Bernanke Urges Government to Provide Backstop for Mortgage-Backed Market

Federal Reserve Chairman Ben S. Bernanke said the market for mortgage-backed bonds will require some form of government support through either guarantees or insurance programs to weather times of heightened stress.
By: Craig Torres: Bloomberg.com
The Fed chief also said Fannie Mae and Freddie Mac, the largest sources of money for U.S. home loans, should retain some form of government support and oversight even if the companies are transformed from their current federal conservatorship to become private companies.

Bernanke's recommendations for a government role contrast with those of such free-market advocates as Alan Greenspan, who has urged an end to official support for Fannie and Freddie. Bernanke said the current crisis shows there wouldn't be a mortgage securities market without some government backing.

``The U.S. government's strong and effective guarantee of the obligations issued under the current government-sponsored enterprise structure must be maintained,'' Bernanke said today in remarks to a conference in Berkeley, California. ``If the GSEs were privatized, it would seem advisable to retain some means of providing government support to the mortgage securitization process during times of turmoil.''

Government Takeover

Treasury Secretary Henry Paulson engineered the seizure of Fannie Mae and Freddie Mac on the weekend of Sept. 7 after the biggest surge in mortgage defaults in at least three decades threatened to topple the companies. Bernanke raised a number of scenarios for the future of the companies, without stating which option he prefers.

Securitization, the process where home loans are packaged together into a bond and sold to investors, is important because it allows banks to distribute risk and provides a wider pool of capital to finance mortgages, Bernanke said.

One approach would be to create a government bond insurer which would allow issuers to obtain a government guarantee for their bonds for a fee, the Fed chief said.

``This new agency would offer, for a premium, government- backed insurance for any form of bond financing used to provide funding to mortgage markets,'' Bernanke said. Mortgage securities ``issued by the privatized GSEs as well as mortgage- backed bonds issued by banks would be eligible.''

Covered Bonds

Bernanke also discussed the option of covered bonds, while noting that they might be less competitive with existing finance options. Covered bonds offer banks a way to raise money for new mortgages without either selling the loans or packaging them into securities. Instead, a bank issues bonds that are backed by a dedicated and regularly updated pool of loans, which stay on the bank's balance sheet.

Another alternative for Fannie Mae and Freddie Mac would be a public-utility model, where the two remain as shareholder- owned corporations and are overseen by public boards, Bernanke said.

``Beyond simply monitoring safety and soundness, the regulator would also establish pricing and other rules consistent with a promised rate of return to shareholders,'' he said.

The Fed chairman didn't discuss interest rates or the economy in the text of his remarks.

The Fed cut the main interest rate this week to a half- century low of 1 percent to limit damage from the collapse of the U.S. mortgage market and avert what may be the worst recession in a quarter century.

Lacker, Greenspan

Richmond Fed President Jeffrey Lacker has endorsed the view of former Fed Chairman Greenspan that the government should nationalize Fannie Mae and Freddie Mac before splitting them up and selling them off.

``I would prefer to see them credibly and demonstrably privatized,'' Lacker said in an Aug. 20 interview with Bloomberg Television.

Bernanke said it's an ``open question'' whether the GSE model ``is viable without at least implicit government support.''

``Private-label securitization has largely stopped,'' Bernanke said. The fact that GSE issuance continued suggests ``at least under the most stressed conditions, some form of government backstop may be necessary to ensure continued securitization of mortgages,'' he said.

Paulson hasn't taken a position on the future of the two mortgage finance companies beyond their current status under federal conservatorship, where they are overseen by the government while remaining shareholder-owned.

Record Foreclosures

U.S. foreclosure filings rose to a record in the third quarter, and will probably increase as the economy worsens and the availability of financing shrinks, RealtyTrac Inc., a seller of default data, reported on Oct. 22.

Almost 20 percent of U.S. mortgage borrowers owed more on their loans during the third quarter than their house was worth as foreclosures depressed prices and the economy weakened, according to First American CoreLogic, a Santa Ana, California- based seller of economic and real estate data.

Borrowing costs have remained high. U.S. 30-year mortgage rates tracked by Freddie Mac rose to 6.46 percent this week, up from 6.04 percent the previous week and 6.07 percent on Jan. 3. Banks are unlikely to compete for new loans and offer lower rates so long as the outlook for the economy remains dim, economists said.
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The Bailout-Looking Ahead: Real Estate Leaders Voice Their Opinions

The Emergency Economic Stabilization Act of 2008, also known as ‘the bailout bill’ that has been dominating headlines in recent weeks, has real estate leaders talking about its impact on the industry, real estate markets around the country and the overall effect on consumer confidence when it comes to buying and selling.
RISMEDIA
RISMedia recently interviewed several industry experts on the subject and is presenting their comments in a regularly occurring series called, “The Bailout-Looking Ahead.” Here, Martha Hayhurst, President & CEO of Harry Norman Realtors in Atlanta, Georgia, offers her thoughts about the bailout, what it means to consumers and the government’s new role in real estate.

RISMedia: What are your overall thoughts on the bailout:
Martha Hayhurst: I think that once the rescue plan actually gets into the marketplace, it will be an asset. But it will take a few months.

RISMedia: What do you think it will take to get consumers back to buying and selling:
MH: We need to free up credit and cash. It starts there. Once we get to that point, we’ll be at our greatest advantage and can start trying to encourage consumer confidence.

