Borrowers look for a 'taste of the bailout pie'

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

—Michael Crittenden, Brian Blackstone and the Associated Press contributed to this article.
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U.S. to unveil sweeping new plan to help struggling homeowners: Gov't to announce new loan aid effort

The government and the mortgage industry are set to announce the most sweeping effort yet to help troubled homeowners by speeding up the process for renegotiating hundreds of thousands of delinquent loans held by Fannie Mae and Freddie Mac.
By: ALAN ZIBEL: AP Associated Press
The Federal Housing Finance Agency, which seized control of the two mortgage finance companies in September, scheduled a press conference for 2 p.m. EST. Scheduled to attend were officials from the Treasury Department, Wells Fargo & Co., the Department of Housing and Urban Development and Hope Now, an alliance of mortgage companies organized by the Bush administration last year.

An industry official who worked on the plan said the new approach will allow lenders to modify more delinquent loans by establishing broad criteria to speed up the process. The official spoke on condition of anonymity because details had not been announced.

The new initiative will likely have tremendous importance because Fannie Mae and Freddie Mac own or guarantee about half of U.S. home loans.

To qualify, borrowers would have to be at least three months behind on their home loans, and would need to owe 90 percent or more than the home is currently worth. The interest rate would be reduced so that borrowers would not pay more than 38 percent of their income on housing expenses, the industry official said. Another option is for loans to be extended from 30 years to 40 years, and for some of the principal amount owed to be deferred.

While lenders have beefed up their efforts to aid borrowers over the past year, their earlier efforts have not kept up with the worst housing recession in decades.

More than 4 million American homeowners, or 9 percent of borrowers with a mortgage were either behind on their payments or in foreclosure at the end of June, according to the most recent data from the Mortgage Bankers Association.

One reason the problem has been so tough to solve is that the vast majority of troubled loans were packaged into complicated investments that have proven extremely difficult to unwind.

Deutsche Bank estimates more than 80 percent of the $1.8 trillion in outstanding troubled loans have been packaged and sold in slices to investors around the world.

The remaining 20 percent are "whole loans," which are easier to modify because they have only one owner.

Nevertheless, Tuesday's expected announcement coupled with recent and more aggressive strategies from the major retail banks are important steps to fix the housing crisis. After more than a year of slow and weak initiatives, there appears to be a concerted and serious effort to get at the heart of the credit crisis: falling U.S. home prices and record foreclosures.

Citigroup announced late Monday it is halting foreclosures for borrowers who live in their own homes, have decent incomes and stand a good chance of making lowered mortgage payments. The New York-based banking giant also said it is also working to expand the program to include mortgages for which the bank collects payments but does not own.

Additionally, over the next six months, Citi plans to reach out to 500,000 homeowners who are not currently behind on their mortgage payments, but who are on the verge of falling behind. This represents about one-third of all the mortgages that Citigroup owns, the bank said.

Citi plans to devote a team of 600 salespeople to assist the targeted borrowers by adjusting their rates, reducing principal or increasing the term of the loan.

Late last month, JPMorgan Chase & Co expanded its mortgage modification program to an estimated $70 billion in loans, which could aid as many as 400,000 customers. The New York-based bank has already modified about $40 billion in mortgages, helping 250,000 customers since early 2007.

Bank of America, meanwhile, has said that starting Dec. 1, it will modify an estimated 400,000 loans held by newly acquired Countrywide Financial Corp. as part of an $8.4 billion legal settlement reached with 11 states in early October.

__

AP Business Writer Sara Lepro contributed to this report.
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The First Time Buyer $7,500 IRS Tax Credit: Why Isn’t There More Excitement?

What is a potential home buyer to do? There is widespread negative publicity about the future of real estate values.
By: David Fialk: RISMEDIA
There is negative publicity regarding the difficulty in obtaining mortgage financing, the problems with sub prime mortgages, home foreclosures and the collapse of financial institutions. They are experiencing an astronomical drop in the value of their stock portfolios. They have concern with job security. Can you blame buyers for slowing down and not rushing into a long term financial commitment, such as purchasing a home?

With that said, there are buyers setting appointments daily to see homes. There are buyers who are in situations where buying a home is a necessity, or is more preferred than continuing to rent. While total sale transactions may be down in many real estate markets, home purchases and real estate closings continue.

