Bernanke Easing Mortgage Rates for Consumer-Driven Rebound

U.S. Federal Reserve Chairman Ben Bernanke is delivering what he promised five months ago, record- low mortgage rates and a refinancing boom that’s putting cash in consumers’ pockets.
By: Kathleen M. Howley: Bloomberg.com
Fixed 30-year mortgage rates fell to a record low for the second consecutive week last week, hitting 4.78 percent, Freddie Mac said yesterday in a statement. The rates are the lowest in records dating to 1971, and come after Bernanke told Congress in November that helping the most creditworthy borrowers was essential to reviving the economy.

Mortgage applications in the U.S. rose for the fourth straight week last week as a decline in borrowing costs spurred homeowners to refinance, while purchases of new houses unexpectedly rose in February. The Fed’s effort to bring down fixed rates may give consumers as much as $25 billion, said Mark Zandi, chief economist of Moody’s Economy.com.

“It certainly gives further fuel to consumer spending,” said Nicolas Retsinas, director of Harvard University’s Joint Center for Housing Studies in Cambridge, Massachusetts. “It puts more money into circulation.”

The extra cash may help boost first-quarter consumer spending by 1 percent to 1.5 percent, said Barton Biggs, managing partner at New York-based hedge fund Traxis Partners LLC. Consumer spending accounts for about two-thirds of the U.S. economy.

Creditworthy Borrowers

Bernanke signaled the Fed’s effort to bring down fixed mortgage rates in Nov. 18 testimony to the U.S. House of Representatives’ Committee on Financial Services.

“It is imperative that all banking organizations and their regulators work together to ensure that the needs of creditworthy borrowers are met,” he said.

One week later, the Fed said it would buy up to $500 billion in home-loan securities, causing the biggest one-day drop in mortgage rates in at least seven years, according to Bankrate.com. On March 18, the central bank almost tripled the size of the program to up to $1.25 trillion in purchases during 2009. The intent is to lower rates and make real estate financing easier to get, the Fed said.

The plan to buy mortgage bonds this year is succeeding where $11.6 trillion of government lending, spending, and guarantees so far have failed.

‘Successful Effort’

“This has been the most successful effort, at least so far in this crisis, to shore up the economy,” said Zandi.

Bernanke’s mortgage purchase program may help curb a recession that is in its second year and being driven by the highest jobless rate in a quarter century and shrinking household wealth.

“If you throw enough money at one credit market, you will bring down the price,” said Gerald O’Driscoll, a senior fellow at the Cato Institute and former vice president of the Dallas Federal Reserve. “They are targeting the mortgage market in an attempt to speed the process of establishing a floor in the price of housing.”

Homeowners who refinance with a half-point drop in fixed rates may save $150 a month on a $300,000 mortgage, said Stephen Stanley, chief economist at RBS Securities Inc. in Greenwich, Connecticut, and a former Fed economist.

Home Prices

Cheaper financing may also help spark a turnaround in the housing market. Sales of previously owned homes rose 5.1 percent to 4.72 million at an annualized pace in February from the prior month as low mortgage rates spurred demand, the National Association of Realtors said. The NAR’s affordability index rose to a record in January, helped by lower home values and mortgage rates. The median U.S. home price in February was $165,400, the NAR said in a March 23 report, down 28 percent from its 2006 high.

Bernanke cited lower mortgage rates in testimony in February as evidence that Fed policies were working, noting that rates had fallen “nearly 1 percentage point” since the program was announced.

On April 1, Federal Reserve Bank of Cleveland President Sandra Pianalto said the Fed’s program was resulting in “encouraging signs” for the economy. Besides falling rates, “we are also beginning to see a resurgence in refinancing activity in the residential mortgage markets, spurred on by these lower rates,” she said.

The bankers’ group boosted its forecast for 2009 home-loan originations by $800 billion to $2.78 trillion last month as a wave of refinancing and low interest rates spur homeowners to seek out new loans. Refinancing will increase to $1.96 trillion in 2009 and purchase originations will total $821 billion, the group said.

The London interbank offered rate, or Libor, for three- month dollar loans dropped to 1.17 percent yesterday, down from 1.43 percent at the start of the year, showing banks have become more willing to lend.

TED Spread

The so-called TED spread, the gap between what banks and the Treasury pay to borrow money for three months, shrank to 96 basis points from 1.35 percentage points on Dec. 31. It touched a yearly low of 91 basis points on Feb. 2. The gauge reached a high of 4.64 percentage points in October, up from 1.35 percentage points on Sept. 12, the last trading day before Lehman Brothers Holdings Inc. filed for bankruptcy.

U.S. home prices fell 6.3 percent in January from a year ago, the smallest decline in five months, according to the Federal Housing Finance Agency in Washington.

“We have seen evidence that home sales are bottoming,” said Jim O’Sullivan, senior economist with UBS Securities LLC, in Stamford, Connecticut. “This should be positive.”
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Existing-home sales rise on deep discounting

Sales up 5.1% in February while prices drop 15.5% in past year, NAR says
By: Rex Nutting: MarketWatch.com
Sales of U.S. pre-owned homes rose 5.1% to a seasonally adjusted annual rate of 4.72 million in February, boosted by "deep" price discounts, the National Association of Realtors reported Monday.

It was the largest percentage gain since July 2003.

Sales are down 4.6% in the past year, the industry trade group reported. February's sales increased in all four regions as tracked by the NAR.

Sales of foreclosed properties or short sales accounted for about 45% of transactions last month the real estate trade group said. Distressed homes are selling for 20% below "normal market prices," the realtors said.

Economists surveyed by MarketWatch had been expecting sales to drop to a pace of 4.45million units from January's 4.49 million annual rate. See Economic Preview.

The median sales price dropped 15.5% in the past year to $165,400 - the second-largest year-over-year price decline on record, coming on the heels of January's 17.5% drop.

Inventories of unsold homes on the market rose by 5.2% to 3.80 million, equating to a 9.7-month supply at the February sales pace. Inventories, which are not seasonally adjusted, typically rise about 5% in February.

Inventories of existing homes can be fluid, as home owners or banks owning foreclosed homes wait for better market conditions before putting their houses up for sale. Any uptick in sales or prices could unleash a wave of homes on the market.

