Sweeping financial overhaul

The Bush administration proposes the largest changes to financial rules since the Great Depression.
By: Martin Crutsinger: AP
Paulson Proposes Financial Overhaul
Administration Unveils Sweeping Plan to Overhaul Financial Regulation.

The Bush administration Monday proposed the most far-ranging overhaul of the financial regulatory system since the stock market crash of 1929 and the ensuing Great Depression.
The plan would change how the government regulates thousands of businesses from the nation's biggest banks and investment houses down to the local insurance agent and mortgage broker.

Treasury Secretary Henry Paulson unveiled the 218-page plan in a speech in Treasury's ornate Cash Room. He declared that a strong financial system was important not just for Wall Street but also for working Americans.

The administration's plan was already drawing criticism from Democrats that it does not go far enough to deal with abuses in mortgage lending and securities trading that were exposed by the current credit crisis.

The plan, which would require congressional approval for its biggest changes, seeks to trim a hodge-podge collection of overlapping jurisdictions that date back to the Civil War.

It would give the Federal Reserve more power to protect the stability of the entire financial system while merging day-to-day bank supervision into one agency, down from five at present.

It also would create one super agency in charge of business conduct and consumer protection, performing many of the functions of the current Securities and Exchange Commission.

It would propose eliminating the Office of Thrift Supervision and the Commodity Futures Trading Commission, merging their functions into other agencies.

It would ask Congress to establish a federal Mortgage Origination Commission to set recommended minimum licensing standards for mortgage brokers, many of whom now operate outside of federal regulation, and it would also take a first step toward federal regulation of the insurance industry by asking Congress to establish an Office of Insurance Oversight inside the Treasury Department.

Paulson acknowledged in his remarks that most of the changes will not occur until after a lengthy debate in Congress, leaving it to the next administration to deal with the biggest changes proposed by the report. He also said the Bush administration's focus would remain on getting through the current severe credit crisis, which has roiled financial markets since last August.

President Bush's aides said Monday after the announcement that Bush was happy to let Paulson be the lead figure on this issue.

"The president's point of view is that he trusts Secretary Paulson to put forward what he thinks is a constructive plan," White House press secretary Dana Perino told reporters traveling with Bush aboard Air Force One to Ukraine on Monday.

She said administration officials will work with lawmakers in hopes of having constructive conversations. Asked if Bush's goal is to get the overhaul approved before he leaves office, Perino said: "We'll have to see. It's a big attempt."

"Secretary Paulson has been working on this package for about a year, so it's not like pulling a rabbit out a hat," Perino added. "It's very constructive, deliberate thinking amongst the best minds in economics."

For his part, Paulson rejected Democratic charges that it was lax regulation of mortgage brokers and the financial industry that had led to the current problems.

"I do not believe it is fair or accurate to blame our regulatory structure for the current market turmoil," he said. "I am not suggesting that more regulation is the answer or even that more effective regulation can prevent the periods of financial market stress that seem to occur every five to 10 years."

Banking groups raised strong objections to the plan while other industry groups had mixed reactions.

"Dismantling the thrift charter and crippling state banking charters will weaken banking in America," said Edward Yingling, president of the American Bankers Association.

In Congress, House Financial Services Committee Chairman Barney Frank, who is working on his own regulatory revamp, called Paulson's proposal a "constructive step forward" but said it wouldn't give the Federal Reserve enough authority to carry out its expanded job to police the stability of the entire financial system.

Many Democrats said that Congress' first priority should be to deal with the current mortgage crisis that is threatening millions of Americans with the loss of their homes and that an extensive debate on a regulatory overhaul should not occur until a new president is in office next year.

Senate Banking Committee Chairman Christopher Dodd, D-Conn., said in an appearance on CBS' "Early Show" that it was not a failure of the regulatory scheme but "a failure of leadership" that led to the current crisis.

The proposed overhaul would be the most extensive since the current regulatory system was created in response to the 1929 stock market crash and the Great Depression.

It comes at a time when the financial system faces its most severe credit crisis in two decades, one that has resulted in billions of dollars of losses for big banks and investment houses and the near-collapse of Bear Stearns, the country's fifth-largest investment bank.