The mindset of buyers has changed. There is no reason to rush to purchase a home immediately because of rising real estate values. There is no reason for a buyer to rush into making an offer on a home they just looked at and seemed to like. There are just too many other homes on the market they haven’t seen yet. Maybe mortgage rates will drop? Maybe real estate values will drop further?

So why isn’t there more enthusiasm, more excitement and more publicity in the Realtor community with the $7,500 First-Time Buyer IRS Tax Credit included in the Housing and Recovery Act of 2008?

Throughout 2008, Realtors have tirelessly promoted the benefits of purchasing a home in the current real estate market (favorable mortgage interest rates, lower real estate values, available listing inventory, etc). Where is the effort in promoting the benefits a tax credit like this can be to first-time buyers? Combined with favorable interest rates, a wide selection of homes for sale and more affordable home prices, this tax credit may be just the stimulus and financial assistance many first time buyers need to move forward and make a commitment to purchase a home now, rather than just look at homes and wait for a better time to buy.

The $7,500 First-Time Buyer IRS Tax Credit applies to first-time buyer home purchases of a principle residence between April 9, 2008 and July 1, 2009. It is a tax credit and not a tax deduction. A tax credit is a reduction in income taxes owed! In other words, when a buyer files their income taxes for the year the home was purchased (2008 or 2009), they may be able to subtract $7,500 from the amount of federal income tax liability, which will either increase their tax refund or reduce the amount of tax still owed.

However, this tax credit is not free. It has to be paid back. Repayment begins two years after the credit is claimed, and must be repaid within 15 years. That’s $500 per year. Yes, it would have been much better if there was no repayment provision, but an interest-free loan for 15 years is not such a bad thing, is it? That’s right; there is no interest on the tax credit received.

To help clients understand the tax credit and how it may help them, Realtors need to promote it and know the details. They need to be able to provide buyers with information that is easy to understand. I have provided links to various articles with more detailed information below, including income limits, definition of first-time buyer and more.

While many have questioned the benefit of this type of tax credit, which requires repayment, take a look at the benefits a $7,500 income tax credit provides. More first-time buyers than not leave the closing table and have little left in savings after the purchase of their home. As new homeowners, they are now confronted with a mortgage payment that exceeds what they were accustomed to paying in rent. They have a home to furnish, with more rooms to fill with furniture than their apartment in most cases. They may also need to spend money on painting, some redecorating, carpeting and window coverings. In addition, there are other home ownership necessities such as a lawn mower, ladder, garden tools and the like that must be purchased, not to mention the expense of making any costly repairs or improvements the home may require.

More often than not these purchases are made with a charge card, with interest rates that are upward of 17%. These additional monthly expenses for home-related purchases are in addition to the large monthly mortgage payment they now have. So why wouldn’t a buyer be excited about obtaining the $7,500 tax credit, and having the benefit of repaying it over 15 years without interest?

What if a first-time buyer really liked a home they saw that needed some major repairs or renovation, a home that represented a great buying opportunity? But after much consideration, they decided against buying it. They just didn’t have the financial resources after the closing to accomplish the type of repairs required, such as a new furnace or new roof or new siding or new windows. Wouldn’t the opportunity to obtain $7,500 in an income tax refund possibly be the answer to this type of concern?

Talk about savings. Let’s assume a first-time buyer will have cash reserves after closing and is financially prepared for the purchase of the various items mentioned above. Why would a $7,500 tax credit, which has to be repaid, be beneficial to them?

Let’s assume a $300,000 mortgage was needed in the home purchase at 6.5% interest for 30 years. What if the $7,500 tax credit refund was used to pre-pay the mortgage? Using simple math that would be an annual interest savings of $487.50, just about equal to the $500 per year repayment obligation.

The truth in the matter is that the savings is much greater than the simple math calculation. Pre-paying the mortgage by $7,500 will not reduce the monthly mortgage payment of a fixed rate mortgage. That remains the same. The real benefit is this: The outstanding mortgage balance is reduced by $7,500 and each future mortgage payment results in savings in mortgage interest and increased principal mortgage reduction. With each monthly mortgage payment more money goes to reducing the mortgage balance and less is applied to interest. Together these savings will exceed the $500 cost of repayment of the tax credit. The benefit over the term of the mortgage in interest savings and mortgage reduction will be quite surprising.