The realtors track only homes offered and sold through the multiple-listing services. Many foreclosures are handled through auctions or are being held off the market until prices improve.

The increase in sales is "obviously good news for the industry and the economy," even if sales remained "very soft," said Lawrence Yun, chief economist for the industry group.

He said he expects that provisions in the recently enacted economic-stimulus package would boost sales by about 1 million this year. The stimulus includes an $8,000 tax credit for first-time home buyers.

February details

Sales of single-family homes rose 4.4%. Condo sales also increased, up 11.4%.

Sales of single-family homes and condos increased by 15.6% in the Northeast, by 6.1% in the South, by 2.6% in the West and by 1% in the Midwest.

Sales in the West are up 30.3% compared with February 2008. In the past year, sales are down 10% in the South, 7.8% in the Midwest and 4.8% in the Northeast.
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Five warnings to heed if you're trying to buy a short-sale house

Short sales, slow sales
Check out short sale properties, but get ready to play the waiting game
By: Amy Hoak: MarketWatch.com
Those searching for the best housing bargains on the market might consider buying a short-sale property. But there’s an important qualification for buyers interested in going this route: They need plenty of patience...

In a short sale, a homeowner's lender agrees to accept less than is owed on the mortgage for the property. It's a useful alternative for borrowers underwater on their mortgage and on their way to foreclosure. As home prices continue to decline, short sales have become a viable option for those who need to sell.

"Over the past three to six months, the servicers have really become aware that short sales are the best way to reduce their losses... when a modification is not an option," said Travis Hamel Olsen, president of National Short Sale Center, a company that facilitates short sales nationwide on behalf of homeowners and real estate agents. The short-sale option also is less damaging to a seller's credit than a foreclosure, he said.

A short sale can also be attractive to a home buyer since the lender will often accept bids on the property that can be 10% or more below the market value, determined by the prices of comparable, nearby properties, Olsen said.

Although the mortgage balance is probably greater than the price a seller could expect in a traditional sale, the lender may be willing to take less than it's owed in a short sale if it can avoid the further expenses of foreclosing and taking over the property. The savings, however, often come at the expense of a home buyer's time.

"Short sales should be called long sales," said Leslie Tyler, vice president of marketing for ZipRealty. "In some cases, it could take months for a buyer to hear back from a lender."

For Kristine and John Williams the savings seem to be worth the wait.

Kristine Williams says they've found "the perfect house" in Brentwood, Calif., although the process is taking longer than they originally thought. The couple waited four months for an answer from the bank, and then had to revise their bid lower as the market continued to sour.

Their current bid is $550,000, on a home that was appraised at about $1 million three years ago. They're hopeful the current bid will be successful, but realize it could be months before they find out if the offer is accepted.

"In general, it takes a minimum of two months to get a response from the bank whether they will accept or counter your offer," said Rob Jenson, CEO of The Jenson Group, a Las Vegas-based real-estate firm. "That process could take longer."

Are the savings worth it to you? Consider these five caveats before shopping for a short sale:

1. You'll wait in the dark

Perhaps just as frustrating as the wait time is the fact that you likely won't be privy to details as the deal is progressing. That could mean going months without an update.

Banks are "ramping up their capability for short sales," said Dennis Green, general manager of ForeclosurePoint.com. But it hasn't made the process much easier.

"Where our buyers have been the most frustrated is the lack of status or information," Tyler said. Saying "we want an answer by this Friday or we're going walk... doesn't make a difference," Jenson said.

There are reasons for the wait: A lender could be considering multiple offers. If the seller had both a first and second mortgage, that could also make the process more complicated. The Williamses ran into both scenarios, slowing their process down - and that's not unusual. The homeowner also has to prove their financial hardship to the lender.

2. Banks will make you a deal, but within reason

There are deals to be found in short sales - but don't expect outright steals. A buyer needs to make a fair offer, based on comparable homes that have been sold recently, Jenson said. The offer should be aggressive, but not ridiculous, he said.

"The misconception is that banks should be happy to get it off the books," he said. "They are, but to a certain point."

Homes that have already been foreclosed on may be even less expensive than a short sale, Tyler said. But bank-owned properties also might be in worse shape, especially if the foreclosure home has been sitting vacant for some time, she added. It's important to consider the cost of necessary repairs before buying any distressed property.

3. Sales are 'as is'

In a short sale, it isn't likely that you will get allowances from the seller for repairs that are needed, as you might in a traditional sale, Jenson said. Do a home inspection and know what you're getting into, but remember that your bid is for the property "as is."

"The seller will not give you a credit for repairs," he said. "The last thing they will do is make repairs."

4. Have a back-up plan

Even if you decide to bid on a short-sale property, it might be best to keep looking anyway.

"There is no guarantee with short sales, and if the buyer is smart they will put an offer on a short sale they like and continue to look at properties that interest them," Olsen said. It isn't uncommon for people to find a home they like better and kill the short-sale deal, Green said.

That said, when a offer is accepted and earnest money is put down, remember that you risk losing those funds if you decide to walk away and buy another home, he added. It may take months before the deal closes, even after the offer is accepted.

5. It's not only about price

"One thing to not lose sight of is you're buying a house to live in. Buy a house you like," Tyler said. She recommends that prospective buyers remain open to properties of all types - short sales, bank owned and traditional sales - and compare prices and features.

A short sale is only a bargain if it's a home that you truly want to live in - not something you're drawn to only because of its low price tag.
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Bernanke Mortgage Rates Get 4% Handle First Time: Chart of Day

The lowest fixed mortgage rates on record may fall further after the Federal Reserve tripled its commitment to buy securities backed by conventional home loans.
By: Kathleen M. Howley: Bloomberg.com
Lenders will be setting rates “with the knowledge that there is a large buyer in the market ready with a bid at prices deliberately aimed at bringing down spreads,” said Jay Brinkmann, the chief economist at the Mortgage Bankers Association in Washington.

The CHART OF THE DAY shows spreads on mortgages and consumer loans versus benchmark interest rates. The gap between 15- and 30-year fixed-rate mortgages and the 10-year Treasury note narrowed since the Fed started buying mortgage securities in January.

The average U.S. rate on a 30-year fixed mortgage fell to 4.96 percent during the week ended Jan. 15, the lowest according to Freddie Mac data that goes back to 1971. This week the rate is 4.98 percent, the McLean, Virginia-based mortgage buyer said in a report yesterday. The 15-year fixed rate is 4.61 percent, the lowest since 2003.

