LaBonge. "It's good for the psyche of Los Angeles."

For the last several years city leaders have scrambled to raise money to buy the ridge from Fox River and turn it into an extension of Griffith Park. So far, they've accumulated about $5 million.

The city had intended to ask the nonprofit Trust for Public Land to negotiate a selling price with the Chicago owners. Two months ago, a city-commissioned appraisal calculated that the mountaintop was worth about $6 million.

LaBonge was stunned Tuesday by Cahuenga Peak's asking price. "If they come to City Hall and do the right thing, they can still make a nice profit," he said of its current owners.

"The city should acquire this land," he said. "Everyone was shocked to find out it was privately owned. Everybody thought the city already owned it."

Dickson suggested that city leaders may have dragged their feet because they thought the acreage was land-locked - inaccessible and thus undevelopable.

But the developers insist the land is accessible, thanks to Hughes' actions back in the 1940s.

He sued to obtain an easement to his peak property. In 1949 the city settled the lawsuit, granting Hughes a 100-foot-wide access to the site from the dead end of Wonder View Drive, said Mark Ward, a partner in the investment group.

In addition, the eastern edge of the property comes within a few yards of another road, the city's Mt. Lee Drive, which crosses the ridge top above the Hollywood sign.

Fox River executives are listing the acreage with Teles Properties of Beverly Hills. Ernie Carswell, one of the listing agents, said the peak is zoned for five homes.

"When you look at photographs of it, it looks steep. But it's much more gentle-sloping than what you see in places such as Bel-Air. The tops of the ridges are smooth," Carswell said.

He said public outcry over home construction on Cahuenga Peak would be muted when people realized that most of the development site is on a ridge behind the hillside with the Hollywood sign.

"Nothing will obstruct the Hollywood sign. Homes would be built above it and behind it," Carswell said.

But the homes would be seen from a broad area south of the Hollywood Hills, including the nearby Hollywood Freeway.

Once the property was sold, the owners would have to clear any building plans with the city. But given the fact that the land is already zoned for residential use, it's unclear on what basis the city could reject homes there. It would be up to the new owners to install utility lines, water service and a road into the property.

The Hollywood Hills have seen a boom in construction on remote, rugged tracts in recent years as the technology for building into hillsides has improved. Parcels in such places as Laurel Canyon that for decades were considered unbuildable now have homes on them.

Real estate agent Sarah Blanchard, who shares the listing, said the peak "could be used for one house, or it could be kept a wilderness with somebody's name on it."

From the 1,821-foot peak, there are unobstructed views south to the ocean and north to the San Fernando Valley. Catalina Island is visible on clear days.

Blanchard speculated that the property would attract the interest of wealthy overseas buyers anxious to take advantage of the soft American dollar.

"Don't rule out someone from China or the United Arab Emirates," Dickson said.

Others, however, said they hoped Los Angeles' last privately owned, undeveloped promontory ridge ended up in public hands.

"I think it goes without saying that it would be a mistake to build homes there," said Leron Gubler, president of the Hollywood Chamber of Commerce. "It would be very unfortunate."
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Six lenders throw seriously delinquent borrowers a lifeline

Loan mods promised as Congress weighs bankruptcy 'cram-downs'
By: Matt Carter: Inman News
Six major lenders have agreed to work with seriously delinquent homeowners, putting foreclosure proceedings on hold for up to 30 days to offer some borrowers workout plans that would lead to formal loan modifications if they can make reduced loan payments for three months.

Backers of the new initiative, Project Lifeline, say it goes beyond previous outreach efforts by lenders in that it targets borrowers who are already behind on their payments by 90 days or more and covers all types of loans, including, prime, alt-A, second-lien and home-equity loans.

Participating Project Lifeline lenders - Bank of America, Citigroup, Countrywide Financial Corp., Chase, Washington Mutual and Wells Fargo - are sending letters to seriously delinquent borrowers. Borrowers who receive the letters must call their mortgage servicer within 10 days, agree to seek financial counseling, and provide updated financial information that can be used to draw up a workout plan.

In cases where lenders think a workout may be a better alternative than foreclosure, pending foreclosures will be put on hold for up to 30 days while a review process is undertaken and a new payment plan is drawn up. Borrowers who are approved for a workout plan that lowers their monthly payments will have their loan terms formally modified if they can prove they're able to meet the new terms by making payments for three consecutive months.

