The Warren Report

Dream homes on hold

End of down payment assistance program makes it tougher for some to buy a house.

By Michelle E. Shaw

The Atlanta Journal-Constitution

Saturday, September 06, 2008

The path to home ownership could become a little harder for some to travel beginning next month.

Effective Oct. 1, an initiative that helps home buyers with down payments will no longer exist.

That’s because one of the provisions of the Housing and Economic Recovery Act of 2008 signed into law in July was the elimination of seller-funded assistance on Federal Housing Administration-backed mortgages.

FHA loans require buyers to have a down payment, one of the largest barriers to home ownership, said Ann Ashburn, president of AmeriDream, a Maryland-based nonprofit that helps buyers pull the money together through seller assistance. Ashburn estimates almost 40 percent of new home buyers use such programs —- which receive no federal subsidy. But lawmakers axed the programs because a number of FHA borrowers who went into foreclosure in the past year had down payment assistance. Current home buyers must have their FHA loan applications approved before Oct. 1 to use the seller assistance programs.

In an already slow housing market, that makes it tougher for sellers such as Harry and Lori Hayes of Cumming.

They are eager to sell their four-bedroom home because they are moving out of Georgia in the coming weeks.

The Hayes home is listed at $309,900, and a potential buyer who pays the asking price and uses an FHA loan would have to make a down payment of $9,297, which is 3 percent of the price. Their real estate agents, Carol and Joe LaBranche, suggested using down payment assistance as a marketing strategy to eliminate or greatly reduce that amount for potential buyers.

The house has been on the market less than a week, and it typically takes 30 to 60 days for a house in that price range to sell, said Carol LaBranche.

The FHA does not allow sellers to provide assistance directly to buyers, but the government ruled in 1998 that money routed through a nonprofit doesn’t conflict with that prohibition, allowing such programs to surge in popularity.

The Hayes have signed up to use the Nehemiah Program, a product of the Nehemiah Corp., based in Sacramento, Calif. The Nehemiah program, and others like it, require home sellers to give between 1 percent and 6 percent of the final contract sales price or a flat amount to the organization. The organization then passes that amount on to the buyer to cover down payment and closing costs, after charging the seller a processing fee —- typically around $400 to $600 —- for its services.

Ashburn and others with interest in the programs are lobbying senators and congressional representatives to repeal this provision of the Act before Sept. 30, so down payment assistance can continue.

If the assistance provision is not repealed, there won’t be many options for people who need help making a down payment, said Scott Syphax, president and chief executive officer of Nehemiah. Syphax said programs such as Nehemiah and AmeriDream are the “safety net programs for those who don’t come from wealthy families.”

“Don’t get me wrong, there are a number of great city and state programs that offer down payment assistance,” he said. “But those programs are only able to help a very limited number of people.”

Additionally the minimum down payment for an FHA-insured loan is scheduled to go up from 3 percent to 3.5 percent on Oct. 1. That means buyers will have to come up with an extra $1,075 to buy a $215,000 home, the median asking price of a new home in the metro Atlanta area according to housingtracker.net. The Web site tracks real estate inventory and asking prices of single family homes and condos across the country.

IMPACT ACROSS THE U.S.

$3,922: The average gift amount

$125,603: The average home price for families receiving DPA

$51,160: The average income for families receiving DPA

80 percent+: The number of DPA participants who are minority, female, or first-time home buyers

Sources: AmeriDream and Nehemiah Corp.

Impact of affordable housing nonprofits that provide privately funded Down Payment Assistance

Approximate number of newly constructed homes bought using DPA

IN GEORGIA: 21,933

IN U.S.: 150,000

Approximate number of home buyers who have benefited from DPA

IN GEORGIA: 146,217

IN U.S.: 1 million

Total amount of DPA gifts

IN GEORGIA: $576.6 million

IN U.S.: $3.8 billion

Tax revenue generated to state and local governments by new home construction bought with DPA

IN GEORGIA: $1.8 billion

IN U.S.: $12.3 billion

Amount of mortgages generated because of DPA

IN GEORGIA: $18.7 billion

IN U.S.: $130 billion

Sources: AmeriDream and Nehemiah Corp.

The Associated Press contributed to this story.

Bailout lowers mortgage rates

Takeover of Fannie Mae, Freddie Mac offers ‘shot in the arm,’ but it won’t solve housing crisis.

By Michael E. Kanell

The Atlanta Journal-Constitution

Tuesday, September 09, 2008

The dramatic federal takeover of two mortgage giants has already made it cheaper to borrow money for buying a home.

What it has not done is guarantee that you can persuade a banker to loan you any money.

Lower rates are good for sales, but nowhere near enough to turn around real estate, said economist Roger Tutterow of Mercer University. “This is one piece of the puzzle. But by itself, it doesn’t solve all the challenges.”

News that the government has taken control of Fannie Mae and Freddie Mac —- returning them from the private sector to their original status —- sent mortgage rates down Monday: The average 30-year, fixed-rate loan Monday was 6.08 percent compared to 6.26 percent last week, according to Bankrate.com.

After a loan is made, a lender generally sells the right to collect on it. With so many loans going bad —- and investors unsure which ones are toxic —- many buyers have stepped out of the market.

Not Fannie Mae and Freddie Mac, which have come to own or guarantee about half the nation’s $12 trillion in home loans.

Mortgage rates have been rising, further chilling an already sagging real estate market.

Rates typically run parallel to the yields on 10-year bonds. But the spread between the two has been higher for the past year because of fears about the risk in buying those loans.

“The risk was priced in,” said economist Michael Reksulak of Georgia Southern University.