The Fed said March 18 it would increase its purchases of mortgage-backed securities this year by up to an additional $750 billion, adding to the $500 billion it pledged between January and June. The central bank also said it would buy as much as $300 billion in Treasuries during the next six months.

The moves are aimed at giving “greater support to mortgage lending and housing markets,” the Fed governors said in their March 18 statement.
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10 Timely Home-Related Tax Tips

It's tax time again. Here are 10 tax advantages of homeownership.
RISMEDIA
Tax season is upon us, and homeowners everywhere will reap the benefits of tax breaks and incentives. Homeowners and potential home buyers should know what expenses are deductible and the ins-and-outs of new tax laws, says FrontDoor.com.

1. Deduct the interest you pay on your home loan on your tax return. A mortgage interest deduction reduces your taxable income. And because your mortgage payments for the first few years are heavily comprised of interest, they are almost entirely deductible.

2. Deduct property taxes and points you paid to lower your loan’s interest rate. The IRS offsets the expense of your state and local property taxes by allowing you to deduct those fees from your itemized income tax return. You may also get a tax benefit if you paid “points” at closing to lower your mortgage interest rate.

3. Take advantage of new laws in a challenging market. Look into new tax laws that may allow new homebuyers to get an $8,000 tax credit, short sellers to escape penalty for forgiven mortgage debt, and homeowners to contest property taxes in a struggling market.

4. Request a property tax reassessment if your home’s market value has declined. If your property value is significantly lower now than when you bought it, show proof of your home’s current market value and recent comparable sales in your neighborhood to your local tax assessor for a tax adjustment.

5. Research past and proposed assessments that may apply to your home. Understanding property taxes and assessments in your area will give you a more accurate homeownership cost, as well as help you predict and control your monthly expenses.

6. Get a reliable estimate of your property tax bill. Don’t rely on the old tax data passed down from your home’s previous owners. Depending on the circumstances of the sale, your tax bill can differ from their bill.

7. Wrap your property taxes into your monthly mortgage payment. If you’re daunted by that huge tax bill once or twice a year, consider setting up a convenient escrow account. (As this also protects the lender, they are more than happy to do the work.)

8. Understand how capital gains tax is calculated. When you sell your home, you’re taxed on any profit over $250,000 if you are single, $500,000 if married. But in calculating your gains, the IRS takes into account the money you put into improving the home. Remember to save receipts for any repairs and upgrades.

9. Know how your tax situation changes with every real estate move you make. Whether you’re buying or selling a home, refinancing, or renting your investment property, understand how these situations affect your taxes.

10. See if homeownership lowers your tax liability. Your tax situation varies depending on your stage in life. Upon examining your payroll withholdings, opt to reduce them to be in line with your net tax liability, which will put more money in your pocket each pay period.
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Washington Report: Property Valuation

Washington continues to wrestle with one of the thorniest issues of both the housing boom and the housing downturn: What's a piece of real estate really worth, and who says so?
By: Kenneth R. Harney: Realty Times
At a House financial services subcommittee hearing last week, appraisers complained that pervasive attempts to interfere with their work - by loan officers, Realtors, builders and others - distorted home valuations in some areas during the boom years.

They asked Congress to pass reform legislation that would create federal rules banning pressure on appraisers and increasing penalties on anyone who interferes in a property valuation.

But at the same hearing, the president of the National Association of Home Builders took appraisers to task for being a major part of current problems in pricing unsold inventories of houses.

Joe Robson said appraisers in 2008 and 2009 “have often used sales of homes in foreclosure or other distressed property sales as comparables for new homes without making the appropriate value adjustments.”

Failure to make those adjustments, he said, depresses the true value of newly constructed houses, worsens the downward spiral in new home sales, and unfairly devalues entire neighborhoods.

Meanwhile controversial new rules governing appraisals are scheduled to take effect May 1 for all loans originated for sale to Fannie Mae and Freddie Mac, unless a federal lawsuit filed in U.S. District Court in Washington blocks them.

The suit by the National Association of Mortgage Brokers challenges Fannie's and Freddie's “Home Valuation Code of Conduct” because it bans mortgage brokers from any involvement in the selection or hiring of appraisers.

The association, which represents 20,000 brokers around the country, wants the court to throw out the new code, charging that it would “directly reduce the ability of mortgage brokers to provide consumers with an efficient and cost-effective means of (shopping) for a mortgage.”

In a conversation with Realty Times, mortgage broker association president Marc Savitz said absent an injunction, after May 1 home buyers and refinancers may need to pay for appraisals from every mortgage company or bank they shop. Under current rules, by contrast, a broker can obtain one appraisal at the consumer's expense and use it to shop multiple wholesale lenders for quotes.

The suit also asks the court to declare the entire process followed by Fannie and Freddie in devising the code illegal. Both companies and their federal regulator have declined to comment on the suit, but note that they routinely issue guidelines to lenders on all underwriting and appraisal procedures, and the code is no different.
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Five Ways to Wow Buyers

These days, tax credits and high housing inventory make it a buyers’ market.
By: Phoebe Chongchua: Realty Times
If you’re a seller, don’t despair. There are a variety of renovations that can help make your home stand out. Many buyers look at numerous homes when shopping for a house; so enhancing your home to make it more memorable is vital and increases the chances of a successful sale.

Clearing clutter, taking down personal photos, applying a fresh coat of paint, making minor repairs, and keeping a pleasant aroma are all basic techniques to make your home more appealing. But there are a few other creative enhancements that you can do to wow buyers without emptying your wallet. The results not only attract more attention, but also paint a picture of a well-cared-for home.

While not everyone has the same taste in housing, typically buyers are attracted to larger kitchens, extra storage space, light and bright rooms, and open floor plans. Special finishing touches on a home can be the needed incentive to generate an offer.

Kathy Gerstenberg has owned her home for nearly 20 years. Over the decades she’s made many improvements but now she’s considering selling and wants to make sure she gets top dollar in a down market. So, she’s examining her home the way a buyer would.

“We live in a tract home and I know there are many homes for sale; we don’t want ours to be seen as the same ‘cookie-cutter’ model as the others,” says Gerstenberg.