Details about the Project Lifeline program were unveiled at a press conference today attended by Treasury Secretary Henry Paulson and Housing Secretary Alphonso Jackson.

Jackson used the press conference as an opportunity to renew his calls for Congress to pass an FHA modernization bill, saying it could expand Federal Housing Administration loan guarantee programs to serve 250,000 additional borrowers.

The Project Lifeline initiative comes as the lending industry tries to dissuade Congress from passing new laws that would give bankruptcy judges the power to "cram down" the monthly mortgage payments of borrowers who file for Chapter 13 bankruptcy protection by rewriting loan terms or reducing a loan's principal.

Sheila Bair, chairwoman of the Federal Deposit Insurance Corp., has warned that lenders aren't engaging in workouts fast enough to slow the pace of foreclosures. A recent survey of bank loan officers by the Federal Reserve suggested that one of the biggest obstacles to engaging in workouts with borrowers will be keeping them from walking away from homes that are worth less than the balance of their mortgage. Bair said in some cases, lenders will have to start writing down principal on some loans.

Bank of America executive Floyd Robinson said that in some cases where falling home prices have left homeowners "upside down," or owing more than their home is worth, BofA would be willing to forgive part of their debt. But Robinson said he couldn't speak for other Project Lifeline lenders, and that the initiative does not establish criteria for lenders to follow in deciding whether to forgive principal.

Paulson said there will be those -- particularly those who were trying to make a profit during the housing boom -- who end up upside down, and "who just choose to walk away. This program isn't intended to deal with that."

Project Lifeline lenders, who service about half of all mortgages nationwide, said they hope the program will serve as a blueprint for other loan servicers who join the initiative. All 90-day delinquent loans serviced by Project Lifeline lenders are eligible for the program, unless they are in active bankruptcy, in foreclosure with a sale date less than 30 days away, or if the home is an investment property or vacant.

The six members participating in Project Lifeline are also members of the HOPE NOW coalition, a separate effort to speed up the process of loan modifications for subprime borrowers with adjustable-rate mortgage (ARM) loans. That program is targeted at hybrid ARM borrowers who are current on their payments but who face higher monthly payments when their introductory interest rates expire. HOPE NOW loan servicers have adopted guidelines intended to streamline loan modifications such as "freezing" the introductory interest rate on ARM loans for five years.

Members of the HOPE NOW coalition last week said that a survey of some of the group's members suggests that the lending industry as a whole made 336,000 loan modifications in 2007 and initiated 1.18 million formal repayment plans (see Inman News story).

Another survey of loan servicers published by the State Foreclosure Prevention Working Group found that in October, seven out of 10 delinquent borrowers were not on track for any loss mitigation program.

Sen. Chris Dodd, D-Conn., has proposed creating a Federal Homeownership Preservation Corp. to purchase mortgage loans at risk of foreclosure at a discount and move homeowners into 30-year fixed-rate mortgages backed by the FHA, Fannie Mae or Freddie Mac (see story).

Asked by a reporter about Dodd's proposal, Paulson rejected it out of hand, saying it was modeled after a program put in place during the Great Depression, when unemployment and mortgage default rates were much higher and programs like Federal Housing Administration loan guarantees did not exist.

"Our view here is what we've had is housing prices go up for a long time at prices that were unsustainable -- there needs to be a correction," Paulson said.

Paulson also dismissed a question by a reporter who wanted to know if there will be fewer foreclosures in 2008, and if the worst of the problems in the housing market were over.

"The worst isn't over; the worst is just beginning," Paulson said. With about 2 million subprime ARM resets yet to come, he said, "what's going on in the housing market is not over; it's going to take longer."
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Lenders Team up to Curb Foreclosures

A half-dozen of the nation's largest mortgage lenders are stepping up efforts to save home owners from foreclosure in a plan called Project Lifeline.
By: Marcy Gordon: REALTOR®Magazine
Six major lenders have agreed to allow seriously overdue home owners to suspend foreclosures for 30 days, giving them time to work out affordable loans.

The plan called Project Lifeline is being announced today by the Department of Housing and Urban Development.

Initially, the pilot program will involve Bank of America Corp., Citigroup Inc., Countrywide Financial Corp., JPMorgan Chase & Co., Washington Mutual Inc., and Wells Fargo & Co.