What if the buyer prefers obtaining an adjustable rate mortgage or some type of a step down mortgage loan where the mortgage interest rate is lower in the first year and increases in the second or third year? If the $7,500 tax credit is used to pre-pay the mortgage, the new monthly mortgage payment in the rate adjustment year will be lower than it would have originally been as the outstanding mortgage balance has now been reduced by the $7,500 pre-payment.

What if the home is sold prior to repayment of the tax credit? Another provision requires repayment of the balance of the tax credit owed in the event of a sale of the home prior to full repayment. However, special provisions do provide for circumstances where the balance owed is greater than the gain in value or when there is a loss in value. If the gain on the sale is less than the amount owed, part of the balance owed will be forgiven. If there was no gain, or even a loss, then the remaining balance would not need to be repaid.

As a Realtor, I am excited for buyers who are eligible for this IRS $7,500 First-Time Buyer Tax Credit. Qualified first-time buyers should be excited too!

This represents another valid reason why “Now is a Great Time to Buy a Home.” Don’t forget to reach out to past sale clients who may be eligible and closed on their purchase after April 9, 2008. I am sure they would appreciate obtaining information and the opportunity of receiving a $7,500 income tax credit.

Please read the information below:

NAR_Tax Credit Information
NAR_Tax Credit_FAQ
IRS_Tax Credit For First Time Buyers
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Lower Home Prices Helping Inventory Decline, Study Reports

A recently released report on the Altos 10-City Composite Price Index showed a decline in asking prices of 1.5% in October and 2.9% for the past three months.
RISMEDIA
Prices of properties listed for-sale fell in 22 of 26 major markets according to the Real-Time Housing Market Report*, jointly published by Altos Research, the premier source for real-time real-estate research, and market analysis firm Real IQTM.

Asking prices fell at the fastest rate in Las Vegas - down 3.7% during October - and 7.1% over the most recent three-month period. This marks the seventh consecutive month that Las Vegas has posted the fastest rate of declining prices among major markets. Listing prices rose at the fastest rate in Denver - up 0.7% in October - followed by Houston where prices were up 0.6%. Denver and Houston are now the only markets showing three months of sequential price increases.

“The fleeting signs of price stability that we saw during the Summer have now completely vanished,” said Stephen Bedikian, partner and research director for Real IQ. “October’s stock market crash has crushed consumer confidence and housing price declines have resumed across most major markets.”

Inventory levels declined in all 26 markets. Inventory fell by the largest amounts in Boston and Charlotte with inventory contracting 7.9% and 5.7% respectively. Several other markets showed inventory declines of more than four percent for the month including: San Jose, Detroit, Houston and Phoenix.

“During October the steady trend of declining inventory continued with every single market showing a drop,” said Michael Simonsen, CEO and co-founder of Altos Research. “However, economic conditions have been eroding housing market demand faster than supply is contracting with the result that listing prices continue to fall.”

Twenty-three of 26 markets had an average days-on-market of 100 or more. The average days-on-market rose in all 26 markets. By far, the market with the slowest rate of inventory turnover was Miami at an average of 172 days-on-market. Miami has experienced the slowest market turnover in every month since September 2007. Miami’s rate of turnover is now twice as slow as San Francisco which enjoyed the fastest rate of inventory turnover at an average of 86 days-on-market.

Data in the Real-Time Housing Market Report is based on analysis of over one million properties currently listed for-sale in 26 metropolitan markets across the country. The report is the timeliest source of housing market data on current market activity.

*The report examines housing pricing, inventory levels and market conditions in 26 major U.S. metropolitan statistical areas (MSAs): Atlanta, Austin, Boston, Charlotte, Chicago, Cleveland, Dallas, Denver, Detroit, Houston, Indianapolis, Las Vegas, Los Angeles, Miami, Minneapolis, New York, Phoenix, Portland, Salt Lake City, San Diego, San Francisco, San Jose, Seattle, Tampa, and Washington, DC. The first report was published December 7, 2007 and is released every month. Report downloads are available at: www.altosresearch.com.
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Bailout: Will It Help Restore Real Estate Consumer Confidence?