With that in mind, Gerstenberg has carefully made enhancements that make her home more comfortable and aesthetically pleasing. “I wanted to do improvements that would catch a buyer’s eye and also make it enjoyable for our family,” says Gerstenberg.

As she scouts the market for her next home there are various aspects of a potential home that she notices right away. “I love crown molding and finished doors and windows,” says Gerstenberg. She adds, “So many times builders just don’t complete the look of a home but when you frame a door or window and add some crown molding to a room it gives it a finished look.”

Industry experts agree; Americans are expected to spend $217 billion on remodeling in 2009. Here are five areas where homeowners may spend some of their remodeling money to add the “wow” factor to your home.

1. Go green. Energy efficient products and household goods are attractive to buyers. Renovations or replacements that help make the house more energy efficient are popular. Things such as better insulation, replacing old windows, caulking, and adding skylights can increase value.

2. Crown molding and wider baseboards. Some homeowners are shy to experiment with this, especially if they live in a small home, but it can be very attractive in any size home. Wider baseboard. The measly baseboard that builders often use in tract homes doesn’t draw attention. Adding a wider baseboard and a fresh coat of paint makes the room come to life. Also, framing windows and doors helps complete the look of a room.

3. Textured paint. Faux finishes, accented walls, or even just a little fresh paint on them makes a lasting impression. Choose colors and textures wisely. Don’t get carried away with a color you love (e.g. purple walls—I’ve seen it in a home for sale). Remember, that you want your home to appeal to the masses. You can always paint your new home purple—and then change it when it comes time to sell it!

4. Improved flooring. Wood, tile, and new carpet can be a showstopper. But if the flooring is chipped, torn, or dirty, you’ll get the opposite reaction from buyers. They’ll think your home hasn’t been cared for properly which could result in a lower offer - or no sale at all.

5. Add a deck. Adding a deck can add value to your home. It’s a nice feature in a yard and many buyers are happy to purchase a home that already has a deck so that they don’t have to take on that home improvement project.
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Housing Plan Creates Opening for Scammers

Borrowers Who Hire Firms to Renegotiate Mortgages Rarely Come Out Ahead
By: JAMES R. HAGERTY: WSJ.com
Obama's housing plan will give troubled borrowers a chance to lower their mortgage payments - but could also give firms an opportunity to fleece unsuspecting borrowers.

President Barack Obama's foreclosure-prevention plan, announced last week, is designed to give several million troubled borrowers another chance to lower their mortgage payments. But government officials and counseling agencies warn that it also presents a golden opportunity for firms to fleece unsuspecting borrowers.

Over the past few years, there has been a proliferation of firms that charge fees for what they promise will be quick results in negotiating with banks to get easier loan terms. In many cases, the firms take the homeowner's money but never deliver the services promised. Even when the firms do deliver what they promise, they charge fees - often more than $1,000 - for services borrowers can receive free. In July, Congress increased to $360 million the funds it has allocated for foreclosure-prevention counseling to organizations that provide the service without charging consumers.

"Borrowers don't need to pay anybody," says William Apgar, a senior adviser to Shaun Donovan, President Obama's new secretary of housing and urban development. But Mr. Apgar and others fear that the recent headlines about the Obama housing plan will prompt more consumers to seek help in the wrong places.

Under the Obama plan, the government will offer incentives and subsidies to persuade mortgage-servicing companies to offer lower monthly payments to borrowers in danger of losing their homes to foreclosure.

The publicity about the plan could be "the greatest advertisement of all for these scamsters," says John Ryan, an executive vice president of the Conference of State Bank Supervisors, which helps coordinate bank regulators. But he adds that his group is working with state and federal regulators to alert consumers and crack down on scams.

Home Truths
The Federal Reserve recently issued advice for people seeking to modify their mortgage:

· Work only with HUD-approved nonprofit counselors. (See www.hud.gov.)

· Don't agree to pay a fee before you are provided with the promised service.

· Beware of people offering "guaranteed" results.

· Don't sign blank forms or documents you haven't read.

In the meantime, fee-charging loan-modification firms "are popping up everywhere," says John Snyder, a manager at NeighborWorks, a nonprofit group formed by Congress to support community-revitalization organizations. In California alone, the state Department of Real Estate has reviewed fee-agreement forms submitted by nearly 300 firms touting loan-modification or similar services and has posted them on its Web site. (The department says it doesn't endorse the firms or their services.) Cable-television stations also have been running ads for services that charge fees, many designed to look as if they come from government agencies or other trusted entities.

Consider the case of Marilyn Elias, a retired medical-records manager in Tempe, Ariz. Last September, when she was exploring ways to reduce her mortgage payments, Ms. Elias's son told her about a company called GSA Mortgage in Phoenix that he thought might be able to help her. She says she paid upfront fees totaling $1,455. "All they did was take my money," says Ms. Elias, a widow. "They haven't done one thing."

In addition, she says, an employee of the firm advised her to skip payments on her mortgage while waiting for a loan modification. That, she says, caused her credit score to plunge, even though she has since caught up with the payments. GSA Mortgage didn't respond to repeated requests for comment.

Wendy Brooks, a mortgage broker for Scout Mortgage in Scottsdale, Ariz., is trying to help Ms. Elias get a loan modification from the company that sends out her monthly mortgage bill, Aurora Loan Services. Ms. Brooks says she won't charge Ms. Elias anything for that help. A spokeswoman for Aurora declined to comment on Ms. Elias's loan.

Jeff Pasquale, an aircraft technician who lives in Lancaster, Calif., says he first tried to deal directly with his mortgage lender, Wells Fargo & Co., to negotiate lower payments. "I tried to handle it myself, and they started jamming me around," he says. He says he didn't seek a free HUD-approved counselor because a colleague had tried that without success.

Instead, Mr. Pasquale says he paid $1,100 about a month ago to a firm called U.S. Loan Assistance Center in Orange, Calif., which he found on the Internet. He says he believes the firm will deliver on its promises and is awaiting the results.

Eric Dena, processing manager at U.S. Loan Assistance Center, says Mr. Pasquale's payment is being held in a trust account until the firm's work is completed. He said his firm works faster than nonprofit counselors.

A spokeswoman for Wells said she couldn't discuss the specifics of Mr. Pasquale's situation, but added: "Wells Fargo encourages borrowers to work with us directly or a nonprofit housing counselor. We see no advantage to hiring third-party companies."