All six lenders are currently involved in the Hope Now plan, the deal the Bush administration brokered last year to freeze rates on some high-cost subprime mortgages for five years to aid borrowers whose introductory rates had jumped.

The new plan applies to seriously delinquent home owners whose mortgages are 90 or more days past due.
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Countrywide to Help More Borrowers

Countrywide Financial Corp. said Monday that it will expand its existing programs to help borrowers with subprime loans who are struggling.
By: ALLEN P. ROBERTS Jr.: Los Angeles Business Journal Online
Countrywide said that the program is the culmination of a deal the Calabasas-based lender had reached with the Association of Community Organizations for Reform Now, or ACORN, and calls for Countrywide to try to manage payment plans for borrowers who are already behind in payments, regardless of which type of subprime loan they have.

This is the second such program Countrywide has introduced. In October, the nation’s largest lender and mortgage loan servicer said it would work out repayment plans for borrowers in danger of foreclosure. The company said last month those actions helped more than 81,000 borrowers keep their mortgage payments manageable.

“Through this partnership, Countrywide and ACORN have agreed to a set of home retention standards to help borrowers who are in various situations of financial difficulty to establish suitable repayment plans or other solutions," Steve Bailey, Countrywide's senior managing director of loan administration, said in a statement.

Under the ACORN plan, borrowers with hybrid adjustable-rate mortgages, which typically were issued with a low interest rate that adjusts higher after two or three years, can be offered the option of refinancing into a lower-rate loan, or have their initial interest rate frozen for as much as five years.

“We hope others in the mortgage servicing industry will adopt similar practices,” Maude Hurd, national president of ACORN, said in a statement.

ACORN is the nation's largest community organization of low and moderate-income families in 80 cities across the country.

Shares in countrywide were up 6 cents to $6.64 in early trading Monday on the New York Stock Exchange.
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Fed's interest-rate cuts will benefit ARM, HELOC borrowers

Effect on long-term rates remains to be seen
By: Matt Carter: Inman News
The unscheduled and dramatic cut in short-term interest rates announced today by the Federal Reserve will provide immediate relief for borrowers with home-equity loans or facing interest-rate resets, mortgage market experts say.

But long-term rates - which were at 2 1/2-year lows before today's 75-basis-point reduction in the discount rate and the target for the federal funds overnight rate - could move in the other direction if bond market investors get nervous about inflation.

For now, the Fed seems to have decided that the threat of a recession far outweighs the risk of inflation, making in a single day cuts in short-term rates some observers had expected would be stretched out over months.

"Just a few weeks ago, the consensus was that the Fed would cut no more than 75 basis points, and 3.25 percent would be trough," said Freddie Mac's chief economist Frank Nothaft. "We're there already. So are we at the low point? It's really hard to say."

Nothaft said the Federal Reserve's Open Market Committee could cut rates again when it holds its scheduled meeting Jan. 29-30. Or its members may want to wait and see how to today's dramatic move affects economic indicators.

The rate cuts are "certainly good news for people who have mortgages, or are shopping for a mortgage," Nothaft said. For those with adjustable-rate mortgages (ARMs) indexed to the prime rate or home-equity lines of credit (HELOC) loans, "this shows up right away in terms of lower interest rates," as banks follow suit and lower the prime rate to 6.5 percent. For ARM borrowers facing interest-rate resets, Nothaft said, that translates into a smaller increase in payments, and "maybe even a decline."

According to Freddie Mac's most recent weekly survey of mortgage rates (see Inman News story), the 5.69 percent rate on a 30-year fixed-rate loan was the best in 2 1/2 years. While it remains to be seen what effect the cut in short-term rates will have in the long run, rates on 10-year Treasurys fell today as stocks bounced back from earlier losses, Nothaft said.

Although rates on 10-year Treasurys are not linked directly to mortgage rates, they tend to move in the same direction, as they play a similar role in investor's portfolios.

"It helps more than it hurts," said Doug Duncan, the chief economist for the Mortgage Bankers Association. "It's probably not going to bring long rates down much further, but it certainly brings short rates down, and has some positives for the whole economy and housing."

Duncan said what happens with long-term rates depends largely on whether market participants think the Fed has gone far enough with short-term cuts.