The bailout will help restore confidence in the market, but there are some caveats. We still have an election and a financial crisis on a global scale, for starters. In 2006, the start of the real estate downturn dominated. We’ve now moved from it just being a real estate crisis, to it being a global financial crisis. When you add that to an already-shaken consumer, the result is all the people sitting on the sidelines.

The resiliency of American people is strong. They are just waiting for one green light and they’ll start buying homes again.

RISMedia: Are you seeing any positive signs in your local market?
MH: Yes, we are seeing some good indicators here in Atlanta. According to the Greater Atlanta MLS, our sold-to-list price for the month of September, for example, was at 95 percent and our days on market was only up three days from the same time last year-from 86 days to 89 days. Those are strong indicators for us.

When we don’t see so many foreclosures, that’s when market will turn. Amidst all of the turmoil, the American people will start getting positive when they see major institutions helping.

Real estate leads us into these situations and leads us out. I think as good stewards of our industry it’s our job to get people back to work.

RISMedia: What do you think of the government’s new rights (within the bailout bill) to purchase foreclosed homes and refinance them at their current value so that homeowners can stay in the home:
MH: It’s hard to say if the bailout’s terms on foreclosures are good or bad. I do know, however, that keeping people in their homes is paramount. People will do whatever they can to stay in their homes. Only the future will tell us if this was a good thing. But, if I was being foreclosed on, I would think it’s a very good thing. There are very few things more catastrophic than losing your home. Right now, the bailout was necessary and had to be done.

What I hope we can do is learn from this so that future generations never have to go through this again.
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Gifting Your House and Living in It, Too

Now is a good time for older homeowners to give property to their kids but still remain in the home with a qualified personal residence trust.
By: MIKE SPECTOR: WSJ.com
Plunging real-estate values have made it an opportune time for older homeowners to give property to their children, while realizing big savings on gift and estate taxes.

They can do this by moving the home out of their estate with a so-called qualified personal residence trust, or QPRT, which allows homeowners to live in a property for many years before passing it on to their heirs. Though the trusts have been around for many years, many estate planners say now could be a good time to set one up since real-estate values have fallen dramatically in many markets.

QPRTs are one of a number of strategies that wealth advisers and estate planners are recommending as clients cope with beaten-down financial markets and a nasty real-estate landscape. The goal: Put beaten-down assets into trusts now and reap benefits from their appreciation outside of your estate. With real-estate values low, executing a QPRT now ensures your estate won't contain a more-expensive home down the road, which could trigger a costly tax bill for your estate.

Most estate planners say activity on QPRTs remains quiet these days amid uncertainty over the direction of the estate tax and investors' timidity in parting with assets during a bear market. But these same wealth advisers say conditions could be ripe -- now and in the months ahead -- for executing these trusts.

By transferring your home into a QPRT (often pronounced CUE-pert) when the value of your home is most likely at a low point, you're effectively locking in a lower gift-tax amount when you move the home into the trust. And if interest rates move higher in the months ahead, that discount could be even greater because of the special method the Internal Revenue Service uses to compute the home's gift-tax value.

"We're probably heading to a time where it might be a perfect storm" of market conditions that make it the time to set up a QPRT, says Janine Racanelli, head of the Advice Lab at J.P. Morgan Chase & Co.

Henry "Terry" Christensen III, a lawyer at McDermott Will & Emery LLP, says his firm executed about 50% more QPRTs earlier this year than it did two years ago. Mr. Christensen says that the trusts are especially popular in California and Florida, where home prices have dropped the most.

Nuts and Bolts of a QPRT
Here's how a QPRT works: Say you're 60 years old and own a $1 million home. You'd like to leave the home to your children, but worry the property could jack up the value of your estate, perhaps pushing it high enough to trigger the estate tax. (The basic federal estate-tax exemption is $2 million per person for 2008, with the top estate-tax rate at 45%.)

To move the asset out of your estate, you can put the home into a QPRT for a term of 10 years (terms can be longer or shorter, depending on your situation). For those 10 years, your living arrangements don't change -- you live in the home and pay all the expenses, including property taxes.

Because you've given the home to a QPRT, you'll have to file a gift-tax return that year, but you stand to benefit from a complex IRS formula that actually discounts your gift amount when you move the home into the trust. Assuming that value doesn't push you over your $1 million lifetime gift-tax exemption, you won't have to pay taxes at all.

The formula, among other things, considers your age, the IRS's current applicable federal rate of 3.8%, which is the federal interest rate used to set up trusts or loans to relatives, and the 10-year length of the trust. Assuming your home appreciates 4% a year, the formula can nearly halve the value of your house for gift-tax purposes.

After 10 years, the home transfers to your beneficiaries, usually your children. At this point, they own the home, and it's outside your estate and won't be subjected to estate taxes. In this example, when the QPRT expires, your home is worth nearly $1.5 million. Assuming you live well into your 70s or 80s, it's likely to be worth even more.

If you wish to remain in the home, you'll have to pay fair-market rent to your kids, or risk running afoul of the IRS, which could scrutinize your children for allowing rent-free use of the property. When you die, your children keep the house and don't have to pay inheritance taxes.

A QPRT at Work
In 1986, Tom and Margie Williams of Columbus, Ohio, bought a lakeside cottage on Walloon Lake in Petoskey, Mich., near the northern tip of the state. Over the years, the couple and their three daughters spent summers there and used the spot for Christmas reunions. The home also had some historical value: Built in 1875, it stands in a lakeside community where Ernest Hemingway spent time as a child.