Borrowers are tempted by these firms partly because banks often don't have enough trained staff to cope with all of the calls they get from desperate homeowners and because nonprofit counselors don't always provide good service, says Jack Guttentag, a professor of finance emeritus at the University of Pennsylvania's Wharton School. He operates a Web site that offers free mortgage information called mtgprofessor.com.

In theory, Mr. Guttentag says, it might make sense for some people to pay a modest fee for help in negotiating with banks. But he has found no way to determine which of the fee-charging firms are legitimate. Mr. Guttentag suggests that borrowers first try calling their loan servicers for help. If that doesn't work, he says, borrowers can try to get a free, government-approved counselor. One way to find those is to call the mortgage industry's "Hope Hotline" at 888-995-4673 or click on www.hopenow.com.

Firms that charge big fees for helping with loan modifications are just the latest potential trap for people facing foreclosure. In recent years, many distressed borrowers have fallen for "foreclosure rescue" schemes in which firms or individuals promise to help them avoid foreclosure through arrangements that involve transferring the title of their home to the supposed rescuers.

Rather than solving the problem, the deals typically resulted in the rescuer stripping the remaining equity in the home. As many of today's troubled borrowers have little or no equity remaining in their homes, fee-based loan-modification schemes have eclipsed foreclosure-rescue ones, says Mark Kaufman, Maryland's deputy commissioner of financial regulation.

The Federal Reserve and the Federal Trade Commission have published warnings about what they call "foreclosure scams." State attorneys general also are issuing warnings and in some cases prosecuting firms alleged to have cheated borrowers. U.S. Sen. Herb Kohl, a Wisconsin Democrat, has introduced legislation that would bar "foreclosure consultants" from collecting fees before they complete promised services. Some states, including California, Maryland, Iowa and Florida, already have laws with restrictions on upfront fees for these services.
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First Step in Housing Refinance Plan Is Reaching Loan Servicer

Homeowners seeking help from the Obama administration’s foreclosure-prevention plan should start by contacting their bank, a process that’s likely to involve multiple phone calls and hours of effort.
By: Jeff Plungis: Bloomberg.com
“Servicers are inundated right now,” said Gibran Nicholas, chairman of the CMPS Institute in Ann Arbor, Michigan. “You have to be patient.”

Mortgage payments may be reduced to 31 percent of gross monthly income under the Obama plan. Applicants will have to produce pay stubs and tax returns to document income, the Treasury Department said today. They’ll also need to sign an affidavit confirming financial hardship.

Loans must have been made before Jan. 1, 2009 with a balance of less than $729,750, and the property must be a primary residence to qualify. The program doesn’t apply to second homes or vacation homes. Loans can be modified only once under the program.

The administration estimates between 7 million and 9 million homeowners may be eligible for help. The two main groups are people who can’t currently refinance to lower rates and those who may be on the verge of foreclosure because of economic distress.

About 4 million to 5 million homeowners are current on their loans but aren’t able to take advantage of current low mortgage rates because their homes have lost value, the administration said. Homeowners generally aren’t able to get a new mortgage greater than 80 percent of their home’s value. With this voluntary program, that requirement will be waived. Loans up to 105 percent of the value of the home will be eligible.

Saving $2,300

In one example of a borrower refinancing from a 6.5 percent loan to a 5.16 percent loan on a $200,000 mortgage, the new program would save more than $2,300 per year, according to the Treasury Department.

The refinancing program only applies to loans owned by Fannie Mae or Freddie Mac. Determining if that’s the case is another big challenge for borrowers, said Nicholas of the CMPS Institute. The information usually isn’t disclosed in monthly mortgage statements or the papers received at closing.

Getting through to a loan-servicing company by phone is one option. Loan companies must respond to written requests by law, but that can take up to 60 days, Nicholas said. Fannie Mae has a link on its Web site offering to check if a borrower fills out an online form.

Modified Mortgages

The administration estimates 3 million to 4 million homeowners in economic distress may avoid foreclosure with modified mortgages. The guidelines released today distribute the cost of the new loans among the borrower, the lender and the government.

Lenders will be responsible for bringing down the monthly payment to no more than 38 percent of a borrower’s gross monthly income, the administration said. Further reductions in interest payments, down to 31 percent, will be matched dollar-for-dollar by the government and paid directly to the loan servicer.

The loan company will be able to reduce the interest rate to as little as 2 percent to achieve the debt-to-income ratio and can also extend the loan term to as long as 40 years.

Homeowners would be credited an extra $1,000 in reduced principal each year for five years as an incentive to stay current on payments. Lenders would be given $1,000 for each loan successfully modified and up to $1,000 each year for three years if the new loans stay current, according to the Treasury Department.

One difference from previous housing rescue plans is borrowers who haven’t missed payments are now eligible for help.

Seek Help

Consumers may want to obtain advice from a credit counselor before beginning the process, said Gail Cunningham, spokeswoman for the National Foundation for Credit Counseling, an umbrella group of 850 U.S. community-based agencies.

The high rate of repeat foreclosures among borrowers who modified their loans under earlier foreclosure-prevention plans shows people aren’t always getting good advice. The foundation’s credit counselors are trained and certified, Cunningham said.

“If I was about to lose my home, I’d reach out for professional help,” Cunningham said. “Plan A, in everybody’s heart and mind, is to stay in the home. If long-term sustainability isn’t an option, then we need to exercise some tough love.”

The credit counseling foundation’s toll-free number is 1- 800-388-2227. Callers will be automatically routed to the counseling office nearest their home. Counseling agencies can also be located online at http://www.debtadvice.org.

The Hope Now alliance of banks, mortgage companies, investors and community groups offers advice on its Web site, hopenow.org, and links to 20 counseling groups certified by the U.S. Department of Housing and Urban Development, including the Association of Community Organizations for Reform Now, or ACORN, the Catholic Charities USA and the National Urban League.
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U.S. Sets Rules for Mortgage Modifications, 2% Rates

The Obama administration set loan modification guidelines for its $75 billion homeowner rescue plan, agreeing to pay lenders for altering troubled mortgages while reducing borrowers’ interest rates to as low as 2 percent.
By: Dawn Kopecki and Robert Schmidt: Bloomberg.com
The voluntary initiative, announced on Feb. 18, would require applicants to fully document their income with pay stubs and tax returns, and sign an affidavit attesting to “financial hardship,” according to documents released by the U.S. Treasury in Washington today. The second, larger part of the plan relies on government-run Fannie Mae and Freddie Mac to refinance loans.