What industry pundits had been referring to as a correction in the housing market became a full-blown crisis of global proportion this past September when the closings of veteran financial institutions, combined with climbing unemployment and foreclosure rates, triggered a $700 billion government bailout-a costly tourniquet used during the triage of the American economy.
RISMedia
A few short weeks later, most Americans-especially real estate professionals and consumers-are left struggling to comprehend exactly how The Emergency Economic Stabilization Act will help us. Will it keep homeowners in their homes and unfreeze the credit markets to facilitate home buying? Will it restore the real estate consumer confidence that is so desperately needed?

Time Will Tell

According to President George W. Bush, the historic bill that was signed into law on October 3, 2008, will take time to effect change-many liken it to waiting for a medicine to start reversing an illness. And, while there is no definitive plan yet that outlines exactly how the bailout bill will help (at press time), the government insists that the plan will not only buoy Wall Street but Main Street as well.

“Exercising the authorities in this bill in a responsible way will require a careful analysis and deliberation. This will be done as expeditiously as possible, but it cannot be accomplished overnight. We’ll take the time necessary to design an effective program that achieves its objectives-and does not waste taxpayer dollars,” said President Bush at a press conference held shortly after the bill was passed.

According to most economists and experts, the $700 billion financial industry bailout could make a recession shallower, and potentially even shorter, but it won’t stop the economic and housing downturns in their tracks.
NAR Chief Economist Lawrence Yun explained that the principal goal of the bill is to unclog the financial pipelines so most Americans, the primary investors in the program, can begin borrowing again.

“Knowingly or not, the 75 million homeowners and 100 million taxpayers have now become the key stakeholders on the side of housing market recovery,” says Yun.

“This bill is likely to go through a few changes, and a new administration and Congress in January will make a lot of changes that we can’t foresee right now,” says Dave Liniger, co-founder and chairman of the board of RE/MAX Int’l. “But if our legislators listen to the consumer and create legislation that is truly responsive, I think it has a very good chance of having a positive impact on our industry.”

According to Carter Murdoch, SVP, marketing and compliance executive, Realtor-Builder Mortgage Services Group, Bank of America, the bailout is just the first step, “priming the pump” to help restore overall confidence in the financial markets. “The reality is, the liquidity crunch will take a minimum of six months, possibly more than two years to shake out,” he adds.

“I liken this to a hurricane,” says Bob LeFever, former president and COO of Coldwell Banker’s Southern California division and current president and CEO of consulting firm The LeFever Group. “First comes the wall of water. Then the eye of the hurricane comes over-the eye of the hurricane is the government stepping in with a $700 billion package. Now the aftermath is coming. This mess ain’t going to get cleaned up in 72 hours.”

Letting the Government In

The terms of The Emergency Economic Stabilization Act (see plan highlights on page 128) authorize the federal government to buy billions of dollars in bad mortgages and other debt, taking the troubled loans off the books of financial firms. The bill contains broad language requiring the Treasury Department to develop a plan to “mitigate” foreclosures, and also requires federal agencies to encourage mortgage companies to modify the loans of borrowers in danger of foreclosure.

While the details of exactly how this particular part of the plan will be carried out remain undetermined, the real estate industry, and homeowners across America, remain uneasy about government’s hand in housing-but for now, can only conclude it’s a good thing.

“The government should get more involved; the rescue plan is the start of that,” says Harley Rouda, CEO & managing partner of Columbus, Ohio-based Real Living. “Mortgage terms should be reset with the original holders. However, the execution and perimeters set is critical.”

Patricia Hoferkamp, president and COO of Burgdorff ERA in Central and Northern New Jersey, believes that “the government should turn this over to those who do it best-the real estate industry. We need a system of checks and balances between the banks and the real estate industry. We need to reach out to our industry leaders, come up with a plan and then boil it back down to the local level.”

Will Confidence Return?

As Michael Levitin, 2008 chairman of the Houston Association of Realtors, says, “People are going to have to feel that the country has optimism and a solution. To get consumers back to real estate, change has to happen and there has to be a plan for that.”