Now, with the government promising to make good on any bonds sold by Fannie and Freddie, the spreads should narrow, and mortgage rates will fall —- just not dramatically, he said. “This should have a lasting effect, but not a large effect.”

But for the slumping real estate market, any help is welcome.

Real estate, the engine of expansion after the 2001 recession, has seen construction nearly grind to a halt. Lists of unsold homes have piled up, thousands of homes have plunged into foreclosure and prices have slid.

The woes are worse in some places than others —- with the sharpest pain coming in areas that had the steepest climb in prices.

Atlanta’s market has become weaker, but nowhere near as traumatized as Southern California, Las Vegas or Florida.

But nationally, an industry that added millions to the work force is now shedding jobs from lawyering to decorating, from accounting to construction. Further damaging the economy, falling home values are hammering consumers. Resale prices of metro Atlanta homes were down 8.1 percent in the second quarter vs. a year earlier, the eighth-best performance out of 20 metro areas, according to the S&P/Case-Shiller index.

Cutbacks in spending, in turn, spur layoffs in retail, hospitality and other sectors.

While the economy overall has continued to grow, payrolls have lost about 600,000 jobs this year, according to the Bureau of Labor Statistics.

Against that backdrop, lower rates offer help but not salvation.

“On the margins, changes in mortgage rates are important, and bigger swings in mortgage rates are more important,” said economist Tim Duy of the University of Oregon. “It’s not going to change the overall picture.”

Lower rates in general tend to nudge home values up because it means a buyer can get a little more house for the same monthly payment. It also helps some first-time buyers get into the market —- another boost to prices.

But economists don’t expect that push to overpower the mismatch between supply and demand.

Moreover, the credit crisis that started more than a year ago with a surge of delinquencies in the subprime market goes on. Lenders, afraid of more delinquencies, have become selective about what loans they make.

“I don’t think subprime borrowers will be buying a house in this market,” said Yildiray Yildirim, a Syracuse University finance professor. “We are going to see activity in the prime market.”

Lower rates do not mean looser standards, and that limits demand, which means that housing’s revival will be slow, Duy said. “It’s more about the availability of credit. Can you get the loan to buy the house, given your income and your credit scores?”

The frenzy of buying depended on adding millions of mortgage holders who were only marginally able to make payments and —- in too many cases —- not able at all.

Lenders have stopped lending to people like that.

Lowering mortgage rates will only change part of the equation, said Sandra Dunn, president and chief executive of Five Star Mortgage in Duluth.

Rates did fall a quarter-point within a couple of hours —- and that is welcome news, she said. “It certainly will put a shot in the arm to refinance.”

But at least thus far, there is no reason to expect lower rates to also mean more approved loans.

“The guidelines are still the same,” Dunn said. “There’s no new leniency as far as people qualifying.”

Important News - Fannie and Freddie

-    

As most of you know by now, the Federal Government yesterday took SIGNIFICANT action with regard to Fannie Mae and Freddie Mac

 

By Patrick C Huefner - Sunshine Mortgage

Vice President - Secondary Marketing

The basic facts are below. In addition, I have attached several fact sheets from the Department of Treasury.  The Government has indicated that they are acting primarily out of concern that Fannie and Freddie's ability to fulfill their mission has deteriorated, particularly with regard to the capacity of their capital to absorb further losses while supporting new business activity.    As a result, Fannie and Freddie's regulator is taking over all of the duties and powers of the management and board of the companies.  The primary goal is to provide stronger backing for the holders of MBS, senior debt and subordinated debt.   To strengthen the mortgage market, the companies will be allowed to grow their guarantee MBS books without limits and continue to purchase replacement securities for their portfolios, about $20 billion per month without capital constraints.

Implications

In the short term, whether it was really necessary or not, should provide stability to the mortgage market by easing capital concerns at Fannie and Freddie. 

Through 2010, it has been indicated that the Dept of Treasury plans to grow Fannie and Freddie’s portfolios (i.e. the intent appears to be to expand Fannie and Freddie business, at least during the housing downturn).

Concerns about stable foreign debt investment in the GSEs

was likely the primary driver for the fed move.

It appears that in the long run that the Treasury’s plan is to basically revert Fannie and Freddie back to a facility for federally backed mortgage debt – period!   The Treasury theory appears to be to employ FNMA/FHLMC as a counter cyclical model - when times are tough they will ratchet up the companies; when the environment is more "normal" they will ratchet back and let the private market carry the ball.   

Regarding the future structure of Fannie/Freddie:  It remains to be seen but next year Congress and the new administration and the interest groups will be consumed with the question of what the post conservator GSEs will look like.

     

Here are the main facts regarding the federal action from Sunday, September 7^th 2008

Conservatorship

Fannie Mae and Freddie Mac are placed into conservatorship immediately.  (No change in status for the Federal Home Loan Banks.) 

GSE Portfolios

To promote market stability, the GSEs will be allowed to increase their MBS portfolios through the end of 2009.  However, starting in 2010 the portfolios will gradually be reduced at a rate of 10% per year through run-off, eventually stabilizing at a much lower size.

Treasury Preferred Stock Agreement

Treasury and the Federal Housing Finance Agency (FHFA) have established a Preferred Stock Purchase Agreement to ensure that each company maintains positive net worth.  These agreements are intended to provide security to GSE debt holders and MBS investors.  In exchange, Treasury receives a senior preferred equity share and warrants to protect taxpayers - common and preferred shareholders will bear any potential losses ahead of the government's senior preferred shares.

Secured Lending Credit Facility

Treasury has established a new secured lending credit facility which will be available to Fannie Mae, Freddie Mac, and the Federal Home Loan Banks.  This facility is intended to serve as an "ultimate liquidity backstop."  This facility will expire on December 31, 2009.