“This is not going to save every person’s home,” presidential Press Secretary Robert Gibbs said during a briefing. The plan offers help “for those who have played by the rules.”

President Barack Obama’s initial proposal, the biggest federal foray into real estate since the Great Depression, ignited criticism from Republican lawmakers that the government would end up subsidizing homeowners who are financially capable of surviving the economic slump on their own.

“Banks across the country will be inundated with phone calls asking how do I get a 2 percent mortgage, because 100 percent of homeowners will feel they are due now this largess from the federal government,” said Representative Scott Garrett, a New Jersey Republican. He said the plan rewards “bad behavior” and exposes taxpayers to higher risk by imposing too many policy demands on Fannie and Freddie.

Lenders likely won’t be able to offer the loan modifications for a few weeks as they update their technology to process the applications, a mortgage-industry official said on a conference call today with Obama administration officials.

Costs to Borrowers

Obama is seeking to curb a jump in foreclosures that, along with a drop in consumer credit, is lowering property values, dragging down the economy and keeping prospective homebuyers away. The housing market lost $3.3 trillion in value last year, and almost one in six owners with mortgages owed more than their homes were worth, according to a report last month by Zillow.com.

“This plan will help make home ownership more affordable for 9 million American families and in doing so, help to stop the damaging impact that declining home prices have on all Americans,” Treasury Secretary Timothy Geithner said in a statement.

The Obama plan has two main parts: helping 3 million to 4 million homeowners who are at risk of foreclosure to lower their monthly payments by modifying loan terms; and using Fannie and Freddie to refinance the loans of 4 million to 5 million Americans who owe more than their homes are worth.

Loan Modification

Borrowers in the first part of the program won’t be charged to modify their loans, while homeowners refinancing through Fannie and Freddie would be responsible for some costs, a Federal Housing Finance Agency official said during a conference call with administration officials today.

For a loan modification, lenders would have to reduce the mortgage payments to no more than 38 percent of the borrower’s income. Then, the Treasury would share the cost for lenders to cut that debt-to-income ratio to 31 percent, the government said.

The modifications would allow a lender to drop the interest rate to as little as 2 percent to achieve the ratio, and if necessary, extend the term or amortization of the loan to as long as 40 years. If more effort is needed, lenders can forbear the principal and in some cases forgive, or reduce, portions of the principal altogether, the documents show.

Lenders that participate in the program for a single loan would be required to modify all of their other loans that qualify for the program, not just the worst performers, unless explicitly prohibited by contract, a Treasury official said during the call.

Secondary Lien

Home-equity loans and lines of credit, or secondary liens, would be excluded from calculating a borrower’s loan-to-income ratio, officials from the Treasury and White House said in the call. The administration is working on providing partial payments to second-lien holders to encourage them to extinguish that debt, officials said. Those guidelines will be released in a few weeks, they said.

“By providing servicers and holders of eligible residential mortgages with incentives to modify loans at risk of foreclosure, the program will promote sustainable alternatives,” the Federal Reserve, Federal Deposit Insurance Corp., Office of the Comptroller of the Currency, Office of Thrift Supervision and National Credit Union Administration said in a joint statement.

Borrowers with loans originated before Jan. 1, 2009, will be eligible for the program, which runs through 2012. People living in their homes who have an unpaid principal balance of as much as $729,750 can participate.

Fannie, Freddie

Fannie and Freddie, the mortgage-finance companies seized by regulators in September after their losses threatened to further disrupt the housing market, own or guarantee about $5.2 trillion of the $12 trillion residential home loan market.

The companies will offer, through their servicers, loan modifications and refinanced mortgages as well as help administering the broader loan modification program for Treasury.

Garrett, the ranking Republican on a panel that oversees the companies, challenged FHFA Director James Lockhart in a letter today on whether the administration’s policy allowing Fannie and Freddie to refinance loans without new appraisals or additional mortgage insurance violates federal charters.

The proposal, Garrett said, may violate requirements that homeowners put up at least 20 percent of the appraised value of a home or carry mortgage insurance.

“Due to falling home values, many of the potential applicants for Treasury’s foreclosure mitigation refinancing plan will now find themselves” below that level, Garrett said. “There is no specific language under this title that provides the regulator of these two entities any discretion for when or how to apply this requirement.”
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Trendy Hotel Checks Into Iconic Hollywood and Vine

Hollywood Boulevard and Vine Street is an iconic intersection that fell into disrepair decades ago, yet has remained a pop culture symbol as the destination for Hollywood dreamers.
By: ALEXA HYLAND: Los Angeles Business Journal Online
Now, Dallas developer Gatehouse Capital is bringing back all that glory with its $350million W Hollywood Hotel & Residences project framing a Metro Red Line subway station.

Subway riders emerging from the Hollywood and Vine stop will be greeted by the sight of a 12-story building, stores, lush landscaping and huge graphics.

“If we can combine an iconic location like Hollywood and Vine, with the ability to get downtown in 10 minutes or up to Universal (Studios) in five, we are all over that,” said Marty Collins, chief executive of Gatehouse.

Extra care went into integrating the preexisting subway façade into the surrounding W Hotel and condominiums. Architecture firm HKS Inc. reconfigured the entrance and exits of the subway station but didn’t alter any of its underground features.

The incorporation of the subway entrance is one reason why the mixed-use project has captured attention. Local officials are hoping that the accessibility of the station will encourage residents and tourists to use the subway system.

“Instead of trying of trying to create a wall or distance between the subway and the brand, they are actually embracing it,” said Kerry Morrison, executive director of the Hollywood Entertainment District, a business improvement district that spans much of Hollywood Boulevard.

Nearly a decade ago, Collins and his team began scouting spots in Hollywood where they could build a W, a trendy hotel operated by Starwood Hotels & Resorts Worldwide Inc. At the time, construction of the Hollywood subway was just being completed, and people were only beginning to talk about developing projects along public transportation corridors.

“We like the vision thing,” Collins said. “We would prefer the risk of being the first mover than the liability of being a late entrance.”