The rising tide of bad debt has made it harder for consumers and businesses to get credit, further weighing on an economy struggling with a prolonged housing slump and soaring energy prices. Many economists believe the country is already in a recession.
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Home sales rose, prices fell in February

Existing U.S. home sales rise for first time in six months.
By: MARTIN CRUTSINGER: AP
After falling for six straight months, sales of existing homes posted an unexpected increase in February which may have reflected more aggressive price cutting by sellers in some parts of the country, a real estate trade group reported.

The National Association of Realtors said that sales of existing homes rose by 2.9 percent in February to a seasonally adjusted annual rate of 5.03 million units. It was the biggest increase in a year and caught economists by surprise. They had been expecting a small decline.

The trade group reported that the median existing sales price in February fell to $195,900. That was the largest year-over-year drop on records that go back to 1999.

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

Analysts cautioned against reading too much into the one-month rise in sales. Many economists are predicting that the steep slump in housing will not bottom-out until later this year after prices fall further and allow huge levels of unsold inventories to be reduced.

"We're not expecting a notable gain in existing-home sales until the second half of this year, but the (February) improvement is nother sign that the market is stabilizing," Yun said.

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

Sales of existing homes fell by 12.7 percent in 2007, the biggest decline in 25 years. Over the past two years, housing has been in a steep downturn made worse by a severe credit crunch as financial institutions tightened their lending standards in reaction to their multibillion-dollar losses on mortgages that have gone into default.

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

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

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

Faced with the local real estate slump, some agents are helping sellers tap the overseas thirst to own property in the Golden State.
By: Marcie Geffner: latimes.com
THERE is a new pond emerging in which to fish for home buyers - overseas.

As Southern California sales have stalled and home prices have slumped, realty agents here have geared up to help sellers tap into this market of buyers who come with pockets full of cash. Some local agents have adapted their websites for foreign buyers by adding multiple language translation options. Others have joined professional organizations to give themselves an international reach. One local agent has even offered to reimburse buyer travel expenses should a sale close.

About one-quarter of agents surveyed in a National Assn. of Realtors study last year said their business with buyers who principally reside in another country had increased in the previous five years. California was second in popularity, accounting for 16% of international purchases in the U.S. Florida was tops.

Foreigners purchase all types and sizes of properties; however, high-end estates, larger homes and condominiums in upscale areas are especially prized. These buyers also prefer properties that are bright, clean, ready to occupy and on large lots, experts say.

Locally, real estate brokers report an influx of buyers from Europe, the Middle East, Asia and Latin America. Specific countries include Brazil, China, France, Germany, Italy, the Netherlands, the Philippines, Russia and Spain, as well as Canada and Mexico.

The strength of foreign currencies against the U.S. dollar has been the "icing on the cake" of California's appeal, said Greg Moesser, estates director at Prudential California Realty in Beverly Hills.

Desert and beachfront areas are both seeing their share of international shoppers seeking sunny vacation getaways.

George Colombotos, a real estate investor and partner in Casa Grande Enterprises, a luxury home design-build firm in Cathedral City, wasn't surprised when a Canadian couple made an all-cash offer to buy a Rancho Mirage property he'd listed with a local broker. Another Canadian couple had bought a similar home, also for cash, that Colombotos had listed with the same broker several months earlier.

A stylish pair

Colombotos had purchased the two houses from a new-home builder. Both 4,000-square-foot houses were desert contemporary in style, each with a swimming pool and mountain view. The two houses sold - one in September 2006, the other in February 2007 - at a profit, he said, for about $1.7 million each.

Brokers advise sellers who want to tap into this market to hire a real estate agent who has proven international connections personally, through a company affiliation or both.

Prudential's Moesser belongs to a network of brokers who specialize in high-priced properties, and his brokerage company has online and print advertising agreements that offer international exposure. Other major U.S. brokerage companies have overseas offices and advertising deals as well.

A strong Internet presence with an international flair, even if it's only in English, is equally crucial because foreigners frequently familiarize themselves with U.S. housing markets online before they search for a specific property in person.

Some agents offer bilingual or multi-language translation options on their websites. The Realtors association study found that 15% of members surveyed were fluent in another language.