Treasury Program to Buy GSE MBS

Later this month, Treasury will be initiating a temporary program to purchase Fannie Mae and Freddie Mac MBS.  Such purchases will be made as appropriate.  The program will expire on December 31, 2009.

Other highlights

On Monday, the GSEs are expected to resume normal business operations.

The U.S. government assumes control over the Board and management.

Current Fannie Mae and Freddie Mac CEOs are being replaced, but will stay on through a transition period.

Herb Allison will assume CEO duties at Fannie Mae, and David Moffett will assume CEO duties at Freddie Mac. 

There will be limited initial management actions - they will work with the current management team.

There will be no dividends paid on preferred or common stock.

All lobbying/political activity by the GSEs will cease.

Market Recap - Week Ending May 16, 2008

Mortgage rates ended the week close to where they began the week, but the end result masked a lot of movement. The week began poorly for mortgage markets. Stronger than expected Retail Sales data and tough talk on inflation from Fed officials pushed mortgage rates higher on Monday and Tuesday. In particular, Tuesday's Fed speakers suggested that the economy was beginning to recover - even if there is still a long way to go - and that inflation concerns have increased. The tide turned on Wednesday, however, when CPI, the most closely watched inflation report of the month, showed a lower than expected increase in inflation. Mortgage rates fell every day through the remainder of the week.

The April Core Consumer Price Index (CPI) rose at a 2.3% annual rate, below the consensus forecast of 2.4%. So far, higher food and energy prices have not been passed through in a large way to the prices of other goods. The Fed has been emphasizing inflation fears for a couple of weeks, which has had a negative impact on mortgage markets, so the good news on inflation was a relief to many investors. The Fed is generally considered to be comfortable with Core CPI readings below 2.5%.

In the housing sector, this week's news was mixed. Against a consensus forecast of 940K, April Housing Starts rose 8% to an annual rate of 1,032K units. Building Permits, a leading indicator of housing market activity, rose 5%, the first increase in in five months. The construction of single family homes remained weak, however. The strength in the Housing Starts report came from new apartment construction, which is extremely volatile on a monthly basis. Separately, the National Association of Realtors (NAR) reported that median home prices fell 8% during the first quarter from the same period one year ago. The chief economist of the NAR suggested that the data may be a little misleading, since a smaller percentage of high end homes were sold during the period due to the difficulty in obtaining jumbo mortgages. In addition, the results varied in different parts of the country. 100 out of 149 metropolitan areas saw price declines during the first quarter.

The recent pattern of one busy week followed by one slower week will continue, and next week's Economic Calendar will be very light. Leading Indicators will be released on Monday. The biggest economic report of the week will be Tuesday's Producer Price Index (PPI) data. Almost without exception, higher inflation leads to higher interest rates, and PPI focuses on the increase in prices of "intermediate" goods used by companies to produce finished products. The minutes from the April 30 FOMC meeting will come out on Wednesday. The detailed record of the discussion between Fed officials often provides additional insight into the reasoning behind the Fed statement. Friday's Existing Home Sales report will wrap up the week. Mortgage markets will close early on Friday and will be closed the following Monday in observance of Memorial Day.

Copyright @ 2008 MBSQuoteline

Fannie, Freddie have won capital relief

Tuesday, March 18, 2008 10:05:54 PM (GMT-04:00) Provided by: Reuters News NEW YORK, March 18 (Reuters) - The regulator for Fannie Mae <FNM.N> and Freddie Mac <FRE.N> will on Wednesday announce that the two U.S. mortgage finance companies have won relief from stringent capital rules and so can pump about $200 billion into a shaky mortgage market, sources familiar with the plan said on Tuesday. The Office of Federal Housing Enterprise Oversight will hold a joint press conference with Fannie Mae CEO Daniel Mudd and Freddie Mac CEO Richard Syron at the regulator's Washington offices to announce the deal at 9 a.m. (1300 GMT). Under the agreed-to plan, the two companies will be permitted to use some of their capital reserves to soak up mortgage assets while pledging to raise equity capital -- probably in the form of preferred stock -- in the near future. A source familiar with the deal said the companies would be granted on the order of $200 billion in new mortgage-buying power, which amounts to a one-third reduction in their excess capital. Shares of the two government-sponsored companies soared on Tuesday on expectations they were near a deal with OFHEO that would allow them to expand their support of the mortgage market. At the close in New York , Fannie Mae's stock rose 27.06 percent to $28.22, marking the biggest one-day percentage gain in at least a quarter-century. Freddie Mac shares climbed 26.19 percent, the best percentage boost since 1988, to $26.02. The deal would roll back OFHEO demands that the nation's two largest sources of mortgage finance hold 30 percent more capital than typically required. That constraint was put in place several years ago after accounting scandals shook both companies. Increased investment by Fannie Mae and Freddie Mac is expected to bolster confidence in a secondary mortgage market shaken by a wave of failing home loans. Cratering prices and a sell-off of mortgage-related assets this year have worsened the credit crunch, which may be tipping the U.S. economy into recession. But the companies, which hold charters from the government to support homeownership, are themselves struggling with losses due to falling home prices and record home foreclosures. Both recently boosted forecasts for their credit losses into 2009 after reporting combined net losses of $6.1 billion for the fourth quarter of 2007. The companies' political allies in Washington have called for OFHEO to loosen the reins on the two government-sponsored enterprises. On Tuesday, Sen. Charles Schumer, a New York Democrat, wrote a letter to OFHEO Director Lockhart requesting the companies be given meaningful capital relief.