Gatehouse and development partner HEI Hotels & Resort, a hospitality specialist that came on board in 2005 and provided funding, forged ahead with their plan to build a 305-room luxury hotel paired with 143 luxury condominiums – penthouses top out at $8 million.

The result: a twin-tower contemporary building that features a French brasserie, two rooftop pools as well as an outdoor movie screen.

The condominium residents can choose from five different floor plans averaging 1,608 square feet. Kitchens feature designer Kuppersbusch ovens and stoves, and Subzero wine coolers. Bathrooms are outfitted with Kohler cast-iron bathtubs and Brazilian fossilized limestone floors.

Although the development promises to offer the height of luxury, Collins said the most important amenity of the project is the subway stop.

“We think it adds a huge amenity to buyers or any hotel customer,” he said. “It anchors the project and gives it a sense of space.”

OUTSTANDING PROJECT

W Hollywood Hotel & Residences

Intersection of Hollywood Boulevard and Vine Street, Hollywood

Developer: Gatehouse Capital, Dallas

Description: 305 hotel rooms, 143 condominiums, 50,000 square feet of retail space atop the Hollywood and Vine Metro Red Line station. Fall 2009 projected opening.

Key Fact: Site will feature a 3,500-square-foot outdoor lounge with a movie screen.
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Commentary: House Prices Will Rise Greatly over the Next Few Years, Buy Now

Those who do not study history are condemned to repeat it.”
Commentary by Mike Parker: RISMedia
So spoke Sir John Buchan, the First Baron of Tweedsmuir, back in the mists of time often referred to as “the good old days.”

Well, I may not be as old as the Baron, but I did live through President James Earl Carter, 21% prime interest rates, 20% inflation, Paul Volker and his attempt to strangle inflation by strangling the money supply, and that famous “WIN (Whip Inflation NOW!)” button the White House handed out. The period I am referring to was in the 1970s and early 1980s, and it effectively reduced the purchasing power and the true value of the dollar forever.

It wasn’t that long ago that we lived in a different economy altogether
Americans often affectionately remember the 50s, when Ike was president, America was the benefactor of the world, and life was so simple. Then, a man making $10,000 annually was quite successful. Then, a home might cost $13,000. A nice Ford or Chevy might cost $2,300; New and gleaming and using 22 cent-a-gallon gasoline.

But it was only in 1971 that I bought my first home for $33,690 in Chelmsford, MA; the same year I purchased a new 454 Corvette Roadster for $5,100 out the door. Then, $50,000 a year was the equal of my dad’s $10,000 in earning power.

I remember how excited I was when I finally had $100,000 in savings-I was wealthy, I thought, and my future seemed assured. When the pardon of Richard Nixon jolted America into changing administrations, the Peanut Farmer, James Earl Carter of Plains, Georgia, was elected to the Presidency of the United States. The wreckage his administration presided over made it possible for “The Great Communicator” to be elected in 1981; and by the time that happened, houses were $300,000 and cars cost about $30,000.

Personally, I wasn’t noticing the effects of inflation, yet-after all, we sold that original home and moved into a beautiful new home that cost $86,000 just as President Carter took office. Although I sold that home for north of $200,000 a mere five years later, it never occurred to me that our currency was being debased; no, I thought I was a brilliant investor!

Whatever happens, the stage is set for inflation to come back with a vengeance.
Discounts abound, but prices of durable goods are increasing.

In the 1970s those gurus of the Federal Reserve told us that “M1 (an arcane measurement referring to the ‘money supply’-the total number of dollars in circulation), was the most key statistic to watch, for if the money supply grew too quickly, inflation would persist and continue.” We then became a nation of M1 watchers, and the Fed attempted to control the most complex economy in the world by watching that one statistic and throttling the economy with interest rate surges that brought about disintermediation, the death of the savings bank industry and that set the stage for the rise of Merrill Lynch and Wall Street to replace banks and savings and loans as purveyors of the American mortgage.

Interest rates were so high banks couldn’t keep deposits because they were subject to interest rate restrictions. “Let them compete-take the shackles off the banking industry” Washington thundered, and so the Garn-St. Germaine banking act was passed, allowing the community bank ‘to compete’ with Merrill Lynch.
Predictably, Merrill Lynch won. King Pyrrhus couldn’t have put it better: “One more such ‘victory’ and I am undone.” We are all paying for that ‘victory’ today.

The savings and loan industry abandoned 50 years of thrift and sound banking practices and put insured deposits into junk bonds sold by that ever-smiling Michael Milliken and his henchmen instead of local mortgages. When the dust cleared, there was no mortgage expertise left, no savings and loan industry recognizable to anyone left, and Wall Street had achieved their goal of displacing the community bank and becoming the “one stop shop” for all things financial (See; Sanford Weil, Citigroup, et al).

In any case there can be no debate that the trillions of dollars about to be pumped into the economy-while they will save us-will also bring inflation back; unless-of course-all that stuff about M1 and the money supply, and all those pronouncements by Paul Volcker, then-Chairman of the Fed, were mistaken . Since Mr. Volcker has now returned in a quasi-official capacity to advise the President’s team, I’d guess we’re in for inflation, now, and part of his mission is to try to minimize it.

Good luck Tim Geithner.

Our new secretary of treasury is reportedly a brilliant man– perhaps a little forgetful about taxes, but nonetheless, brilliant, by all accounts. Together with the rest of the Obama team, he will need every bit of that intelligence and brilliance to help this great country of ours avert total meltdown, but I believe that the team will indeed accomplish that and we will make a recovery, led in part by housing. It’s never smart to bet against the United States of America.

But when the money supply is increased by an amount equivalent to 20 or 30% of Gross Domestic Product or more-naturally or unnaturally, inflation must result. That means that prices of all fixed assets rise to keep pace with the devaluation of the currency. We won’t be taking the wheelbarrow to the market full of dollar bills to buy a loaf of bread, as happened in Germany after WWI, but we will be going on a pretty thrilling ride for a while.

Now, what is going to happen to home prices over the next few years?