As the Williamses entered their 60s, they sought estate-planning advice, determined to keep a property near and dear to them in the family without burdening their children with a bigger estate-tax bill.

In 1996, the couple turned the $300,000 home over to a QPRT for a 10-year term. At the time, the applicable federal rate was 7.6%. The value of the cottage for gift-tax purposes was only about $120,000. The couple were nowhere near exceeding their lifetime $1 million gift-tax exemption, so they didn't have to pay taxes on the transfer.

In 2006, the home passed to their children, who now collect rent from the couple in exchange for their right to use the home. "I always tell Margie, 'Check with the landlord,' " when something goes wrong, says the 73-year-old Mr. Williams.

The Williamses passed more money to their daughters through other maneuvers in the hope that they'll maintain the home for years to come. "They've kept it this long," says Margie Williams, "and they won't have to pay the inheritance taxes."

Some Quirks
These trusts have some quirks. If you die before the trust term expires, the home reverts to your estate, nullifying any potential estate-tax savings. Because of this rule, it's essential to take stock of your age and health when drawing up the trust.

Also remember that a QPRT is an irrevocable trust, meaning you have to give up the home when the term ends. That type of planning can be tricky -- it's sometimes hard to predict what your relationship with your children will be one or two decades down the line, and there's no guarantee your beneficiaries will let you stay in the house.

Of course, a QPRT makes sense only if you anticipate your assets will exceed the estate-tax exemption when you die. In 2009, that exemption jumps to $3.5 million.

The tax is set to vanish in 2010, and then return in 2011 with a lower $1 million exemption and a 55% top rate. But most estate planners are betting Congress will revise the current structure. Both presidential candidates want to keep the estate tax, though with different exemptions and tax rates.

In addition to uncertainty surrounding the estate tax, some estate planners discourage QPRTs at times like these, when interest rates, including the applicable federal rate, are low. That's because you get a greater discount on your gift-tax value when the rate is higher. But other advisers tell clients not to focus too much on the rate, especially if your home's value has declined significantly in the past year or two.

"I think the idea that they're only attractive when interest rates are high is just a myth," says Natalie Choate, a Boston estate-planning lawyer and author of a widely used book on QPRTs. "If you wait until interest rates are high, it may be too late because of your health or because the house has appreciated dramatically."
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Almost 2.5 Million Monthly Foreclosures Prevented by Mortgage Industry

HOPE NOW, the private sector alliance of mortgage servicers, counselors, and investors that has been working aggressively to prevent foreclosures and keep homeowners in their homes, announced that, due to the continuing efforts of HOPE NOW and the broader mortgage industry, nearly 2.5 million homeowners have avoided foreclosure and been able to stay in their homes since July 2007.
RISMEDIA
HOPE NOW also announced that the mortgage lending industry helped 212,000 homeowners avoid foreclosure in September. This is the first time since HOPE NOW began compiling data in July 2007 that the number of foreclosures prevented in one month exceeded 200,000. It is also 30,000 (15.6%) more than the previous record of 192,000 foreclosure preventions set in August 2008.

HOPE NOW also announced that, because of mortgage lending industry efforts through the third quarter of 2008, approximately 1.6 million homeowners had been able to avoid foreclosure so far this year. This is more than the approximately 1.5 million homeowners the industry helped in all of 2007. If the current trend continues, in 2008 the mortgage lending industry will help approximately 2.1 million homeowners stay in their homes and avoid foreclosure, an almost 40% increase over the number of homeowners helped in 2007.

In September, mortgage servicers helped homeowners avoid foreclosure by completing 212,000 mortgage workouts, which include both modifications to the terms of existing mortgages and repayment plans. Barring an unforeseen life event such as a job loss, death, or illness, all workouts are designed to enable a homeowner to remain in his or her home as long as he or she wishes to do so.

The number of homeowners helped in September through mortgage modifications - 98,000 - also set a new record. September modifications were 22.5% higher than the 79,000 completed in August 2008. Total repayment plans initiated in September were 113,000 - 3,000 more than the number initiated in August.

According to Faith Schwartz, HOPE NOW’s executive director, the latest results show that the industry is making a difference for homeowners. “This is a very challenging time for many homeowners,” she said. “HOPE NOW members are continuing to explore new ways to help more homeowners avoid foreclosure and will keep looking for additional options. We urge concerned homeowners to call their servicer, Homeowner’s HOPE(TM) Hotline, or a HUD-certified counseling agency to get the help the need.”

The HOPE NOW report estimates that on an industry-wide basis:

– Since July 2007, mortgage servicers helped 2.47 million homeowners
avoid foreclosure.
– Mortgage servicers provided loan workouts for approximately 212,000
borrowers in September 2008.
– In September, approximately 113,000 homeowners received repayment
plans; approximately 98,000 received loan modifications.
– Nearly 59% of homeowners with subprime loans who received
workouts through mortgage servicers received modifications.

HOPE NOW also announced the results of a separate survey of subprime adjustable rate mortgages with rates resetting in 2008.

The results, reported by 9 companies representing approximately 60% of subprime loans, are as follows:

– Rates on approximately 1.4 million subprime loans were scheduled to reset between January and September 2008.

– Since rates began to reset on these loans in January 2008, those loans that were current at reset and subsequently started the foreclosure process account for 1.3% of remaining loans.

– Nearly 111,000 of the 1.4 million loans have been modified. Over 73% of these modifications are for 5 years or longer.