Why only some see benenfit from Fed's Cuts

Mortgage Rates Remain High
For New Buyers, but Holders
Of ARMs See Lower Resets

By JEFF D. OPDYKE and JANE J. KIM
March 19, 2008; Page D1

The Federal Reserve yesterday lowered interest rates for the sixth time since September, but the campaign is helping with only certain kinds of borrowing.

Rates on home-equity lines of credit, credit cards and auto loans have all dropped. In addition, millions of homeowners won't face higher rates as their adjustable-rate mortgages reset.

But for new-home buyers and those looking to refinance their mortgage, the Fed's rate-cutting campaign has provided little relief.

Rates on 30-year mortgages fell to about 5.75% earlier this week, amid anticipation that the Fed would slash its key federal-funds rate by a full percentage point. After the Fed yesterday instead cut rates by three-quarters of a point, rates on 30-year mortgages bounced back to about 6% for some lenders. That's only about a quarter-percentage point lower than in September, even though the fed-funds rate has fallen three percentage points since then.

What's up? Blame the investors who buy packages of mortgages on Wall Street.

Burned by the subprime-lending scandal and a rising level of defaults, these investors, who include pension funds, insurance companies and bond mutual funds, are demanding a greater premium for mortgages over risk-free investments such as U.S. Treasurys. That's a big change from recent years, when investors viewed mortgages as a generally low-risk product.

If the mortgage market were functioning normally, rates would be in the low 5% range for a 30-year mortgage, says Frank Trotter, president of EverBank Direct, which originates mortgages. Mortgage rates typically follow the 10-year Treasury and have historically traded at about 1.8 percentage points above the 10-year Treasury yield. Those Treasurys currently yield about 3.451%.

The best strategy for home buyers: Comparison-shop. Mortgages aren't all priced alike. Some banks keep the mortgages they write on their books; others sell them on Wall Street (as long as investors are buying). And investors' fickleness these days can whipsaw rates.

Buyers should also be willing to act quickly. Daniel Schwartz of Marina del Rey,

Calif.

, took advantage of a brief dip in rates earlier this year and refinanced his 30-year fixed-rate mortgage at 5.125%, down from 5.875%, resulting in a savings of about $150 to $200 a month. While the 31-year-old computer analyst was able to "nail" that rate, by the time he told his friends, he says, that rate was gone. "Most people haven't been able to get a good rate on a mortgage even though the Fed has been cutting rates," he says.

Consider how erratic adjustable-rate mortgages have been acting in recent weeks. So-called 5/1 ARMs -- with rates that are set for five years and adjust annually thereafter -- plunged in late-January to 5.26%, down nearly a full percentage point from mid-December. Yesterday morning, however, ARM rates surged to 6.75%. The reason is that "several lenders were liquidating their ARM portfolios to raise cash," says Michael Menatian, president of Sanborn Mortgage Corp., a mortgage bank in

West Hartford

,

Conn.

To entice investors, newly issued ARMs must sport higher rates.

Home buyers who can afford higher payments might consider a mortgage with a shorter payment schedule. One of the effects of the current credit crisis is that mortgage investors are keen on buying 15-year mortgages "because they perform better in terms of delinquencies, the borrowers are a better risk, and the mortgages aren't refinanced as quickly," says Mr. Menatian. He says his firm locked in more than 20 mortgages between Monday night and Tuesday afternoon, "and every single one of them was a 15-year."

Even in areas where rates are falling, such as loans tied to the prime rate, the credit crunch is making it tougher for consumers to take advantage.

Rates on home-equity lines of credit have dropped to 6.27% from 8.25% since September of last year, according to Bankrate.com. Partly as a result, the amount that homeowners borrowed against their lines of credit rose slightly in the fourth quarter of 2007 -- the first such rise since early 2005, according to data from Equifax Inc. and Moody's Economy.com. Rates on home-equity lines of credit should fall further after the Fed's latest cuts, but that might have less effect than would ordinarily be expected, as some banks make these loans harder to get.

In recent months, Countrywide Financial Corp., Washington Mutual Inc., and others have reduced or frozen the amount of credit available to certain borrowers to protect themselves against falling home values and rising delinquencies. Indeed, banks are expected to post a jump in losses from home-equity loans amid a rise in delinquencies. About 4.65% of fixed-rate home-equity loans and 2.01% of home-equity lines were delinquent in the fourth quarter of 2007, up from 3.11% and 1.07%, respectively, a year earlier, according to Equifax and Economy.com.

Indeed, mortgage brokers say their customers are having a harder time borrowing against the equity in their homes. "We're seeing a lot of lenders freezing whatever is outstanding," says Mitch Ohlbaum, a mortgage broker with Legend Mortgage Corp. in

Los Angeles

. He says some clients, worried about getting cut off from existing lines of credit, have started drawing down their lines in a pre-emptive move.

"They're putting the money into savings accounts and CDs because they're afraid they're going to lose access to the funds," he says. "It's their safety net."

When it comes to credit cards, average rates on variable-rate cards have fallen to 12.36% from 13.97% last fall, according to Bankrate.com. But for some cardholders, yesterday's Fed rate cut may not have as much impact as previous rate cuts because of the presence of so-called floor rates, or predetermined points below which rates won't fall, no matter how low interest rates go, says Greg McBride of Bankrate.com. The last time consumers hit floor rates was between late 2001 and 2003, when interest rates were falling.

A rate cut isn't likely to have a big effect on new-car loans, in part because many auto loans are already offered at reduced rates because of heavy manufacturer incentives. Average rates on five-year new-car loans have dropped to 7.22% from 7.72% in early September, according to Bankrate.com. Nevertheless, lower interest rates will help make it less costly for auto makers and lenders to offer lower-cost loans and more-attractive leasing deals. Already, car makers are sweetening their financing rates, rebates and lease deals on a wider range of models than usual.