If today's cuts are seen as adequate, "that increases expectations of future economic growth, and may establish a sort of bottom where the 10-year Treasury yield is going to go," Duncan said. "I don't expect the 10-year Treasury yield to go much (lower), unless there were a whole bunch more difficult financial announcements made in the next couple of months."

What the rate cuts probably won't do is restore investor confidence in the secondary market for mortgage loans not guaranteed by Freddie Mac and Fannie Mae. That means borrowers seeking subprime and so-called jumbo loans will continue to pay much higher rates than offered during the housing boom.

Although the secondary market for loans within the $417,000 conforming loan limit "is working just fine," Nothaft said, rates on jumbo loans are about a full percentage point higher than those for conforming loans.

The National Association of Realtors and some Democrats in Congress are pushing for a 50 percent increase in the conforming loan limit to allow Fannie and Freddie to buy or guarantee loans that are now considered "jumbo."

The Bush administration wants stricter oversight of Fannie and Freddie in place before it will go along with an increase in the conforming loan limit, saying the bigger loans may involve more risk, and reduce the number of smaller loans the government-sponsored enterprises can back.
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What the Fed Cut Means For Your Mortgage

Learn what the Federal Reserve's rate cut means to your mortgage and your home’s financial future.
CNBC
On days like this, I think it’s important to go back to the ol’ mortgage primer and figure out exactly what all this news means to you, to your mortgage, to your home equity line and to your home’s financial future. I’ve said it before, and I’ll say it again: the 30-year fixed is not tied to short-term treasuries.

Fixed mortgage rates are tied to long-term bond yields that move based on the outlook for the economy and inflation. And guess what? The long-term outlook for the economy isn’t exactly rosy right now.

Today’s rate cut does affect short-term adjustable rate mortgages, but not really as much as you might think. Why? Because this rate cut was already priced into the market, maybe not three quarter's point, but definitely a half-point. So if you are facing a reset on your ARM, you’re in much better shape today than you were just six months ago.

For example, if your rate adjusts Feb. 1st, and your ARM is pegged to the 1-year treasury, than your reset is going to be to 5.25 percent as opposed to the 7.5 percent that it would have been in August. That’s going to make the payment much more manageable.

So does this cut stem the foreclosure crisis? Maybe a bit on the margins, but not really, and here’s why: the bulk of the folks facing foreclosure because they can't make their monthly payments have no equity in their homes and no money to put down on a refinance.

While rates might be lower, this is a market where lenders and investors are much more aware of risk and will gravitate toward borrowers that represent less risk. So many folks will still find themselves in trouble. For people who are having trouble paying the initial rate on the loan, forget it. No help there.

As for those looking to buy a home, that is, get a new mortgage, while ARM rates may be lower, the mortgage landscape is still a far far different tundra than it was just a year ago. You can’t do a stated income loan anymore, and you can’t do 100 percent financing. Tighter standards don’t change with a rate cut.

And I want to add my two cents here about a home equity line of credit. Yes, the rates are lower now, but I really don’t think that means we should all start using our homes as ATM’s again, which is what got us all in trouble in the first place. This is a time to pay off debt, not to gather more. The housing market is still in trouble.

The statement from the Federal Reserve this morning: “incoming information indicates a deepening of the housing contraction as well as some softening in labor markets.” We all know the price correction in housing is still underway with home prices across the nation (yes, I know, some markets worse than others) expected to fall further, so this is no time to put your home in more hoc. Just my two cents, which I’m putting in the bank as we speak.
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Mortgage Markets Get a Hand from BoFA

The giants are taking hold of the mortgage industry. Bank of America's purchase of Countrywide is a vote of confidence in the revival of the housing industry.
By: James R. Hagerty: The Wall Street Journal Online
The giants are taking control of the home-mortgage market.

Friday's agreement for Bank of America Corp. to buy Countrywide Financial Corp. for $4 billion shows how size and financial solidity are trumping everything else in mortgage lending. With the heft to withstand rising defaults and falling home prices, these big companies are helping prevent a total shutdown of mortgage lending.

"Bank of America stepping in right now is a very good thing for the market" because it signals confidence in an eventual revival of the housing and mortgage markets from what appears to be the worst slump since the Great Depression, said Susan M. Wachter, a finance and real-estate professor at the University of Pennsylvania's Wharton School.