To attract Canadians, Ralph Haverkate, an associate broker with Tarbell Preferred Properties in Palm Desert, posted on his website an offer to reimburse them for travel expenses if they purchase a home, subject to certain limitations.

Experts recommend sellers interview several agents and ask such questions as: How many properties have you sold to international buyers? How many international buyers have you worked with? Which countries have you personally visited to cultivate clients and build relationships with foreign brokers? How will you market my home to foreign buyers? Will you advertise my home in any publications that have international readers and, if so, how frequently?

The compensation each agent pays foreign counterparts for referrals of buyers also makes a difference, according to Danielle Carlson, chief executive of World Star Realty in Orange and president of the California Council of the International Real Estate Federation, an organization that helps realty brokers tap markets around the world.

In some cases, the U.S. agent pays a referral fee of perhaps 20% to 25% of his or her share of the commission.

"A 25% referral fee is not compelling enough in U.S. dollars to have an agent in a European country send a buyer over here," Carlson said. "We pay the full commission to our counterparts in Europe, even though we do 98% of the work."

The latter arrangement usually amounts to more money and consequently could encourage a higher volume of referrals, Carlson said.

It's showtime, baby

Once the house is on the market, the seller should make sure it is readily available for showing, since international buyers may be in town for only a few days, said Elizabeth Arcaro, a luxury home specialist with Coldwell Banker Residential in Palm Desert.

Arcaro represented Colombotos in the sales of his two properties, one of which, she said, resulted directly from an open house.

About 28% of foreign buyers pay cash for homes in the United States, the Realtors study found, compared with 8% of other buyers.

Almost every major U.S. lender has a loan program for foreign nationals, Carlson said. This access to ready cash makes these buyers particularly attractive.

However, a hefty deposit or substantial reserves in a liquid bank account is a typical requirement for international buyers to obtain financing, Moesser said.

"As a seller, you don't really care whether the money is coming from a bank or an individual, but when someone comes in with an all-cash offer," Colombotos said, or "a letter from their bank stating that the funds are available, you know it's a done deal."
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Assessor's Office Cuts Property Taxes

County Assessor Rick Auerbach has announced that his office has slashed the assessments of more than 40,000 residential properties.
By: HOWARD FINE: Los Angeles Business Journal Online
As home prices continue to fall throughout L.A., County Assessor Rick Auerbach has announced that his office has slashed the assessments of more than 40,000 residential properties and is reviewing another 230,000 properties.

Auerbach said on Thursday that the assessment reductions so far have saved property owners an average of $660 on their property taxes, which translates into a drop of around $27 million flowing into local government coffers.

Under Proposition 13, a property owner who believes his or her property has declined in value can request an assessment review. The assessor’s office can also order reviews of certain properties if market conditions warrant.

Auerbach ordered a review of all single-family homes and condominiums that were sold between July 1, 2005 and June 30, 2007. To date, he reported his office has reviewed 67,000 properties and reduced the assessments on 41,000 of those by an average of about $66,000. Under Proposition 13, property taxes are capped at 1 percent of assessed value.

Auerbach said that because of the findings for properties in this initial two-year review period, his office is now expanding the review to include properties with purchase dates going back to July 1, 2004.
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Plans Would Boost Funds For Mortgages

The Bush administration, in an effort to stabilize the housing market, is preparing two initiatives aimed at creating more funding for mortgages by relaxing constraints on Fannie Mae, Freddie Mac and the Federal Housing Administration.
By: Damian Paletta: The Wall Street Journal Online
Both efforts are in advanced planning stages, though neither has received final approval.

The Office of Federal Housing Enterprise Oversight, which regulates Fannie Mae and Freddie Mac, is close to reducing - but not eliminating - an excess-capital requirement for the government-sponsored entities, people familiar with the matter said. This would give the companies more flexibility to buy and securitize loans. That, in turn, would allow the companies to play a bigger role in helping the housing market regain its footing.

Fannie Mae and Freddie Mac would both be expected to raise more capital, providing more of a shock absorber against potential losses.

"I'm anticipating a conversation we'll be having with Fannie and Freddie about acquiring more capital here," Senate Banking Committee Chairman Christopher Dodd told reporters yesterday. The Connecticut Democrat said the companies would have to find a way to "walk the line between protecting shareholder interest" and meeting their mission to promote affordable housing.