Write to Jeff D. Opdyke at jeff.opdyke@wsj.com and Jane J. Kim at jane.kim@wsj.com

Foreclosure 'crisis' is overblown

Sure, there are pockets of pain around the US,

but it's not as if most Americans are losing their homes.

More than 99% of homes aren't in foreclosure.

A recent list of year-end mortgage foreclosure rates in 100 top metropolitan areas drew a lot of attention. Released by RealtyTrac, a company that compiles data on home foreclosures, the list showed the number of foreclosure filings in each metro area, the percentage of homes being foreclosed and the percentage change from the previous year.

Though the report had some dismal news -- such as the nearly 4.9% foreclosure rate in the Stockton, Calif., area -- a close look at the data also provides some reassuring information. It tells me, for instance, that the foreclosure crisis is a regional problem, not a systemic one. It could become a systemic problem, of course, but we're a long way from that now.

This news will disappoint the gloom-and-doom crew and all those seeking the excitement of financial upheaval. But it may be time to temper our worry and take a closer look at some of the year-over-year foreclosure statistics:

• Though the national rate of foreclosure increased by a whopping 79% between December 2006 and December 2007, the rate was still only 1.033%. Because about 30% of all homes are owned mortgage-free, this means that for all the noise about a crisis, only seven-tenths of 1% of all homes were in foreclosure.

• In the top 100 housing markets, the average foreclosure rate was somewhat higher -- 1.38% -- and it was up 78% over the previous year. But if you rank-ordered the list of the top 100 areas, only 34 had foreclosure rates above the group average. Fifty-one areas had rates of 1% or less.

• Foreclosure rates actually fell in 14 of the 100 areas. More important, many of the areas with the highest increases in foreclosure rates were rising off rates that were tiny. The Bethesda, Md., area, to offer the most extreme case, saw foreclosures rise 1,288% -- to a rate of 0.682%. In other words, foreclosures there were virtually nonexistent the year before. Today they are still well below the national average. The same can be said for the Albany, N.Y., area (up 638% to 0.25%), the Baltimore area (up 544% to 0.73%) and the Providence, R.I., area (up 354% to 0.41%).

Another pattern emerges if you cross the foreclosure rates with the Office of Federal Housing Enterprise Oversight (OFHEO) index of home prices

. It shows that the top 10 foreclosure areas in America are areas of extreme price change -- changes far from the national average of 46.92% over the past five years. (See the table below.)

Seven of the top 10 foreclosure areas had experienced major price spikes in the past five years. Three of the top 10 foreclosure areas had experienced price increases that were dramatically lower than the national average. That pattern continues when you examine the top 25 foreclosure areas.

A tale of two extremes:
Metro area	Foreclosure rate, December 2007	Year-over-year increase of foreclosures	5-year appreciation rate
Detroit/Livonia/Dearborn	4.92%	68.15%	-0.92%
Stockton	4.87%	271.3%	65.07%
Las Vegas/Paradise	4.23%	169.11%	88.33%
Riverside/San Bernardino	3.83%	186.14%	107.80%
Sacramento	3.12%	272.54%	56.9%
Cleveland/Lorain/Elyria/Mentor	2.97%	112.43%	9.36%
Bakersfield	2.96%	244.82%	113.82%
Miami	2.72%	106.13%	114.98%
Denver/Aurora	2.64%	27.19%	10.83%
Fort Lauderdale	2.63%	110.05%	94.29%
National average	1.03%	79.21%	46.92%
Average of top 100 metro areas	1.38%	78.23%	Not available
Sources: RealtyTrac, OFHEO

The seven areas with the top price appreciation for the past five years averaged a stunning 91.6% increase, nearly double the national average. The national average, in turn, was about triple the inflation rate for the period.

Small wonder the foreclosure rate is booming as well. Anyone who bought in the past few years with a 5% or 10% down payment has a good chance of being upside down as froth comes off the market. In those areas the problem is about irrational price spikes and the hazards they bring to homeownership.

Some would call this "a Cadillac problem" -- a great problem to have, like having more boats than you have water-skiers. Though 5% of the homeowners may be losing their homes, most of the other 95% probably feel significantly richer.

How much richer? Try this. Suppose you paid three times your income for a house and it nearly doubled in value over five years. What does that mean? It means your net worth grew by nearly three years of income. Try achieving that with your 401(k) plan. Even if you bought halfway through the surge, your gain is likely to be well more than one year of income. However you cut it, the change compares quite favorably with working and saving.

FHA Raises Loan Limits

HUD Announces New FHA and Agency Loan Limits

More than a week early, the Department of Housing and Urban Development (HUD) released the new FHA and GSE (Fannie/Freddie) loan limits for 2008.

The new loan limits for the entire country can be accessed from HUD's website. To filter your search results, go to the Limit Type drop-down box and select FHA, Fannie/Freddie, or HECM and click submit.

Authorized by The Economic Stimulus Act of 2008, which was signed into law on February 13, 2008, the new FHA limit is based on 125% increase of each county's median price, with a minimum of $271,050 and a maximum of $729,750. The increased Fannie Mae and Freddie Mac loan limit follows the same formula , with a minimum of $417,000 and a maximum of $729,950. For the most part, these number are the same as the FHA limits except in lower-cost counties, where the Fannie/Freddie limits will be higher.

The FHA Loan Limit for Atlanta MSA is $ 346,250 for single family housing

Mortgage rates rising

Mortgage rates are rising as we move into March. This will probably motivate more prospective home buyers and other borrowers to lift themselves off their fence-sitting position and take action before rates rise further. The rate for a 30-year fixed-rate mortgage now average 6.24 percent, with 0.5 point (fees), according to Freddie Mac, a major government sponsored buyer of existing mortgages. Last year at this time, the rate was 6.18 percent. The average rate for a 15year fixed mortgage is 5.72 percent.