There is a price to pay: Their greater role means less competition and higher costs for consumers, at least in the short run.

But giant banks like Bank of America have the ability to finance their lending relatively cheaply through deposits and to keep on their books loans that are hard to sell to investors. That insulates them from the market fears that, in the past year, have knocked thousands of small and midsized lenders and brokers out of business because they could no longer find takers for loans they generate or borrow money at reasonable rates.

Those fears may drive other big mortgage lenders into deals. Washington Mutual Inc., which had 5.9% of the mortgage market in the first nine months of 2007, has been struggling with heavy loan losses and is considered a potential takeover candidate, as is IndyMac Bancorp Inc., whose share was 3.3%. Both Washington Mutual and IndyMac operate thrifts and are heavily focused on home mortgages.

One potential buyer for Washington Mutual is J.P. Morgan Chase & Co., which has expressed interest in expanding its retail-banking franchise in places like California and the Southeast. Executives at J.P. Morgan also have expressed interest in other regional banks.

The Bank of America purchase is "the first step on a new way of life" for the mortgage industry, said Paul J. Miller Jr., an analyst at Friedman, Billings, Ramsey & Co. To survive, major lenders will have to hold more capital and charge higher interest rates, in relation to their cost of funds, to compensate for the risks of home loans. Those risks have increased because house prices are falling, lowering the value of collateral, and it is no longer easy to sell loans other than those that match the criteria for sale to government-sponsored mortgage investors Freddie Mac and Fannie Mae.

Having a well-known name like Bank of America or J.P. Morgan Chase also is important in this period of turmoil because home buyers, and the real-estate agents who advise them, don't want to risk finding out at the closing table that their lender has just shut down. "Right now people are afraid, and they're looking for certainty," said Tom LaMalfa, a managing director of Wholesale Access, a mortgage-research firm in Columbia, Md. He said many are willing to pay a bit more in fees or interest rate to get a loan from a lender they view as solid.

The shakeout follows an unprecedented boom. During the first half of the decade, when falling interest rates encouraged millions of Americans to refinance, big lenders couldn't keep up with demand. That left plenty of room for small lenders and mortgage brokers, which originate loans for sale to bigger lenders.

Now, defaults are forcing lenders to tighten their standards, and mortgage volume has been plunging, along with home sales. The Mortgage Bankers Association has projected home mortgage originations of about $1.86 trillion this year, down from a peak of $3.95 trillion in 2003.

With much less business, big lenders are much less inclined to accept loans generated by brokers, especially as those loans in the past often have been more prone to default. The number of mortgage-brokerage firms - mostly tiny operations with a handful of employees - has dropped to 40,000 from 53,000 a year ago, estimates Mr. LaMalfa of Wholesale Access. He thinks the number is likely to fall to 30,000 by the end of this year.

Mr. LaMalfa thinks brokers will remain a significant part of the mortgage business because they tend to have low costs, a willingness to work in the evenings or on weekends and an ability to reach borrowers in neighborhoods with few or no bank branches.

For now, lenders are being forced to concentrate on loans that either can be sold to Fannie or Freddie or those considered safe enough to retain as long-term investments.

For Bank of America, buying Countrywide will gain it a commanding position in mortgages. Bank of America and Countrywide had a combined market share of about 25% in the first nine months of 2007, according to Inside Mortgage Finance, a trade publication. That puts them far ahead of the No. 2 mortgage lender, Wells Fargo & Co., with a market share of about 11%. The other top contenders in terms of loan volume are Citigroup Inc. and J.P. Morgan Chase, which both had about 8% of the market in last year's first nine months.
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Housing Scams More Than Double

The FBI expects even more this year, particularly with foreclosure scams that prey on home owners desperate to save their homes.
By: Donna Leinwand: REALTOR® Magazine
According to the FBI, the agency took on 1,210 new cases of mortgage fraud during the last fiscal year — nearly three times the caseload for 2003.

The agency saw its conviction rate more than double to 260 in 2007, from 123 in fiscal 2006. Financial crimes section chief Sharon Ormsby predicts the number will likely rise even further this year.

That is, in part, because the FBI expects more foreclosure scams to emerge as an increasing number of home owners caught up in the subprime loan fiasco resort to desperate measures to try and save their homes.