– Almost 524,000 of the subprime adjustable rate loans that were originally scheduled to reset during this period were paid in full when the homeowner refinanced the loan or sold the property.

For more information, visit http://www.hopenow.com.
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Home Loan Modifications Draw Interest

Loan modification programs should help the Southland housing market, but for how long and how much?
By: RICHARD CLOUGH: Los Angeles Business Journal Online
Changes could bring stability.

As many as 30,000 Los Angeles County homeowners could renegotiate the terms of their mortgages in the coming months as several high-profile loan modification programs come on line.

That’s roughly twice the number of homes in the county that received default notices in the third quarter, so the loan workouts could help a significant number of at-risk borrowers and bring some stability to troubled neighborhoods. But some experts are skeptical that the programs will have more than a limited, short-term impact.

Despite billions of dollars being pumped into programs by Bank of America Corp. and the Federal Deposit Insurance Corp., the efforts face a wide range of challenges, including strapped borrowers and difficulty in implementation.

“It will help in cases to stabilize neighborhoods and prevent a rash of foreclosures,” said Stuart Gabriel, a professor of finance and director of the Richard S. Ziman Center for Real Estate at UCLA. “(But) we’re expecting continued downward adjustment in house prices and with that ongoing weakness in house prices, we will have mounting defaults and foreclosures.”


The Los Angeles housing market has been beset by increasing foreclosures and plummeting home prices. Just last week, data released by MDA DataQuick showed that there were 17,073 default notices in L.A. County in the third quarter, a 25 percent jump from the same period last year. At the same time, the median local home price fell below $400,000 in September for the first time in almost five years.

Bank of America, which acquired Calabasas-based subprime lender Countrywide Financial Corp. in July, is set to kick off an $8.7 billion loan modification program in December. And the FDIC, as receiver of IndyMac Bank in Pasadena, began in August attempting to renegotiate as many as 40,000 of the failed institution’s loans. The two programs combined will rewrite nearly half a million loans nationwide and similar efforts are gaining traction as well.

IndyMac Federal Bank, which is now run by the government while regulators seek a buyer, has already offered new terms on about 4,000 mortgages under its plan. Specializing in Alt-A loans for borrowers with less-than-perfect credit, IndyMac became one of the large early casualties of the mortgage mess and was among the first to attempt a bulk modification program.

Evan Wagner, director of corporate communications for IndyMac, said about 75 percent of the initial 7,500 offers were accepted by borrowers. Those offers were extended to customers who had stayed in close contact with the bank, but other troubled borrowers more difficult to contact may not be able to afford even a modified mortgage.

Wagner also warned that the program will not stop many foreclosures, since its primary purpose is to save the FDIC money and make IndyMac more attractive to potential buyers – not to fix everything that is wrong with the market.

“If it’s in our interest to foreclose on somebody, that’s what we’re going to do,” he said. “Foreclosures are still going to happen.”

Limited success

A recent report by Credit Suisse Group on loan modification programs in 2007 found that nearly a quarter of participants were at least 60 days delinquent on their mortgage payments within eight months. By 10 months, about a third had defaulted.
“It’s very possible that they could wind up in the same trouble six months or a year down the line,” said Dennis Santiago, chief executive of consulting firm Institutional Risk Analytics in Torrance. “These programs may or may not change the fundamentals for these people.”

Still, foreclosures have increased so rapidly around Los Angeles that the programs could relieve some of the pressure. That could create conditions that would allow for an earlier housing market recovery, said Delores Conway, director of the USC Casden Real Estate Economics Forecast.

“What you’re doing is taking a huge number of defaults and foreclosures out of the market,” she said. “I think it will buy time. All of this has happened so quickly.”

What is still unclear, however, is the extent to which these loan modification programs will specifically impact Los Angeles.

Wagner indicated that in the latest round of IndyMac’s loan modification offers about 8 percent of the eligible customers live in the county. That implies about 3,000 local homeowners could modify their loans under IndyMac’s whole program.

Bank of America’s plan is expected to provide about $3.5 billion in relief to California homeowners through reduced payments and waived fees. The intention of the program is to bring each borrower’s first-year mortgage payments, including principal, interest, property tax and property insurance, to 34 percent of the household’s total gross income.

“This program goes beyond anything that we know of out there today,” said Rick Simon, a spokesman for Bank of America.

About 104,000 California homeowners could qualify, though the company said it does not break out its data by county. And if it is proportionally similar to IndyMac’s plan, about 30,000 L.A. County homeowners would qualify for a modified loan.

Los Angeles is home to nearly 30 percent of the state’s subprime loans, and as of September, the area had more than 74,000 mortgage loans more than 90 days past due.

“Clearly these types of renegotiations will have an impact in those areas where the real estate bubbles were largest and Southern California certainly was one of those areas where the rise in real estate prices had ballooned,” Santiago said.

Efforts to aid struggling homeowners also seem to be gaining traction nationwide.

The notion has become a major element of both presidential campaigns. And last week FDIC Chairwoman Sheila Bair called upon the government to do more to help homeowners. Late last week, the White House was mulling plans to spend $40 billion to give banks incentives to renegotiate loans.
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6 Rules for Selling Fast in a Slow Market

Anyone looking for advice on how to close a deal in a tough market might get some inspiration from William Bronchick and Ray Cooper, authors of How To Sell A House Fast In A Slow Real Estate Market(2008: John A. Wiley & Sons).
REALTOR®Magazine
Here are some of their ideas:

Position the house in the right price range. Buyers search by price range. Positioning a property in the middle of the range increases the likelihood people will see it.