"Long-term fixed mortgage rates are trending up, bringing rates on 30-year and 15-year fixed-rate mortgage back to their levels of last November," said Frank Nothaft, Freddie Mac's chief economist.

Mortgage Rates Little Changed

A light week for economic data left mortgage rates mixed, but little changed, says Freddie Mac.

Current Mortgage Rates

Type	Overall avgs

30 yr fixed mtg	5.64%
15 yr fixed mtg	5.10%
30 yr fixed jumbo mtg	6.70%
5/1 ARM	5.00%
5/1 jumbo ARM	5.63%
Find personalized rates:

NEW YORK (CNNMoney.com) -- Mortgage rates were little changed this week as labor productivity rose higher than forecast and pending existing home sales weakened, Freddie Mac reported Thursday.

The government-sponsored loan buyer said 30-year fixed-rate loans averaged 5.72% for the week ending Thursday, up from 5.67% last week.

Last year at this time, the 30-year rate averaged 6.30%, Freddie Mac said.

"This week was relatively light on the number of economic data releases, which painted a mixed picture regarding the current state of the economy," said Freddie Mac (FRE, Fortune 500) vice president and chief economist Frank Nothaft in statement Thursday.

"On a positive note, labor productivity rose higher than market forecasts in the fourth quarter of 2007 while gains in labor costs slowed. However, pending existing home sales fell for the second month in December, indicating further weakness in home sales for January and February," Nothaft added.

Freddie Mac said 15-year fixed-rate loans averaged 5.25%, up from 5.15% last week. A year ago, the 15-year rate averaged 6.03%.

Rates on five-year adjustable-rate mortgages (ARMs) averaged 5.19%, down from 5.21% last week. A year ago, the 5-year rate averaged 6.01%.

One-year Treasury-indexed ARMs averaged 5.03%, unchanged from last week. At this time a year ago, the 1-year ARM averaged 5.52%.

Needed Legislative Action

Strategic legislative changes relating to housing is a key element in efforts to avoid recession and turn the housing market in an upward, positive direction. That's the view of most real estate experts who are analyzing the current real estate market. But precisely what those changes should be is the focus of intense discussions today. Changes that clearly benefit consumers, particularly home buyers and sellers, are often resisted by legislators facing political pressures.

The Federal Reserve Board's aggressive action in cutting the Fed rate substantially in recent weeks will help in stimulating the economy and keeping mortgage rates low. It's now at the lowest rate since 1982. The president's announced "stimulus package" plan to help homeowners and the economy sounds like a constructive step to avoid deepening problems. But it lacks specific details, and certain important steps affecting housing are needed in the plan, according to organized real es tate groups.

One point often raised by real estate experts is the importance of loosening constraints of Fannie Mae and Freddie Mac, government-sponsored enterprises that buy existing mortgages. They need to raise their maximum loan limits. "We believe that any stimulus package must address housing issues and increasing the conforming loan limits of those two enterprises," said Dick Gaylord, president of the National Association of Realtors. "The increase in loan limits would not only improve liquidity in the mortgage marketplace, but also boost homebuyers' confidence levels, resulting in increased sales and economic activity."

The ceiling on loans being purchased today by the two enterprises is $417,000. Many real estate leaders want this increased to at least $625,000. "This change would permit more families to enter the housing market by making more mortgages available with lower interest rates," Gaylord said. "Increased home sales will lower inventories and immed iately start stabilizing the housing market and the economy."

Mortgage loans of more than $417,000 are known as jumbo loans. They are usually harder to obtain and carry higher rates than conforming mortgages. By lifting the loan limit to $625,000, it would lower interest payments for consumers who must now obtain a jumbo loan, reduce the supply of homes on the market, strengthen home prices by two to three percentage points, and increase economic activity by $42 billion, according to NAR estimates. Also, by increasing conforming loan limits it would help reduce foreclosures by 140,000 to 210,000 and result in an additional 348,000 home sales.

Low mortgage rates opens door of opportunity

By Jim Woodard

The window of opportunity for home buyers has opened wider with mortgage interest rates dropping to the lowest level in four years. In early February, the average rate for a 30-year fixed-rate mortgage is only about 5.6 percent, but is beginning to edge up a bit. Last year at this time the rate for the same loan was 6.25 percent. The 15-year fixed-rate loan, particularly popular with homeowners wanting to refinance their existing mortgage, is now 5.04 percent.

"Recent economic news has confirmed the weak condition of the housing market," said Frank Nothaft, chief economist for Freddie Mac, a government-sponsored enterprise that purchases mortgages. "Housing construction starts has fallen to its slowest pace since May, 1991. Last year, as a whole, housing starts dropped nearly 25 percent from the previous year's level. This is the largest annual decline since 1980. New building permits also fell to the lowest level since March, 1993," he said.

When the Federal Reserve recently cut the federal funds rate dramatically, including the January 30 cut of another half a percentage point, the actions were extraordinary in both the magnitude and timing, Nothaft noted. The two cuts in January were the largest since October, 1984.

3 Signs of Predatory Lending

BY MARIE SPODEK, GRI, AND JEROME MAYNE

By definition, greater upfront costs and continuing higher interest payments are some of the differences between prime lending and subprime lending. While providing opportunities to build equity through homeownership, subprime lending does cost more.

Ideally, responsible, risk-based subprime lenders provide access to credit for prospective home owners with poor credit scores. However, lenders are considered predatory when their practices, although legal, are not in the best interest of the borrowers.