According to most politicians, the bailout bill is designed to do just that-restore confidence in the country’s economy, an occurrence that would have a far-reaching impact on industries across all markets, especially real estate. But can the bill really deliver on that promise?

“Given the fact that we do have a crisis of confidence today, the passage of the bill at least starts the process at the macro level of bringing renewed stability and confidence to the market,” believes Ron Peltier, chairman and CEO of Minnesota-based HomeServices of America. “Early indicators are not suggesting that it was a knock-out blow in accomplishing that renewal of confidence in the marketplace and the economy, but as time passes in the next few weeks (at press time), we will see a calming effect and people will begin to have confidence again.”

Alex Perriello, president and CEO of the Realogy Franchise Group, concurs that real estate confidence may emerge as a byproduct of the bill. “The only thing that will help restore consumer confidence in housing right now will be rising home prices,” says Perriello. “The only way that will occur is when current inventory levels are reduced, which in turn, requires the availability of mortgage financing to qualified buyers. In that regard, the bill should be helpful, but don’t expect a miracle any time soon. This will take time.”

According to Gino Blefari, founder, president & CEO of Cupertino, California-based Intero Real Estate, consumer confidence is inextricably tied to job security-something that’s hard to come by for many Americans these days.

“People are now afraid for their jobs,” Blefari explains. “Consumers are just not confident in anything. We’ll have to wait and see how the country reacts to the bailout once things start to happen and the election is over (at press time).”

“The bailout will help restore confidence in the market, but there are some caveats,” adds Martha Hayhurst, president and CEO of Atlanta-based Harry Norman Realtors. “We still have an election (at press time) and a financial crisis on a global scale, for starters. When you add that to an already-shaken consumer, the result is home buyers sitting on the sidelines.”

Bringing the Bailout Home

According to Rei Mesa, president of Prudential Florida Realty, it is now more critical than ever for real estate professionals on the front lines dealing with consumers to be as informed as possible. “We’re looked upon by consumers as individuals who provide guidance,” says Mesa, “and, quite frankly, stay engaged. It’s now a requirement to stay informed.”

Perriello says that discussing options with clients is essential for real estate brokers and agents, especially in the face of the overwhelmingly negative media messages and confusion over the bailout.

“I suggest we talk about the here and now and not what the bailout ‘may’ mean sometime in the future,” says Perriello. “Now that the federal government controls Fannie Mae and Freddie Mac, in addition to FHA and VA, these traditional sources of mortgage funding are still readily available with expanded loan limits set earlier this year. The financial news media would lead people to believe that unless your last name is Rockefeller, you won’t be able to get a mortgage, which is factually incorrect and a gross misrepresentation of the current mortgage market.”

Liniger advises that real estate professionals “play the hand” they’ve been dealt. “I think it’s important that real estate professionals focus on being productive in this market,” he says. “Sellers either need to price their home right or consider staying off the market right now. And buyers should take advantage of the high inventory and lower prices.”

The Industry’s Role, Path Forward

While the country’s focus is on the here and now, real estate professionals need to keep an eye toward the future while digging through the situation at hand.

What can we learn, path forward? Peltier says the real estate industry of tomorrow needs to be better based in reality.

“We have to return to a period with legitimate controls on the mortgage industry,” he explains. “Mortgage markets were creatively coming up with products to fuel the appetite of the speculative investor mindset. We need to return to more normal lending standards and more normal purchase standards and requirements.”
Throughout it all, belief in the strength of the real estate industry and its leadership perseveres.
“Real estate leads us into these situations and leads us out,” says Hayhurst. “I think as good stewards of our industry, it’s our job to get people back to work. The resiliency of the American people is strong. They are just waiting for one green light and they’ll start buying homes again.” RE

-Maria Patterson, Stephanie Andre, Kayla O’Brien, John Voket

How Did We Get Here? The making of a bailout

2006
Banks and mortgage companies take bigger risks in home lending by allowing homeowners to borrow more, put little or no money down, and not provide proof of financial condition.

2007

February 7
HSBC announces that it will see larger-than-anticipated losses from rising defaults of subprime mortgages in the U.S., the first major bank to make an announcement about rising losses. While the announcement doesn’t gain much attention, subprime mortgages soon become a watch word along Wall Street and in financial news.