Have information available. Deals fall apart when the buyer has unanswered questions. Work with the seller to have key information available, including cost of utilities and taxes, neighborhood liens and covenants, and an evaluation of the schools.

Put out a good flier. People are much more likely to read the flier than they are to call the number on the “For Sale” sign.

Market to the neighbors. Market to people who have just listed their own homes in the same areas. Chances are they like the neighborhood and could be persuaded to stay in the area by the right property.

Talk to the seller about offering creative financing. For many people these days finding money is the biggest stumbling block.

Explain the first-offer rule to clients. In this market holding out for a better offer is a big mistake.
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Home Sales Skyrocket in Southern California

Home sales in southern California rose 65 percent in September compared to the same month a year ago.
REALTOR®Magazine
A total of 20,497 new and existing houses and condominiums sold last month in Los Angeles, Riverside, San Diego, Ventura, San Bernardino, and Orange counties. It was the largest increase MDA DataQuick has recorded in the 20 years it has been keeping records, the company said Monday.

The increase was fueled by foreclosures, which drove down prices, MDA DataQuick said, pushing the median price down 33 percent from a year earlier to $308,500.

Sales so far this month appear to have been slowed by bad financial news, says Andrew LePage, an analyst with MDA DataQuick.
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'My House Is Your House'

House swapping, or trading homes with someone else for an agreed-upon period of time (usually at the same time), is gaining more visibility and popularity.
By: L.A. WINOKUR: WSJ.com
With the cost of travel skyrocketing, home exchanges are attracting more vacationers. Here's how they work.

Against the backdrop of a tough economy, one of the smartest and most affordable ways to start your next trip is to open the doors of your home to a stranger.

House swapping, or trading homes with someone else for an agreed-upon period of time (usually at the same time), is gaining more visibility and popularity. There's the economic appeal. (What's not to like about accommodations that are, for all intents and purposes, free?) But such exchanges also appeal to a growing number of travelers who enjoy the comforts of home and want to try their hand at living the way the locals do.

To learn more about the advantages - and possible pitfalls - in house swaps, we turned to Lois Sealey, who since 1985 has run Home Base Holidays, a membership-based swap service in London. A Canadian by birth, the 62-year-old Ms. Sealey became intrigued with house swaps years ago on a trip to Canada to visit family. At the time, she and her husband and children, as well as her parents, were given the chance to stay in someone else's house - an "idyllic" lakefront cottage, she recalls - for free.

That experience, Ms. Sealey says, helped convince her that "many people would like to enjoy a home-away-from-home holiday at no cost by swapping" properties.

We recently caught up with Ms. Sealey in London, via an email exchange. Here are edited excerpts from that electronic conversation:

Easy Now
THE WALL STREET JOURNAL: Why has house swapping become more popular? What's the appeal?

MS. SEALEY: There was a major leap in popularity, especially in the U.S., that coincided with the growth of the Internet. Before this time, home exchangers received two or three print directories a year and sent exchange offers by mail - making arranging an exchange a laborious and time-consuming process. Now, being able to join an agency, have an exchange listing published online instantly, and send exchange offers by email has increased the popularity of home swapping enormously.

Although the methods for arranging exchanges have changed radically in the past 10-plus years, the reasons for wanting to swap homes haven't changed all that much. Home exchange appeals to independent travelers. The most commonly cited reason for taking part is the desire to get away from resorts and other tourists and get to know a real neighborhood and local people.

WSJ: You note that travelers age 50-plus are a good fit for swaps. Why is that?

MS. SEALEY: Many over-50s are empty nesters, no longer tied to taking time off only during school holidays. Many are also retired or semi-retired, making it easier to be flexible on dates and [the] length of exchange. They are able to consider exchanges at off-peak times when air fares are more reasonable, sometimes arranging both longer swaps and short breaks.

Many in the 50-plus age group still live in family-size homes. What a resource this is to use for swaps in their own countries and abroad. And, as location is usually the most important aspect of home swapping, those who have downsized, perhaps to a small apartment by the sea, will also find no shortage of offers to exchange.

Going Swapping: A Step-by-Step Guide
Lois Sealey offers these pointers for getting started on a home exchange.

First, join a suitable home agency. Look for a well-established private-membership site that charges a modest annual fee rather than "open" and "free" sites, so that you know all members are genuinely committed to arranging exchanges.

· Give careful thought to the information you include in your listing. Describe your home and local attractions and facilities, and give distances to the nearest large city, well-known locations and airports. Try to be as open as you possibly can on destinations, dates and the length of exchange. Add photos to your listing as soon as possible.

· Take the initiative and contact all members whose exchange offers look like good matches. Address each member by name, give your location and dates you can consider an exchange and whether you can be flexible. Personalize each message by mentioning what attracted you to the member's home. Respond to all offers you receive, and any questions members you contact ask, promptly. Offer to provide references.

Once you have found a match, keep in touch regularly, asking and responding to questions. Let any other members you are in contact with know as soon as you agree to an offer so that they aren't delayed in looking for other swap partners. It is never acceptable to agree to an exchange and cancel a firm commitment if you receive an offer you think is more attractive later on. Suggest an exchange at a later date.

· Check that your household insurance will remain valid while you have non-paying guests in your home. Check auto insurance if swapping cars.