These lenders can include mortgage companies, creditors, mortgage brokers, and even home improvement contractors. Suspect practices include targeting certain groups of people and using pressure tactics to force borrowing decisions while not disclosing valuable decision-making in-formation.

In addition, these loans are often bundled with higher interest, lump-sum credit life insurance, excessive fees, and high prepayment penalties without regard to the borrower’s ability to repay.
Most subprime lenders and the loans they make are not subject to federal legislation, so it has been difficult to document how these practices impact predatory lending.

1. Reverse Redlining: Finding Easy Targets

After decades of redlining (when lenders would not make loans in certain communities because of racial composition), today many predatory lenders specifically seek out groups to which it will market these excessive loans. In other words, these groups become the victims of “reverse redlining.” Predatory lenders also seek borrowers who need cash due to medical issues, unemployment, or other debt-related problems, and they look for borrowers who may not be aware of their choices.

Here’s a closer look at the groups that are most often targeted by predatory lenders:

• The Elderly. Many of the older generation have lived in their homes for a long time and have built up equity. They may be “house rich and cash poor.” When they encounter cash problems due to medical, unemployment, or other debt problems, predatory lenders encourage them to turn to cash-out refinancing to solve their cash flow problems. Because they may not have the experience to comparison-shop, they are vulnerable to contractors and their lenders who suggest the only way to find the money for repairs is to sign papers through the contractor or loan officer, who then charges rates that do not correspond to the risk of the loan. They may be pressured into borrowing money with payments that are so high they are unlikely to make the payments on their fixed incomes.

• Minorities. Although minorities have greater access to credit than ever before, many African Americans and low-income families are paying far more for their credit than corresponding whites. According to the analysis by three reporters from the Charlotte Observer of more than 2.2 million 2004 mortgage applications, in 2005 blacks and Hispanics continued to pay more in interest rates than did whites — no matter high how their incomes.

• Immigrants. Many immigrants are eager to invest in their own homes, and, in fact, owning their own homes may be one of the reasons they immigrated to the United States. However, immigrants can lack the language skills and previous homebuying experience to enable them to effectively analyze loan terms and their implications. They may also lack the bank accounts and credit histories that would qualify them for traditional loans, thus making them easy prey for predators with “alternative” loan programs.

• Individuals with Low Credit Scores. Low credit scores do not always indicate poor credit risks. Sometimes, borrowers fall behind in payments due to circumstances that are not likely to be repeated: unforeseen medical bills, an unexpected job layoff. However, they can end up with unscrupulous subprime lenders who use abusive practices.

2. Charging Unnecessary Costs

As if loan predators have not found enough ways to soak these borrowers, they can always pack in more unnecessary or nonexistent products and services (generally overpriced insurance), sometimes to borrowers who have no beneficiaries. Lenders have especially added to the cost of manufactured homes by folding in overpriced fixtures, appliances, and even free trips. Before borrowers make their first payments, these loans are underwater because the market value of the collateral is less than the loan amount.

3. Giving Misleading or No Information About Loans

Predatory lenders can use bait-and-switch tactics by offering loans that seem almost too good to be true. What they initially offer is often lost in the process, and borrowers may not even realize that the cost or loan terms are not what they originally agreed to. Borrowers have been told that the FHA insures against property defects and loan fraud, neither of which is true.

Borrowers should take time to shop around and compare houses, prices, estimates, and referrals. No reputable lender will ask a borrower to sign a blank contract or loan documents, because blank forms only present the opportunity for dishonest individuals to fill in false information.

Changing the Climate:

Predatory lending is a big problem in today’s economy. However, this practice is not being perpetrated by all loan officers, and not all mortgage brokers are crooks. The key to changing the climate is to educate borrowers. There are crooks in every profession, and the consumer needs to know what to watch out for.

Bush subprime plan limited but a step forward

Mortgage interest rates will be frozen for ARM borrowers who are not yet in foreclosure.

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By Les Christie, CNNMoney.com staff writer
December 6 2007: 1:13 PM EST

NEW YORK (CNNMoney.com) -- President Bush's foreclosure relief plan will only help a small percentage of homeowners facing unaffordable jumps in their mortgage payments, according to a report, but many consumer advocates say it's a step in the right direction.

The program, which is expected to be announced Thursday afternoon, allows a five-year freeze in interest rates only for borrowers current with their monthly payments, according to sources involved in the plan.

It excludes anyone more than 30 days late at the time the mortgage would be modified or anyone who has been more than 60 days late at any time within the previous 12 months.

It also only covers borrowers with adjustable rate mortgages (ARMs) resetting beginning in 2008 and leaves out any who are judged capable of continuing to make mortgage payments at the higher reset rates. And borrowers who can't afford the loan even at low introductory rates also will be ineligible, according to Canfield.

Bush press secretary, Tony Fratto, has claimed that as many as a million potential borrowers could benefit.

But of the 2.2 million subprime ARMS that are expected to reset through the end of 2008, only 240,000 of those would be covered according to an analysis made by investment banker Barclays Capital as reported in The New York Times.

"I think the plan is good in theory," said Mark Zandi, chief economist for Moody's Economy.com, "but, in practice, it's going to come up short. There are too many impediments to its widespread adoption by investors and servicers."

Obstacles include contractual obligations between servicers and investors as well as logistical difficulties. When loans have been sliced up and resold through the securitization process, it's hard to determine who ultimately decides what modifications are possible and still in the best interests of the investors.

Furthermore, said Zandi, "There's no stick in the plan; it depends on moral suasion."

But just because every homeowner won't benefit under the Bush plan, help will be available, according to Anne Canfield, Executive Director of the Consumer Mortgage Coalition, which represents lenders and servicers.