April 2
New Century Financial, one of the nation’s largest subprime mortgage lenders, seeks bankruptcy protection. The trouble spreads to major Wall Street firms, such as Merrill Lynch, JPMorgan Chase, Citigroup and Goldman Sachs, which had loaned the firm money.

June 22
In the biggest rescue of a hedge fund since 1998, Bear Stearns pledges up to $3.2 billion in loans to bail out one of its hedge funds that was collapsing because of bad bets on subprime mortgages.

August 16
Countrywide Financial-the largest mortgage lender in the U.S.-draws down $11.5 billion from its credit lines because it can’t afford to sell or borrow against the home loans it has made.

August 31
President Bush announces a plan to use the Federal Housing Administration, which insures loans for low-income borrowers, to offer government-guaranteed loans to around 80,000 homeowners in default.

September 18
For the first time in four years, the Federal Reserve cuts interest rates by 0.5 percentage points, lowering the interest rate from 5.25% to 4.75%. Over the next eight months, interest rates will fall from 5.25% to 2%.

2008

February 13
The Economic Stimulus Act is signed into law, allowing for tax rebates to be paid to low and middle income U.S. taxpayers. The bill also includes tax incentives that will be used to stimulate business investment.

March 16
Bear Stearns is sold to JPMorgan Chase for $2 a share-less than one-tenth the firm’s market price two days before.

April 30
Interest rates reach a low of 2%.

July 11
The FDIC takes over IndyMac, a California bank that had been one of the leading lenders that made home loans to people who did not provide proof of their income. IndyMac is the first major bank to shut its doors since the mortgage crisis began.

September 7
The Bush administration takes control of Fannie Mae and Freddie Mac in an attempt to shrink their outsized influence on Wall Street and Capitol Hill, while at the same time, counting on them to pull the nation out of the worst housing crisis in decades.

September 14
Merrill Lynch is sold to Bank of America for roughly $50 billion to avert a deepening financial crisis.

September 15
Lehman Brothers files for bankruptcy protection after it fails to find a buyer. This is the largest bankruptcy filing in U.S. history.

The Dow Jones industrial average falls 504 points, the index’s worst loss since the 2001 terrorist attacks.

September 16
The Federal Reserve agrees to an $85 billion emergency loan to rescue American International Group (AIG).

September 18
The Treasury and Federal Reserve began discussions on what may be the biggest financial bailout in U.S. history. Reports of the discussion send stocks soaring, with the Dow rising 410 points.

September 20
The Bush administration formally proposes a bailout plan that would allow the government to buy bad mortgages and other forms of toxic debt that have been weighing down U.S. financial companies at a cost of up to $700 billion.

September 21
The Federal Reserve announces that Goldman Sachs and Morgan Stanley would transform into bank-holding companies that would be subject to greater regulation.

September 25
Congressional negotiations on the bailout breakdown. Conservative House Republicans say that the plan would be too costly for taxpayers as well as an unacceptable federal intrusion into private business.

September 26
Washington Mutual becomes the largest thrift failure with $307 billion in assets. JPMorgan agrees to pay $1.9 billion for the banking operations, but doesn’t take ownership of the holding company.

September 28
House Speaker Nancy Pelosi and Treasury Secretary Henry M. Paulson Jr. announce a tentative deal on a bailout plan.

September 29
The Emergency Economic Stabilization Act that has been proposed is defeated 228-205 in the U.S. House of Representatives. The Dow Jones industrial reacts by plunging 778 points.

Wachovia’s banking operations are sold to Citigroup.

October 1
The Senate passes a revised bailout plan. The new package contains $110 billion in tax breaks for businesses and the middle class, plus a provision to raise the cap on federal deposit insurance from $100,000 to $250,000. This puts pressure on the House to reverse course and approve a new plan after rejecting a similar proposal.

October 3
After two weeks of debate, the House gives final Congressional approval to the revised
$700 billion bailout plan. The historic plan is signed into law by President Bush less than an hour after being approved by the House of Representatives.

Wells Fargo agrees to buy Wachovia, stunning Citigroup, which had agreed to buy Wachovia four days earlier.