Federal Reserve Chairman Ben Bernanke met with Fannie Mae Chief Executive Daniel Mudd yesterday. The session had been scheduled for several weeks. Both Mr. Bernanke and Treasury Secretary Henry Paulson have urged Fannie Mae and Freddie Mac to raise more capital. That would give the companies more leeway to pump liquidity into the conforming- and jumbo-loan markets.

"We are putting things in place that give Fannie and Freddie good stuff to buy," House Financial Services Committee Chairman Barney Frank (D., Mass.) said in an interview.

If the companies raised more capital, they would have more leverage as they negotiate with the administration over legislation to overhaul their supervision. Spokesmen for Fannie Mae, Freddie Mac and their regulator declined to comment.

Separately, officials at the Department of Housing and Urban Development have talked recently with the White House's Office of Management and Budget about a proposal to allow more people to qualify for mortgages insured by the FHA. Such insurance gives lenders more confidence to make loans.

So far, HUD's efforts to insure more mortgages have had a limited impact, mainly because it is hard for financially distressed homeowners to qualify. Homeowners who have missed a payment in the past six months aren't eligible for FHA insurance. HUD spokeswoman DJ Nordquist said the agency was "still in the discussion stages" about changes and did not have a new policy to announce.
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Seven Lenders Shut in Fraud Probe

State prosecutors shut down seven mortgage companies Tuesday in a growing campaign against predatory lenders suspected of tricking thousands of struggling homeowners into mortgage refinancing deals that led many to lose their homes.
Los Angeles Business Journal Online
the Associated Press reports.

Attorney General Jerry Brown said his office had filed a lawsuit seeking penalties and restitution of more than $20 million in the bait-and-switch scam by the companies, including Lifetime Financial, led by 25-year-old real estate agent Eric Pony, his mother and sister.

"As the mortgage crisis worsens, a growing number of fly-by-night companies are employing increasingly brazen tactics to push desperate homeowners into illegal and unconscionable loans," Brown said.

California has been ground zero for many of the potentially risky adjustable-rate mortgages that U.S. borrowers took on in recent years.

As a result, the state had the second-highest foreclosure rate in the nation last month, with one in every 242 households receiving a foreclosure-related notice.

The illegal sales practices outlined in the lawsuit included psychological pressure, forgery and outright lies, Brown said.

"This is among the worst we've ever seen," Brown said. "This is not just exaggeration and puffing. This is straight-out, deliberate stealing and fraud."
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Why Now Is a Smart Time to Buy

Considering all of the negative press the housing market received in late 2007, it’s more important than ever for buyers to separate fact from fiction when deciding on a time to buy a home.
RISMEDIA
This report is intended to help home buyers assess the facts of the real estate market objectively.

About Inventory

FACT: The housing market is undergoing a natural cyclical correction. It’s impossible to ignore the ongoing news surrounding the downturn of the housing cycle. The recent “housing boom,” which lasted from 2001 to 2005, was caused by low interest rates and a rapid increase in property valuations, resulting in high numbers of renters opting to buy. Three factors caused this decade’s housing boom to spiral upward:

1) A run-up in home-price valuations that spurred a high sense of urgency in home buying and selling.
2) Poor lending practices, which caused many home buyers to secure loans that they ultimately couldn’t afford over the long term.
3) Speculative purchases of homes also increased, with buyers investing in real estate with the hope of a quick return on investment.

Like the dot-com bust, the housing market has begun to correct itself after a number of years of unwise purchasing, but unlike what the media would have us believe, a correction in the housing market doesn’t equate to a crash. Unfortunately, the ongoing negative news about the troubled areas in the U.S. has caused a ripple effect, with home buyers and sellers on a national level exercising caution before making a decision. This has caused an overall slowdown in the marketplace.

The National Association of Realtors’ chief economist, Lawrence Yun, projects that nationally, the “median existing-home price will drop about 1.7% this year. This is a small, minor adjustment after a strong run-up in housing prices.”

True, the number of homes sold in 2007 will have dropped from the year before, but 2007 is still among the highest years on record, with numbers of sales for both 2007 and 2008 projected to be even higher than the levels seen in 2002.