Ormsby also says more new fraud cases may be tied to reverse mortgages, which allow senior home owners to borrow against their equity.
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Pending Sales Activity Expected to Rise Later this Year

Over the next few months, existing-home sales are expected to hold fairly steady as indicated by pending sales activity, then rise later in the year and continue to improve in 2009, according to the latest forecast by the National Association of Realtors®.
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Lawrence Yun, NAR chief economist, said there is a pull and tug exerting itself on the market. “On the one hand, we have a pent-up demand from the four million jobs added to our economy over the past two years of sales decline,” he said. “On the other, consumers continue to wait for additional signs of market stabilization. There are more people with financial capacity now than in 2005, but many are trying to market-time their purchase. As a result, the exact timing and the strength of a home sales recovery is a bit uncertain. A meaningful recovery in existing-home sales could occur as early as this spring, or it may be further delayed toward late 2008.”

According to NAR, the Pending Home Sales Index, a forward-looking indicator based on contracts signed in November, fell 2.6% to a reading of 87.6 from a strong upward revision of 89.9 in October, but remains above the August and September readings and indicates a broad stabilization. The index was 19.2% below the November 2006 level of 108.4.

“Although there could be some minor slippage in the first quarter, existing-home sales should hold in a narrow range before trending up,” Yun said.

The PHSI in the South rose 2.3% in November to 100.7 but is 19.8% below a year ago. In the West, the index slipped 2.1% to 86.6 but is 18.5% lower than November 2006. The index in the Midwest fell 4.1% in November to 82.1 and is 18.6% below a year ago. In the Northeast, the index dropped 13.0% in November to 70.1 from a spike in October, and is 19.1% below November 2006.

Existing-home sales for 2007 will probably total 5.66 million, the fifth highest on record, then edge up to 5.70 million this year and 5.91 million in 2009, compared with 6.48 million in 2006. Existing-home prices for 2007 are likely to be down 1.9% to a median of $217,600, hold even this year and then rise 3.1% in 2009 to $224,400.

“Rising home prices in the affordable midsection of the country are likely to offset declines in some of the previously hot markets,” Yun said.

There are wide variations in housing market conditions around the country, with nearly two-thirds of the metropolitan areas showing price gains. Healthy increases in metro prices are occurring in places such as Pittsburgh; Beaumont-Port Arthur, Texas; San Jose, Calif.; and Bismarck, N.D.

“Our consumer survey shows buyers today are in it for the long-haul, planning to stay in their home for a median of 10 years. This is a wise approach to housing because the data shows the longer you own, the better your investment,” Yun said.

New-home sales are projected at 773,000 for 2007, and declining to 669,000 this year before rising to 730,000 in 2009, but well below the 1.05 million 2006. With an appropriate slowdown in production, housing starts, including multifamily units, are forecast at 1.36 million for 2007 and 1.09 million this year before edging up to 1.10 million in 2009; starts totaled 1.80 million in 2006. The median new-home price should drop 2.1% to $241,400 for 2007, and then rise 0.4% to $242,200 this year and gain another 5.9% in 2009.

“Some policy changes, such as raising the loan limit on conventional mortgages, would provide a significant boost to home sales, increase liquidity, strengthen home prices and lessen foreclosures, but it is unclear as to if and when the measure will be implemented,” Yun said. NAR strongly supports raising the Government-Sponsored Enterprise loan limit to at least $625,000 from the current $417,000 so that more consumers will have access to lower interest rates on safe conforming mortgages. “NAR estimates that raising the GSE loan limit will result in interest rates savings for an additional 330,000 homeowners,” he said.

NAR also encourages the Fed to make a single lump-sum cut in the Fed funds rate to 3.5% at the January Federal Open Market Committee meeting, rather than a series of modest cuts throughout the year. “Consumers are also looking to market-time interest rates, and the expectations of further rate cuts are pushing some home buyers to delay. Monetary policy will be much more effective with a one-time large cut, rather than a series of small cuts,” Yun added.

The 30-year fixed-rate mortgage is expected to rise slowly to the 6.3% range by the end of this year, but an additional cut in the Fed funds rate would lower short-term interest rates.

Growth in the U.S. gross domestic product (GDP) is seen at 2.1% in 2007, below the 2.9% growth rate in 2006; GDP growth will probably be 2.0% this year.