October 6
The Dow falls as much as 800 points before a late recovery, finishing down 369.88-and below 10,000 points for the first time since 2004.

October 8
Acting in coordination with other central banks around the world, the Federal Reserve cuts interest rates by 0.5 percentage points to 1.5% as the financial crisis deepens.

The Federal Reserve agrees to provide insurance giant American International Group (AIG) with an additional loan of up to $37.8 billion, on top of the $85 billion loan made to the troubled company one month earlier.

October 9
The Bush administration takes part ownership in certain U.S. banks as an option for dealing with the credit crisis. The $700 billion bailout passed by Congress allows the Treasury Department to inject fresh capital into financial institutions and get ownership shares in return.

As investor confidence falls further, the Dow Jones falls 679 points, closing below 9,000 for the first time since the summer of 2003.

Citigroup walks away from deal to purchase Wachovia.

October 13
The Federal Reserve approves Wells Fargo’s $11.7 billion acquisition of Wachovia.

-Paige Tepping

Headed Toward Housing

Using authority granted in the $700 billion bailout plan, at press time, the Treasury Department began moving on five fronts:

- Purchasing troubled mortgage-backed securities
- Buying mortgages, particularly from regional banks
- Insuring mortgage-backed securities and mortgages, ensuring banks and investors don’t lose money if borrowers default
- Purchasing equity in a broad array of financial institutions
- Helping delinquent borrowers stay in their homes

Making Sense of The Bailout Bill

At nearly 500 pages, The Emergency Economic Stabilization Act is difficult for most Americans to comprehend. While the bill stands to morph as the new administration settles in, here are some of the highlights of the financial rescue portion of the bill as passed in its original format:

-Provide the government an equity stake, through non-voting or preferred stock, in companies that are unloading bad assets. If these companies go bankrupt, these warrants convert to a type of debt that places the government at the head of the list of creditors in any bankruptcy proceeding.
-Give the Treasury Secretary broad discretion to buy virtually any distressed asset in an effort to get it off the books of a troubled bank or financial firm and help unclog the credit markets. This is called the Troubled Assets Relief Program, or TARP.
-Provide $250 billion immediately to purchase mortgage-backed securities and other troubled assets, another
$100 billion with the president’s authorization and the remaining $350 billion would be subject to separate congressional approval.
-Give the Federal Deposit Insurance Corp. the ability to borrow without limit from the Treasury to help stabilize banks it regulates.
-Allow the FDIC to raise deposit insurance to $250,000 from the current $100,000. This affects the sum of deposits, not each account, in a depositor’s name at any given bank.
-Require the comptroller general to monitor and evaluate TARP’s performance, whether it is helping to prevent foreclosures, or providing stability in financial markets and protecting taxpayers. The Government Accountability Office (GAO) will have the authority to order corrections in the TARP effort.
-Order the comptroller general, the nation’s chief auditor, to report back to Congress by June 2009 on whether the government should curtail the ability of banks and others to invest with borrowed money.
-Create a special inspector general for the TARP program to supervise and audit the purchase of distressed mortgages and other bad assets.
-Raise the nation’s debt ceiling to $11.3 trillion.
-Reaffirm that the Securities and Exchange Commission (SEC) has the authority to suspend an accounting rule that some critics think has exaggerated the deflated prices of the toxic mortgage bonds at the heart of the financial crisis. This also is called fair-value reporting, and it was implemented after the Enron scandal to discourage reporting of inflated prices.
-Limit tax write-offs for executive compensation above $500,000 for companies that sell distressed assets to the government.
-Prohibit “golden parachutes” for executives of firms that are selling assets directly to the government.
-Kevin G. Hall

Read more!

Obama Will Support Housing, Says NAR

President-elect Barack Obama is likely to make a housing market recovery a central part of his economic revival plan, NAR leaders said Thursday.
REALTOR®Magazine
That was the assessment of NAR leaders, speaking to a packed audience Thursday at the Peabody Hotel during the opening forum of the REALTORS® Conference.

Obama has long made housing a priority, said Illinois Association of REALTORS® CEO Gary Clayton, who knows the president-elect from his days as a state senator. Clayton said with a chuckle that he now regrets not joining Obama’s weekly poker game.