However, with homes taking longer to sell, the number of homes on the market has grown. In markets like California and Arizona where homes are taking much longer to sell than the 11-month national average, this has caused a glut in the marketplace.

In the Pacific Northwest, where the inventory of homes on the market ranges from seven to 10.5 months as of November 2007, this equates to good news for buyers who have more homes at more price ranges from which to choose.

About Mortgages

FACT: Low mortgage rates give buyers more house for their dollar.

With the 30-year fixed rate hovering between 6-7%-a 45-year low-qualified buyers continue to have access to incredibly low interest rates. This means that although housing prices have risen, monthly mortgage payments remain reasonable for those who look at real estate as a long-term investment. For example, today if a buyer secured a 6.5% interest rate on a 30-year fixed loan for a $300,000 home (with no money down), the monthly mortgage payment would be $1,896.20. In 1991, the same monthly mortgage payment would have bought a house worth only $230,492 when mortgage rates were 9.25%. In 1982, when the 30-year fixed rate was 14.6%, the same payment would have bought a house worth only $151,657.

FACT: Heavy speculation and overbuilding result in an increase in foreclosures when prices go down.

The media has been focusing on the hardest-hit areas of the country that have seen a dramatic downturn in the market: California, Nevada, Florida and Arizona. Over the past five years, these markets have experienced an abundance of new housing, a rise in investment properties and a rise in prices that was high above the national average.

Now that home prices are starting to drop and stabilize, the areas that went through a building frenzy and experienced the largest price increases are suffering a heavy devaluation in home prices, which in turn has caused homeowners to foreclose on loans.

Those suffering the most in California, Nevada and Florida are far above the national average of foreclosure with one out of every 325, 152 and 282 homes in foreclosure, respectively. Washington, Oregon and Idaho are well below the national average of one in every 617 homes in foreclosures because fewer home buyers in the Pacific Northwest opted for subprime mortgages and because home values have continued to steadily appreciate.

Washington has seen one in 1,072 homes in foreclosure, and Oregon and Idaho have one in 1,275 and 893, respectively.

FACT: Subprime borrowers get a reality check.

Then there are the problems that are affecting subprime borrowers: those who are considered at a higher mortgage risk due to a past history of bankruptcy, delinquent loan payments and low credit scores. During the last number of years, some home buyers in the U.S. qualified only for these riskier subprime loans to fund the American dream.

But, again, unlike the media’s portrayal, the reality is that subprime loans comprise only 9% of total loans nationwide and of those 9%, less than 11% of those subprime ARM and fixed borrowers have defaulted on their loans. The Pacific Northwest stands apart as its own micro-market, with more home buyers qualifying for prime loans. Homeowners in the Northwest have been able to successfully sell their homes for a profit or refinance to pay off their subprime loans.

Real Estate Cycles and Economics

FACT: Over the long-term, real estate has always appreciated in value.

The continuing appreciation of homes in the Northwest is not an anomaly. Real estate has always been one of the most solid investments in the U.S, because, after all, people always need a place to live. Real estate has less volatility than the stock market and over the historical long-term it remains a guaranteed return-on-investment. Take this example from NAR’s Yun: If a buyer were to put down $10,000 for a down payment on a “typically priced home in the United States at a typical appreciation rate of 5%…(he/she) would see a return of $110,300 after 10 years. The same $10,000 invested in the stock market appreciating 10% annually will result in $23,600.”

As history has shown, for those who choose to keep their home for six to 10 years (and not flip for a quick profit) real estate investments do pay off, and pay off well. In fact, what we’re seeing now is a repeat of a housing cycle we’ve seen before. In the early 1980s and 1990s, some areas of the country experienced the worst downturn they had seen in the last 25 years, which were caused by localized economic weaknesses and loss of jobs while on a nationwide average, others, including the Pacific Northwest were barely affected at all. But even those areas that were hit the hardest in the past experienced a historic uptick in prices, and then a continuing long-term appreciation.
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9 New Tax Laws That Could Benefit You and Yours