"The industry will still work to modify these loans," she said. "We have every incentive to do that."

Delinquent loans increase financial pressure on servicers because they still have to make payments to investors, as well as tax payments to local governments, according to Canfield.

The principle aim of the Bush plan is to streamline the modification process, at least for that limited number of borrowers, allowing them to get fast help. Lenders will examine readily available loan criteria, such as loan-to-value ratios, loan amount, credit scores and payment history, to make a quick determination of qualifications.

That makes it a "start in the right direction," said Darla Keegan, speaking for Novadebt, a national nonprofit housing and credit counseling agency, because it will move some borrowers through the system quickly. Mortgage counseling services are stretched.

For the rest, she said, "We can still see if lenders will work out agreements with lenders for these borrowers."

"Qualified borrowers will get their modifications much more quickly," said Kurt Pfotenhauer, senior vice president for government affairs with the Mortgage Bankers Association. "A whole cohort will be done on an accelerated basis."

Still, said Bruce Marks, chief executive of the Neighborhood Assistance Corporation of America, a community advocacy group, "The number of borrowers affected by the plan is very small, but it sets the precedent and standard so that more borrowers can be helped down the road."

He expects more of that help to come. "An important point is why they're doing it. They're seeing the numbers of delinquencies. They can't say publicly that it will have a huge impact on the economy, but this action says that."

If the impact of subprime foreclosures increases, pressure will build for the government to do more.

The agreement does leap one of the thorniest hurdles to making wholesale mortgage modifications work: resistance from the investment community, who were sold a bill of goods, according to John Taylor, CEO of the National Community Reinvestment Coalition.

"They were promised a product that looked very safe and had attractive rates," he said. "Now they're getting little or nothing in return and are being asked to take bigger losses."

As the foreclosure crisis deepened it became apparent that many sensible modifications were being shot down because investors would not agree. An analysis by Moody's earlier this autumn revealed only about 1 percent of resetting ARMs had been modified this year.

The administration had to use its powers of persuasion to get investors aboard at all, according to Don Lampe, a real estate attorney who has testified before Congress on subprime mortgage issues. "Investor push-back probably weakened the plan," he said.

Despite all the criticism, the initiative was welcomed by nearly all the players, including consumer groups. Many wish it were stronger but were happy to see some response from the administration.

As Lampe put it, "Perfection is the enemy of progress."

Bush Administration Mortgage Plan Will Freeze Certain Subprime Interest Rates for 5 Years

By Martin Crutsinger and Alan Zibel, Associated Press Writers

WASHINGTON (AP) -- The Bush administration has come up with a plan to help strapped homeowners facing a daunting jump in their monthly mortgage payments. The proposal, reached in negotiations led by Treasury Secretary Henry Paulson with the mortgage industry, would freeze introductory "teaser" rates on subprime mortgages, preventing them from resetting to higher rates for five years.

President Bush, who was scheduled to announce the agreement after a meeting with industry leaders at the White House on Thursday, has stressed that the deal is not a bailout because no government money is involved.

The effort is aimed at stemming a threatened wave of foreclosures in coming years as 2 million subprime mortgages, loans provided to borrowers with spotty credit histories, reset from their introductory rates of around 7 percent to 8 percent to levels as high as 11 percent, adding hundreds of dollars to the typical monthly payment.

The mortgage companies will offer to freeze the loans at the lower introductory rates as long as the borrowers did not miss any payments at the lower rate.

The program is the biggest effort yet to deal with a tidal wave of mortgage defaults, which have piled up billions of dollars in losses for big banks, hedge funds and other investors as well as roiling financial markets around the globe. The defaults are the latest economic blow from the worst housing slump in more than two decades. Some economists believe the housing bust could become severe enough to push the country into a recession.

Two Democratic presidential contenders, Hillary Rodham Clinton and John Edwards, complained Wednesday that, given the risks to the economy, Bush's proposal did not go far enough. They put forward their own plans that would not only freeze mortgage payments but also declare moratoriums on further foreclosures for a period of time as a way of adding pressure on lenders to reach at-risk homeowners.

The financial services industry applauded the administration for negotiating a plan that will allow free-market forces to operate. The hope is that the five-year freeze will buy time for the housing industry to work down record levels of unsold homes and for sales and prices to start rising again.

A housing rebound would allow homeowners to refinance their current adjustable rate mortgages into fixed-rate loans with more affordable monthly payments.

The big sticking point in the lengthy negotiations was getting investors who have purchased the mortgages after they have been bundled into mortgage-backed securities to agree to accept lower interest payments. Critics have said even with a deal, there are likely to be lawsuits.

"The $64,000 question remains: will investors who might balk at going along with this be able to maintain legal roadblocks and prevent the plan from going into effect?" said Sen. Charles Schumer, D-N.Y.

But officials representing major players in the mortgage industry said they believed the plan would withstand any legal challenges and would help at-risk homeowners avoid defaulting on their mortgages.

Steve Bartlett, president of the Financial Services Roundtable, a trade group representing the country's largest financial service firms, said the deal would benefit banks, investors and homeowners since there is a significant cost when a mortgage is foreclosed.

Under the administration plan, the rate freeze will apply to loans made at the start of 2005 through July 30 of this year and will cover loans that had been scheduled to rise to higher rates between Jan. 1, 2008, and July 31, 2010.

The plan represents an about-face for Paulson, who until recently had insisted the mortgage crisis could be handled on a case-by-case basis. However, he and other administration officials became convinced the tide of foreclosures threatened by the mortgage resets represented such a severe threat that a more sweeping approach was needed.

Associated Press writers Alan Zibel, Deb Reichmann and Nedra Pickler contributed to this report