In Illinois, Obama advocated tax credits for property owners and fought to end predatory lending, Clayton said. As a U.S. senator, he’s advocated for a stronger FHA and voted for the NAR-backed economic stimulus bill, which increased loan limits in high-cost areas.

NAR Chief lobbyist Jerry Giovaniello addressed election banter about Obama having a “socialist” agenda. “There’s not much left to socialize,” he joked, referring to the government rescue of Fannie Mae, Freddie Mac, insurance giant AIG, and the entire U.S. banking system. “I think Jiffy Lube may be next,” he said, to uproarious laughter.

Clayton said the real Obama is a “friendly, fun guy. He’s smart, quick, and a good listener but no pushover.” Giovaniello described Obama as “careful and cautious,” someone who will listen to all sides of an issue before making decision.

Besides winning the presidency, Democrats gained seats in both the House and the Senate. Giovaniello told the crowd that didn’t necessarily mean legislators will have an anti-business bent. A substantial number are “Blue Dog Democrats,” he said, who tend to be conservative and business oriented. And many already have sided with REALTORS® on key real estate issues.

“We made our friends before we needed them,” he said, “so thank you for being involved in the REALTOR® party.

It’s Still The Economy

Clearly the state of the economy was on everyone’s minds, and NAR 2009 President Charles McMillan asked Chief Economist Lawrence Yun about his economic outlook.

“We are in a recession,” Yun said. “In the next six months, we may lose up to 1 million jobs. But the good news is, historically housing moves independently from the economy. We are seeing a 20 percent improvement in home sales in states like California, Florida, and Virginia. The economy will not improve without a housing recovery.”

In the meantime, NAR is doing all it can to help REALTORS® through the tough times, McMillan said. Among the free resources at REALTOR.org are daily economic commentaries, an FHA toolkit, and 150 local market reports.

The association also offers a host of money-saving benefits. For more information, visit REALTOR.org/NARHelpsYou.

President-elect Barack Obama is likely to make a housing market recovery a central part of his economic revival plan. That was the assessment of NAR leaders, speaking to a packed audience Thursday at the Peabody Hotel during the opening forum of the REALTORS® Conference.

Obama has long made housing a priority, said Illinois Association of REALTORS® CEO Gary Clayton, who knows the president-elect from his days as a state senator. Clayton said with a chuckle that he now regrets not joining Obama’s weekly poker game.

In Illinois, Obama advocated tax credits for property owners and fought to end predatory lending, Clayton said. As a U.S. senator, he’s advocated for a stronger FHA and voted for the NAR-backed economic stimulus bill, which increased loan limits in high-cost areas.

NAR Chief lobbyist Jerry Giovaniello addressed election banter about Obama having a “socialist” agenda. “There’s not much left to socialize,” he joked, referring to the government rescue of Fannie Mae, Freddie Mac, insurance giant AIG, and the entire U.S. banking system. “I think Jiffy Lube may be next,” he said, to uproarious laughter.

Clayton said the real Obama is a “friendly, fun guy. He’s smart, quick, and a good listener but no pushover.” Giovaniello described Obama as “careful and cautious,” someone who will listen to all sides of an issue before making decision.

Besides winning the presidency, Democrats gained seats in both the House and the Senate. Giovaniello told the crowd that didn’t necessarily mean legislators will have an anti-business bent.

A substantial number are “Blue Dog Democrats,” he said, who tend to be conservative and business oriented. And many already have sided with REALTORS® on key real estate issues.

“We made our friends before we needed them,” he said, “so thank you for being involved in the REALTOR® party.

It’s Still The Economy

Clearly the state of the economy was on everyone’s minds, and NAR 2009 President Charles McMillan asked Chief Economist Lawrence Yun about his economic outlook.

“We are in a recession,” Yun said. “In the next six months, we may lose up to 1 million jobs. But the good news is, historically housing moves independently from the economy. We are seeing a 20 percent improvement in home sales in states like California, Florida, and Virginia. The economy will not improve without a housing recovery.”

In the meantime, NAR is doing all it can to help REALTORS® through the tough times, McMillan said. Among the free resources at REALTOR.org are daily economic commentaries, an FHA toolkit, and 150 local market reports.
Read more!