You know the folks in Washington — they can't leave well enough alone! Actually, by law, inflation dictates how much tax provisions need to be adjusted each year. The poor inflation numbers in recent months may mean good news for us taxpayers.
By: Ken and Daria Dolan: Dolans.com
Some of the latest tax changes could actually help alleviate our tax burden when all is said and done… that is, IF we make sure they're applied to our 2007 returns!
Here, in a nutshell, is a quick breakdown of the tax changes you don't want to miss:

1. PMI deduction. This is an excellent one because for years, homeowners who bought a home with less than a 20% down payment had to not only purchase private mortgage insurance (PMI) to protect the lender against default — they also had zero tax benefits for those payments (which could add up to hundreds, and even thousands, of dollars over the course of just a few years)! Starting with any new mortgages from January 1, 2007, you can deduct this PMI expense along with your usual mortgage interest from your income tax. Recently, legislation was passed so this will apply for any new mortgages through 2010. However, your family income needs to be less than $100,000 per year — if it's higher, your mortgage insurance won't be 100% tax deductible. For each $1,000 of annual household income earned in a year, the deduction is reduced by 10%. Once a family's income is over $109,000, the PMI deduction will not apply.

2. Higher personal exemptions. The value of each personal and dependency exemption is $3,400 for 2007 — up $100 from 2006.

3. Standard deduction increase. The standard deduction for married couples filing a joint return is up $400 to $10,700. For singles and married individuals filing separately, the deduction is now $5,350 — up $200. (For heads of household, it's $7,850, or up $300.)

 Did You Know?

   Tax bracket thresholds increase for each filing status in 2007? For example, for

   a married couple filing a joint return, the taxable-income threshold separating

   the 15% bracket from the 25% bracket is $63,700 — up from $61,300 in 2006.

4. Higher income limits for deductible IRAs and Roth IRAs. You can now take a full IRA deduction if you're covered by a retirement plan at work if your modified adjusted gross income is less than $83,000 (married, filing jointly) or $52,000 (single or head of household). You can also take a partial deduction up to $103,000 for married filing jointly or $72,000 for singles and heads of households.

5. Tax relief due to foreclosures. There were certainly no shortages of foreclosures in 2007, and it looks like we'll be seeing the same kind of troubles this year and into 2009.
The positive news (if you can really call it that) applies to any foreclosures in 2007, 2008 and 2009. That is, any forgiven debt during those years in connection with a foreclosure, short sale or loan restructuring will not be treated as income, as it has in years past. There are a few restrictions, however:

  • This relief applies only to principal residences and not vacation home or

    investment property. (In most of those latter cases, the amount of debt canceled

    is considered taxable income.)



  • The amount of forgiven debt is capped at $2 million.



  • The loan must be secured by your principal residence and had to be used to buy,

    build or improve the property. (If it was a home equity loan or cash-out

    refinancing used for other purposes, then forgiven debt would be considered

    taxable income.)

The tax basis of the home is reduced by the amount of canceled debt excluded from income.

6. Increased Section 179 expense deduction. If you own your own business that requires that you to purchase heavy equipment, this deduction allows you to elect to deduct all or part of the cost of certain qualifying property in the year you place it in service. And thanks to a new law, the maximum amount of equipment that businesses can expand increases to $125,000 — a whopping $17,000 increase from 2006. The qualifying property must have been placed in service in 2007 and includes only depreciable and tangible personal property such as trucks, machinery and computers. Real property, such as buildings and their structural components, does not qualify. Also excluded from the deduction are land and improvements made directly to the land.

7. Tax-free parking for employees. If you're employed and your employer pays for your parking, you now have up to $215 a month in non-taxable employer-paid parking. That's up $10 per month from 2006 and can save you over $2,500 in taxable income. Also, the cap on tax-free transit passes that employers can give went up to $110 a month. That's another $1,200 per year savings.

8. Increased contribution limit for 401(k) plans. You can now contribute $15,500 to your 401(k) and other similar workplace retirement plans. This is up from $15,000 in 2006. By the way, if you're 50 or older, the limit rises to $20,500 — also a $500
increase.

9. Bigger health care deductions. If you have a health savings account (HSA), the maximum HSA deduction increases to $2,850 for singles or $5,650 for family coverage. That's up $185 and $200, respectively. And those ages 55 or older can add $800 on top of that.
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Housing: Best Time to Buy in Years?