· If your exchange involves air or train travel, agree to buy tickets at the same time, and exchange proof that tickets have been purchased. This is a reassurance to both parties since (barring an emergency) members are unlikely to cancel an exchange agreement after buying tickets.

· Keep in regular contact in the run-up to the exchange. Once you both feel that everything has been agreed to, compile a simple contract to share. Taking this step avoids the possibility of misunderstandings later on.

Ensure that you each know how to get from the airport to your homes; arrange where to pick up - or send in advance - house and car keys (if you have agreed to swap cars) and your local agent's contact details.

· Clean and tidy your home, leaving space in wardrobes and cupboards for guests to store their belongings. Clear out your refrigerator and leave some basic foodstuffs for your guests' use on arrival.

· Leave a folder with information on using appliances; house security procedures; local restaurant menus; train/bus timetables; brochures for attractions nearby; and useful local contact numbers and emergency numbers. The folder can be started several weeks before your first exchange and added to as you think of useful information. This can be kept and updated for future exchanges.

WSJ: Can you quantify this trend? How many people are doing it? Is it only for international travel?

MS. SEALEY: It's difficult to give more than a rough idea of how many people are swapping homes overall. A guesstimate would be 500,000 world-wide.

International exchanges are still the most popular choice. But there have been noticeable changes in the way members have used the service in the last year or two. More are interested in exchanges within their own countries. Also, there seems to be a trend toward having multiple shorter exchanges, including weekend breaks, rather than one lengthy exchange per year.

Likely Candidates
WSJ: Is there an ideal candidate for something like this?

MS. SEALEY: Probably the most important characteristics of "ideal" home-exchange candidates are that they are open to new experiences and independent travelers willing to take the time to make their own exchange and travel arrangements. They aren't overly "precious" about their home and belongings, welcoming the opportunities home swapping enables to experience different lifestyles and cultures. Conversely, someone who is overly house proud, wants their vacations completely arranged for them, hates change and would worry the whole time about their own home shouldn't consider home exchange.

WSJ: What do you say to people who can't get past the fear of dealing with strangers on a fairly intimate level? After all, you're going to be staying in their homes and they'll be in yours.

MS. SEALEY: It is only through regular correspondence and targeting members who appear most compatible that trust gradually develops on both sides.

Most people will correspond over several weeks - even months - asking as many questions as they want and sometimes exchanging references...with usually a phone call or two during the final preparations when exchange dates are getting close. Some members arrange an overlap in one of the homes - if there is space to do so - or meet briefly at the airport. This can be reassuring. But if meeting isn't practical before an exchange, the majority of exchangers will ask a friend who lives nearby, or a willing neighbor, to act as their agent by handing over keys and being available to answer any questions exchange guests may have while in the home.

WSJ: For many people, vacation is about getting away from it all. Can you truly get away from it all if you're living in someone else's home and, say, watering someone else's plants? And what about well-intentioned neighbors stopping by?

MS. SEALEY: When you are living in an exchange home, it is really no different from renting a house or apartment -- except that you will nearly always have many more facilities and comforts in a "real" home than in a vacation rental property. You don't need to worry about plant care if you really don't want the responsibility. Although many exchangers enjoy the opportunities to meet neighbors and friends of the family, if this would be intrusive, you can make this clear to your exchange partners in advance so they can warn overly friendly neighbors to respect your privacy.

WSJ: How much time does it typically take, from start to finish, to find an acceptable match?

MS. SEALEY: Much depends on how open you are on destinations you will consider; how flexible you can be on dates and length of exchange, and how popular your location is for exchanges. Experienced exchangers allow plenty of time - sometimes up to a year or more, depending on the destination - before the dates they want to exchange. Although some members do arrange exchanges very quickly -- and some have been known to agree to an offer within hours of joining - it can take a few weeks to find a suitable swap and then get to the point when both parties are ready to agree to go ahead with the exchange.

WSJ: What is the average length of time for a vacation swap?

MS. SEALEY: Swaps vary in length from two days to over a year. The average length for an international exchange is around two to three weeks. But this can vary a lot, depending on individual circumstances and average vacation periods in different countries.

Wrong Ideas
WSJ: What are some of the biggest misconceptions about house swapping?

MS. SEALEY: That you won't get to know the people you are swapping with; that you need to have a large, luxurious home to take part; that you have to arrange storage for all your clothes and other personal belongings; that no one will be interested in swapping to a remote or little-known location; and that you must swap "like" with "like."

WSJ: What causes swaps to fail?

MS. SEALEY: The vast majority of exchanges work out very well, and we receive few complaints. Those we do receive generally involve misunderstandings rather than negligence or maliciousness. Of these, the most common mismatch involves housekeeping standards. Although all exchangers should leave their homes clean and tidy, accommodations are lived-in homes, not five-star hotels, and standards will vary.

WSJ: If you open your home, what do you do with valuables, financial records and other personal papers?

MS. SEALEY: As soon as you agree to a home exchange, let your household insurers know that you will be having nonpaying guests in your home and the length of stay. Your home is almost certainly safer being occupied than left empty, but not all policies provide the same level of coverage. Most insurers won't cover you for burglary unless there is evidence of a break-in, so make sure that your exchange partners are aware of all procedures to keep your home secure -- as you will do in their home. If possible, don't leave small, expensive items like jewelry in your home. Check the terms of your insurance policy on accidental damage and agree mutually that the exchange guest will pay for any damages that aren't covered by insurance.