After averaging 4.6% for both 2006 and 2007, the unemployment rate is estimated to rise to 5.3% in the second half of 2008. Inflation, as measured by the Consumer Price Index, is projected at 2.9% for 2007 and 3.1% this year; it was 3.2% in 2006. Inflation-adjusted disposable personal income is forecast to grow 3.1% for 2007, the same as in 2006, and then grow 1.6% this year.
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Spotting Market Bottoms in 2008, Strategies for Home Sellers

In this week's survey of news from across the Web, Open House looks at why you may want to buy in 2008, smart strategies for home sellers and buyers, a plan to put seniors to work to pay off property taxes and a real-estate niche that's benefiting from foreclosures.
By: Lauren Baier Kim: RealEstateJournal.com
Here's a look at what's new in real-estate markets across the U.S. from around the Web.

Resolve to buy in 2008

Demand for U.S. residential real estate isn't dead, it's just stalled, writes Thomas Kostigen of Marketwatch. He notes that sales of luxury homes have been strong and that "with the value of the U.S. dollar low and real estate prices dropping, it isn't hard to imagine foreigners taking bigger positions in properties here as part of their overall portfolios." Prices and sale volumes are already down 25% in some areas of South Florida, and when overseas buyers see values dropping 50%, they are likely to buy, he says.

"At the first blush of renewed energy, the real estate market will bounce back," he says.

Real-estate strategies for the new year

Steve McLinden of Bankrate.com agrees that home values will "stabilize again," but it will be a rocky ride until they do - especially for home sellers, he says. He advises that they stay put and "ride this out," he suggests. For sellers whose circumstances demand that they sell in today's soft market, he offers several tips, including:

• Realize that your house is worth only "what someone is willing to pay" and price accordingly. Throw in incentives like a free flat-screen TV, or offer financial assistance like helping the buyer secure financing or covering closing costs.
• Spruce up your house - don't try to sell "as-is" unless you're willing to sell for a bargain-basement price.
• Look for a seasoned real-estate agent with a high percentage of sold homes.
• Know your local market well.
• Get your listing online.
• Try renting out your house instead of selling or offering a lease-to-own option to renters.

For buyers, he recommends not waiting to pounce on good deals, as the housing market may be "at or near bottom," and using the glut of homes on the market and sellers' anxiousness to sell to bargain more effectively. Make your purchase contract contingent on the home passing inspection, obtaining buyer financing, etc., he says. Do your research on the local market, noting asking and selling prices, and don't overlook "diamonds in the rough" - residences that aren't cosmetically attractive, but have good bones, he says. He also suggests factoring in a house's potential resale value before making a purchase.

Seniors sent to work to pay taxes

Greenburgh, N.Y., located in the state's Westchester County, is considering a program that will allow seniors to literally work off their property taxes, according to an Associated Press article published in the New York state government's Legislative Gazette. Through the program, the town would employ 25 seniors for $7 an hour in a variety of jobs, and allow them to work off about $500 a year from any outstanding property-tax debt.

The plan has its supporters, but the relief may not go far enough - Greenburgh has the third-highest property taxes in the U.S., the AP says. For instance, one senior interviewed in the article who has already taken out a reverse mortgage to help cover her expenses, says that she pays $12,000 in property taxes a year.

Similar programs are already in place in areas like Colorado, Massachusetts and South Carolina, the article says, with seniors in Boulder County, Colo., doing landscaping work and staffing the courthouse's information booth to help pay their bills.

New real-estate niche heats up

In the midst of the housing slump, one segment of residential real estate is hot - "real estate owned" homes, known as "REOs," says the Washington Post. These are foreclosed homes that banks failed to auction off at the courthouse.

Real-estate agents, title lawyers, cleaning specialists and information technology firms looking to profit from the surge in foreclosures are all getting into the field, the Post says. While some REO agents - who earn a commission for each home they sell - are having luck, the niche isn't for everyone. The Post notes that such agents have high operating costs, having to pay for homes' heating, electrical, cleaning and maintenance costs. For instance, one husband and wife team in Maryland who specialize in REOs typically pays $5,500 a month for homes' gas and electric bills, the Post says.


Ms. Kim is a senior editor at RealEstateJournal.com.
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