A new study reveals price declines and improved affordability in more than 88% of the 330 housing markets surveyed. Could this be the time to buy?
By: Les Christie: CNNMoney.com
It may be the best time to buy a house in more than four years.

Home prices have dropped so quickly and so far that valuations - the difference between what a home should cost and its actual price - are the lowest they've been since 2004, according to a report.

The Cleveland-based bank National City Corp., together with financial analysis firm Global Insight, revealed Tuesday that more than 88% of the 330 housing markets surveyed showed price declines and improved affordability during the last three months of 2007.

"Housing valuations are almost back to long-term norms," said National City's chief economist, Richard DeKaser. He called current affordability "the best in the past four years."

But DeKaser cautioned that home prices could fall even further.

"This isn't to say home price declines are over," he said. "We could move below historic norms. By the end of 2008, housing markets could be broadly under valued."

Prices still improving

There are still 21 housing markets, or 6% of those surveyed, that are severely over valued, including Atlantic City and Madera, Calif. That's down from 56 overvalued markets at the peak of the housing bubble in 2006.

The report compares actual median home prices with what the authors determine are proper home values based on population density, relative income levels and interest rates, as well as historically observed market premiums or discounts, to determine whether markets are over or under valued.

The report also factors in market intangibles that make some areas more desirable places to live, and more expensive.

"Declines are no longer confined to once-frothy markets," said DeKaser.

The survey covered home valuations during the last three months of 2007, but DeKaser pointed out there's reason to believe that valuations are even more favorable for buyers today.

Price declines have continued into 2008 and interest rates, although they have inched up lately, have been steady or lower compared to late last year. There have even been wage gains; personal income rose 0.5% in December. Soaring foreclosure rates have added inventory to many housing markets, depressing home prices further.

The biggest gains in affordability occurred in California, Michigan and Florida, which are areas that have also been some of the hardest hit by foreclosures. Those states registered 43 of the 50 biggest price declines.

Bend, Ore. currently tops the overvaluation list. Home prices there were judged to be about 59% higher than their fair-market value. Miami, despite a median home price decline of 5.7% last year, is the most overvalued big city, by 44%.

All the best bargains were found in Louisiana and Texas. Houses in Houma, La. were under valued by 31.2%, according to the report. Dallas was the most undervalued big city, by 30%.
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Trulia, Windermere Real Estate announce advertising partnership

Ad deal will boost search ranking of Windermere listings
Inman News
Seattle-based Windermere Real Estate has entered into an advertising deal with online real estate search and marketing company Trulia announced to boost the search placement of the company's property listings at the Trulia.com site.

Windermere listings will appear as "Featured Listings" in the top three search results when consumers search for homes that have matching criteria, the companies announced this week.

Realtor.com, another popular real estate search site, also offers paid advertising opportunities to give some properties a higher ranking and enhanced appearance compared to other listings.

The deal between Trulia and Windermere highlights a growth trend in online real estate advertising and the increased sharing of property listings data feeds directly from real estate brokerage companies to online real estate sites. Earlier this month, real estate brokerage and franchise giant Realogy announced deals to expand its data feeds to multiple sites, including Cyberhomes.com, Homescape.com and Zillow.com.

"Windermere agents will be able to attach custom contact information to their listings, giving Trulia users one-click access to agents who represent the properties that interest them most," the announcement states.

Windermere has also purchased banner advertising at Trulia.com associated with property listings information in the states of Washington and Oregon and also for the Salt Lake City; Sun Valley, Idaho; and Palm Springs, Calif., areas.

"Our mission is to give Windermere agents the ability to cast the widest net possible when it comes to exposing their clients' listings to a national audience of serious home buyers," said Mike Fanning, executive vice president of Windermere Services, in a statement.

Trulia reported that it has about 3.5 million unique visitors per month and about 2 million real estate listings.
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Banks should accept mortgage principal cuts: Bernanke

Bernanke sees more house price drops
By: Barbara Liston: Reuters
Banks may have to swallow reductions in the principal of some troubled home loans to ward off greater losses that could result from outright default, Federal Reserve Chairman Ben Bernanke said on Tuesday.