I am not as formally schooled in such matters as our current leaders are. I’m just a guy who has seen this movie, too. It is my belief that a side effect to saving America’s economy will be a robust increase in inflation. I believe that Inflation will regain all the “value” we lost in housing over the past two years, and that it will regain it in five years or less. Simply put, to put the brakes on inflation, government must inhibit the recovery. The people in power aren’t going to do that. Inflation is a necessary evil compared to a full scale depression and an acceptable trade off for most of us. (And oil won’t stay at about $40 a barrel too long, either!)

So, tell your clients the truth: Interest rates will never be this low again in their lifetimes. Home prices won’t be this low again in their lifetimes. This is the perfect storm economically, but it also the perfect time to buy a home; provided that you buy it as a home and not a piggy bank. It’s just a nice side benefit that five years from now, the home you bought today will have appreciated so much that you’ll be thinking (just like I did in 1979): “What a smart investor I am!”

This just happens to be the perfect confluence of opportunity and necessity: we must fix the economy and we’re going to, whatever it takes. Inflation is an unavoidable side effect. Buy that house this year!
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Obama Unveils Plan to Stem Foreclosures

President Barack Obama rolled out a bold $75 billion, three-part plan Wednesday to halt the soaring rate of mortgage foreclosures nationwide, one that seeks to encourage refinancing of homes now worth less than their mortgages and provides incentives for lenders to lower the debt load on struggling homeowners.
By: Kevin G. Hall: RISMedia
The Homeowner Stability Initiative, which Obama unveiled in Phoenix, seeks to address one of the triggers of the global financial crisis: the 2.3 million U.S. foreclosures last year that are protracting the housing crisis and helping to drive down home prices across the nation.

“When the housing market collapsed, so did the availability of credit on which our economy depends. As that credit dried up, it has been harder for families to find affordable loans,” Obama said. “In the end, all of us are paying a price for this home mortgage crisis. And all of us will pay an even steeper price if we allow this crisis to deepen _ a crisis which is unraveling homeownership, the middle class, and the American Dream itself.”

Specifically, the Obama plan seeks to provide low-cost refinancing for as many as 5 million Americans. It seeks to help delinquent or at-risk borrowers get their mortgages modified so that no more than 31 percent of their income is tied up in their mortgages. And it provides financial incentives to lenders and even a new insurance program to promote more mortgage modifications.

Like the failed efforts under the Bush administration, however, the Obama plan doesn’t compel banks and other lenders to modify troubled mortgages. Instead, it provides a menu of incentives that may or may not prove sufficient.

“This is not just the treasury secretary going into the room and asking people to do the right thing,” said a senior Treasury official, speaking on the condition of anonymity to speak more freely. “This is the first time there has really been a systemic incentive strategy for them (lenders).”

Banks joined two prior voluntary efforts during the Bush administration _ Hope for Homeowners and the Federal Housing Administration’s FHA Secure _ but these efforts have resulted in relatively few mortgage modifications.
Now they’ll have a stick waved at them if they don’t comply with the subsidy plan. It will come in the form of Obama’s support for legislation pending in Congress that would allow bankruptcy court judges to modify the terms of a mortgage.

That’s forbidden right now, and banks and other lending institutions fiercely oppose what they call “cram down” legislation, warning that it’ll bring uncertainty for lenders, who will respond by restricting mortgage lending.
Banks may soon have to choose between the lesser of two evils. They could either modify loans - with a subsidy - to provide lower lending rates, and lose what they might have made from the higher lending rate over the life of the loan. Or they can do nothing and run the risk that a homeowner could file for bankruptcy and then have a judge order new loan terms that allow the borrower to stay in the home - and pay the lender less money.

The president’s plan also offers payments to mortgage servicers, who collect mortgage payments on behalf of investors who own the mortgages originally issued by banks but were sold into a secondary market. Servicers apparently would be offered a payment for modification on par with what they would collect in the case of foreclosure.

Help for Homeowners Q&A: Will the President’s Plan Help Your Clients?

The White House website posted a Q&A on its blog yesterday for homeowners in distress to learn how the President’s plan will help them specifically. Here are a few excerpts:

Borrowers Who Are Current on Their Mortgage Are Asking:

• What help is available for borrowers who stay current on their mortgage payments but have seen their homes decrease in value?

Under the Homeowner Affordability and Stability Plan, eligible borrowers who stay current on their mortgages but have been unable to refinance to lower their interest rates because their homes have decreased in value, may now have the opportunity to refinance into a 30 or 15 year, fixed rate loan. Through the program, Fannie Mae and Freddie Mac will allow the refinancing of mortgage loans that they hold in their portfolios or that they placed in mortgage backed securities.

• I owe more than my property is worth, do I still qualify to refinance under the Homeowner Affordability and Stability Plan?

Eligible loans will now include those where the new first mortgage (including any refinancing costs) will not exceed 105% of the current market value of the property. For example, if your property is worth $200,000 but you owe $210,000 or less you may qualify. The current value of your property will be determined after you apply to refinance.

Borrowers Who Are at Risk of Foreclosure Are Asking:

• What help is available for borrowers who are at risk of foreclosure either because they are behind on their mortgage or are struggling to make the payments?

The Homeowner Affordability and Stability Plan offers help to borrowers who are already behind on their mortgage payments or who are struggling to keep their loans current. By providing mortgage lenders with financial incentives to modify existing first mortgages, the Treasury hopes to help as many as 3 to 4 million homeowners avoid foreclosure regardless of who owns or services the mortgage.

• Do I need to be behind on my mortgage payments to be eligible for a modification?

No. Borrowers who are struggling to stay current on their mortgage payments may be eligible if their income is not sufficient to continue to make their mortgage payments and they are at risk of imminent default. This may be due to several factors, such as a loss of income, a significant increase in expenses, or an interest rate that will reset to an unaffordable level.
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Obama to sign stimulus bill Tuesday

President Barack Obama will sign the $787 billion economic stimulus bill on Tuesday in Denver, a White House official said on Saturday.
Reuters.com
Obama on Saturday hailed congressional approval of the stimulus bill as a "major milestone on our road to recovery" and vowed to move swiftly to set the plan in motion.

"I will sign this legislation into law shortly, and we'll begin making the immediate investments necessary to put people back to work," Obama said in his weekly radio address from Chicago after his biggest legislative victory since taking office on January 20.

The Senate cast the final vote, 60-38, late on Friday, hours after the House of Representatives passed an identical bill, 246-183, capping weeks of arguing over how to best jolt the economy out of deep recession.
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