People with enough space in their homes to keep one room locked and out of bounds can store anything there that they would be concerned about, including confidential papers. Others will merely make...clear to their guests anything that they don't want touched.

Many home swappers allow use of their computers, but may password protect their own user accounts and set up a separate account for their guests' use. Others may offer broadband access for guests to use with their own laptops.

WSJ: What are the red flags to watch for?

MS. SEALEY: During early discussions with potential exchange partners, be wary if they evade answering important questions, don't add photos to their listings - or at least share some directly with you - or stop responding to messages without any explanation.

Avoid exchanging with anyone who appears arrogant, overly fussy or demanding. Home exchange is built on trust, mutual respect and tolerance. This isn't the travel option for prima donnas.
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A number of economists are concerned that the federal economic stabilization plan does not take into account home-price declines, which push down consumer spending and drive up default and foreclosure rates.
REALTOR®Magazine
Martin Feldstein, an economist at Harvard University, believes 20 percent of homeowners' mortgages should be replaced by low-interest government loans to prevent the declines in net worth and consumer spending that will result if the government does nothing about residential depreciation.

Meanwhile, Richard Green of the University of Southern California's Lusk Center for Real Estate Development says more lenders need to participate in the Hope for Homeowners Program; and Columbia Business School Vice Dean Chris Mayer insists that demand for houses would rise if the government lowered mortgage rates to 5.25 percent.

Data from Zelman & Associates shows that higher FHA loan limits are helping, with mortgages financed by the agency rising to 28 percent last month from 19 percent in August.
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First-Time Buyer Tax Credit: A Reason to Buy Now

The homeownership tax credit that the federal government created earlier this year is a hard-won tool at your disposal to encourage your customers to jump off the fence and get into the home buying market.
REALTOR®Magazine
When you combine the tax credit with today’s continuing low interest rates, large selection of for-sale inventory, and low home prices, many of the pieces are in place for your customers to buy now.

How the Tax Credit Works

The First-time Home Buyer Tax Credit was passed this year as part of the Housing and Economic Recovery Act (H.R. 3221) on July 30 and targets any individual or household that hasn’t owned a home for at least three years. Taxpayers can take the credit on their 2008 tax return if they bought their house this year after April 9.

It’s worth up to $7,500 and can be taken in a single tax year. Authorization for the credit ends July 1, 2009, so if your customers wait to buy in the first half of 2009 they can take the credit on their 2009 tax return.

The actual credit amount is set as a percentage of the home purchase amount. That percentage amount is 10 percent, so your customers can get 10 percent of the home price credited against their tax liability, up to a maximum $7,500.

Income limits are $75,000 for individuals and $150,000 for households. Individuals whose income exceeds the $75,000 limit but isn’t more than $95,000 can still take the credit but on a reduced basis. The same thing applies to households earning up to $170,000.

Any house is eligible as long as it’s a primary residence and is in the United States.

Buyers Have 15 Years to Pay Back

To help keep the program cost effective for taxpayers, the federal government requires the tax credit to be paid back in small, 6.67-percent increments over 15 years. For that reason, some analysts have likened the credit to a 15-year, interest-free loan to help make home buying affordable.

There’s one restriction on the type of financing that your customers can use if they plan to take the credit. That restriction is on tax-exempt mortgage financing. That only applies if your clients are using below-market interest-rate financing from a public agency or nonprofit that’s funding the loan using proceeds from a tax-exempt mortgage-revenue bond issue. For most buyers, this won’t be an issue. It’s mainly an issue for low-income buyers using special mortgage financing.

Be a Resource for Clients

NAR Government Affairs has created two helpful documents that you can share with your clients to help them learn more about how the tax credit works. The documents are on downloadable and printable PDFs:

First-time home buyer tax credit chart

First-time homebuyer tax credit FAQ

The IRS Web site also offers tax-credit guidance in an article that provides answers to many frequently asked questions.

And don't forget about REALTOR.org, which is a great source for more information on all aspects of the Economic Stimulus Bill passed July 30.
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Bush Admin Launches ‘Hope for Homeowners’ Program to Help Struggling Families

This week, the Bush Administration unveiled additional mortgage assistance for homeowners at risk of foreclosure.
RISMEDIA
The HOPE for Homeowners Program will refinance mortgages for borrowers who are having difficulty making their payments, but can afford a new loan insured by HUD’s Federal Housing Administration (FHA).

“For families struggling to keep up with their mortgage payments, this program will be another resource to refinance into a loan they can afford,” said HUD Secretary Steve Preston. “FHA remains a safe and affordable alternative to the high-priced mortgage loans that threaten homeowners’ ability to retain their homes. We strongly encourage borrowers to work with their lenders to determine if HOPE for Homeowners is the right program for them.”

The HOPE for Homeowners program was authorized by the Economic and Housing Recovery Act of 2008. Since the President signed this vital legislation into law on July 30, 2008, the HOPE for Homeowners Board of Directors has worked diligently to develop and implement the program as directed by Congress. The Board was charged with establishing underwriting standards to ensure borrowers, after any write-down in principal, have a reasonable ability to repay their new FHA-insured mortgage.

The HOPE for Homeowners program ends September 30, 2011. The program is available only to owner occupants and will offer 30-year fixed rate mortgages - so the borrower’s last payment will be the same as the first payment. In many cases, to avoid what would be an even costlier foreclosure, banks will have to write down the existing mortgage to 90% of the new appraised value of the home.