Warning that mortgage delinquencies and foreclosures are likely to rise, with more declines in house prices, Bernanke called for active measures from both the public and private sectors to stabilize housing markets.

"This situation calls for a vigorous response," Bernanke said in a speech to the Independent Community Bankers of America, referring to government and private-sector initiatives to slow the rate of home loan failures.

"Measures to reduce preventable foreclosures could help not only stressed borrowers but also their communities and, indeed, the broader economy," he said.

U.S. government bond prices shed early losses and turned higher, while stocks extended their declines and the downtrodden dollar touched another all-time low against a basket of currencies.

Market bets of a Fed rate cut at its March 18 meeting ticked down slightly to roughly a 66 percent chance of a cut in benchmark interest rates by three-quarters of a percentage point from the current 3 percent.

Bernanke's comments come as the central bank grapples with the twin dilemmas of a slowing economy and rising inflation. U.S. economic growth slowed to a sluggish 0.6 percent at the end of 2007 and hiring declined in January. But inflation rose 4.1 percent in 2007, the largest 12-month rise since 1990.

Current housing difficulties differ from past housing market slumps because of the large number of homeowners who owe more on their loans than their homes are worth, Bernanke said.

"In this environment, principal reductions that restore some equity for the homeowner may be a relatively more effective means of avoiding delinquency and foreclosure" than reducing interest rates on troubled home loans, he said.

When a mortgage is "under water," a reduction in principal may boost the chances of pay-off by avoiding default or foreclosure, he added.

Analysts said the Fed chairman was advising bankers that it was in their best interest to resolve mortgage problems quickly and to cut their losses.

"The problems in the credit system and problems on consumer balance sheets are such that some of the losses will have to be socialized, either by the market or by the government," said Joseph Brusuelas, chief U.S. economist at IDEAglobal in New York. "And it's highly preferable that between the two, those losses be accepted by the market."

Bernanke also said government-sponsored mortgage finance enterprises Fannie Mae and Freddie Mac could do more to address problems in housing and mortgage markets.

"New capital-raising by the (government-sponsored enterprises), together with congressional action to strengthen supervision of these companies, would allow Fannie and Freddie to expand significantly the number of new mortgages that they scrutinize," he said. "With few alternative mortgage channels today, such action would be highly beneficial to the economy."

Bernanke added that giving greater latitude to the Federal Housing Administration to set underwriting standards and risk premiums for mortgage refinancing would extend help to more borrowers in trouble.
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Getting Real With Real Estate

How do foreclosures impact the marketplace? Columnist Peter G. Miller looks at the reality of local home pricing.
By: Peter G. Miller: Realty Times
One question which comes up with some frequency is why foreclosure numbers are so important. After all, isn't it a fact that foreclosures are actually rare when we look at the entire housing stock?

According to the Census Bureau there were 128 million housing units in the U.S. at the end of 2007. Of these units, 75.2 million were owner-occupied. In comparison, says RealtyTrac.com, nearly 1.3 million households received one or more foreclosure notices during 2007.

You could say foreclosures represent just 1.72 percent of all owner-occupied homes. This is a mathematical fact that is both true and irrelevant. Why is this percentage irrelevant? Because most homes are not for sale today. This is why real estate brokers, appraisers and tax assessors all base fair market values on homes for sale now and homes that have recently sold -- but not homes that merely exist.

The relevant fact is this: The National Association of Realtors says that in 2007 there were 5,652,000 existing-home sales.

Now the math is different: Foreclosures in 2007 equaled 23 percent of the existing homes which were actually sold.

In strong markets foreclosures can sell without any price reduction. Also, a certain number of foreclosures each year are natural and normal and have little marketplace impact.

However, as the percentage of foreclosed properties increases relative to the number of homes for sale in a local market, a distinct "foreclosure discount" begins to appear. This discount impacts not just the valuation of homes being foreclosed, but the valuation of all homes for sale.

The reason home prices are falling in many markets is not because of some bizarre media plot to "do in" real estate brokers, home builders or mortgage lenders with "negative reporting," it's because buyers will not pay more than necessary to acquire property in markets flush with inventory. This is hardly illogical: If you were buying a house today would you pay more than fair market value? Of course not - and neither would any thinking person.
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