Borrower Eligibility

Borrowers are encouraged to contact their lender to determine eligibility, but may be eligible if, among other factors:

- The home is their primary residence, and they have no ownership interest in any other residential property, such as second homes.
- Their existing mortgage was originated on or before January 1, 2008, and they have made at least six payments.
- They are not able to pay their existing mortgage without help.
- As of March 2008, their total monthly mortgage payments due were more than 31% of their gross monthly income.
- They certify they have not been convicted of fraud in the past 10 years, intentionally defaulted on debts, and did not knowingly or willingly provide material false information to obtain their existing mortgage(s).

How the HOPE for Homeowners program works

“HOPE for Homeowners will add to HUD’s existing efforts to make FHA refinancing available to homeowners who need it most,” said FHA Commissioner Brian D. Montgomery. “One year ago, FHA expanded refinancing into its FHASecure program. Since that time, we have helped more than 360,000 families keep their homes by refinancing with FHA, and we will assist a total of 500,000 families by the end of this year.”

The board expects that the primary way homeowners will participate in the program is by working with their current lender. HOPE for Homeowners will serve as another loss mitigation tool available to distressed borrowers.

HOPE for Homeowners also includes the following provisions:

- The loan amount may not exceed a maximum of $550,440.
- The new mortgage will be no more than 90% of the new appraised value including any financed Upfront Mortgage Insurance Premium.
- The Upfront Mortgage Insurance Premium is 3% and the Annual Mortgage Insurance Premium is 1.5%.
- The holders of existing mortgage liens must waive all prepayment penalties and late payment fees.
- The existing first mortgage must accept the proceeds of the HOPE for Homeowners loan as full settlement of all outstanding indebtedness.
- Existing subordinate lenders must release their outstanding mortgage liens.

Standard FHA policy regarding closing costs applies, and they may be:

- Financed into the new loan provided the value of the mortgage (including the Upfront Mortgage Insurance Premium) does not exceed 90% of the new appraised value of the home.
- Paid from the borrowers’ own assets.
- Paid by the servicing lender or third party (e.g., federal, state, or local program).
- Paid by the originating lender through premium pricing.
- The borrower must agree to share with FHA both the equity created at the beginning of this new mortgage and any future appreciation in the value of the home.
- The borrower cannot take out a second mortgage for the first five years of the loan, except under certain circumstances for emergency repairs.

The lender will disclose to the homeowner the benefits of the program including home retention, a new affordable mortgage based on the current appraised value, and 10% equity. The lender will also explain the prohibition against new junior liens against the property unless directly related to property maintenance, and a minimum of 50% equity and appreciation sharing with the Federal government.

The costs to the homeowner include the upfront and annual insurance premiums, as well as a share of the equity created by the write-down associated with the HOPE for Homeowners mortgage and any future appreciation in the value of the home. At settlement, subordinate lien holders will receive a certificate that evidences their interest as an obligation backed by HUD, with payment conditional on the value of HUD’s appreciation share.

If the home is sold or refinanced, the homeowner will share the equity with FHA on a sliding scale ranging from a 100% FHA share after the first year to a minimum of 50% after five years. The lien holder that previously held the highest priority will receive payment up to a proportion of its original interest, not to exceed the amount of available appreciation. This type of delayed payoff will take place until all prior lien holders are satisfied or the amount of available appreciation is exhausted. All remaining appreciation is remitted to FHA.

The HOPE for Homeowners Board of Directors includes HUD Secretary Steve Preston, Treasury Secretary Henry Paulson, Federal Reserve Board Chairman Ben Bernanke, and FDIC Chairman Sheila Bair. They have named the following people to serve on the board as their designees: FHA Commissioner and Chairman of the Board Brian Montgomery, Federal Reserve Board Governor Elizabeth Duke, Treasury Assistant Secretary for Economic Policy Phillip Swagel, and Federal Deposit Insurance Corporation Director Tom Curry.

For more information, visit http://www.hud.gov/hopeforhomeowners/index.cfm.
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NAR Applauds Senate Stabilization Action

The NATIONAL ASSOCIATION OF REALTORS® commended as "bold" the U.S. Senate for passing the Emergency Economic Stabilization Act of 2008 yesterday because it could help lead to financial and housing stability.
NAR
“This far-reaching and meaningful legislation would go a long way in helping restore confidence in the nation’s financial system,” said NAR President Richard F. Gaylord. “Provisions in the bill would directly benefit Main Street by making financing more available. The legislation would not only help make home mortgages more available, which would help stabilize home sales and prices, but also help families who are trying to secure a car loan or borrow money to send their children to college. It would help protect Americans’ retirement savings and small businesses across the country.”

The act would require financial institutions to work with lenders and mortgage servicers to find ways to avoid foreclosures. It would also create a Troubled Asset Relief Program to purchase and guarantee the troubled assets from financial institutions that hold mortgages or mortgage-backed securities.
“If done right, the cost of such a plan will possibly be below the figures that have been widely reported,” said NAR Chief Economist Lawrence Yun. “In fact there is a very good chance that taxpayers will reap a positive return on this investment over the long term.”

“By unclogging the financial pipeline, liquidity will be greatly improved and mortgages will become more accessible and affordable, allowing families who dream of owning a home to do so and at the same time help current owners keep the home they have,” Gaylord said.

“There will not be an economic recovery without a housing recovery, and this ambitious legislation is what our economy needs. We will work hard with the House of Representatives and the administration to ensure a quick and smooth enactment and implementation,” said Gaylord.
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