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  Los Angeles Business Journal

California home prices down due to distressed properties
California home sales declined from both the prior month and year in January, according to data from the CALIFORNIA ASSOCIATION OF REALTORS® (C.A.R.).  The median price also was lower, primarily due to a sales increase in the distressed market.

Making sense of the story

• Closed escrow sales of existing, single-family detached homes in California totaled a seasonally adjusted annualized rate of 517,740 in January, according to information collected by C.A.R. from more than 90 local REALTOR® associations and MLSs statewide.
  
  
• January’s sales were down 0.6 percent from December’s 520,940 pace and down 5.7 percent from the revised 548,760 sales pace recorded in January 2011.  The statewide sales figure represents what would be the total number of homes sold during 2012 if sales maintained the January pace throughout the year.  It is adjusted to account for seasonal factors that typically influence home sales.
  
  
• The statewide median price of an existing, single-family detached home fell to $268,280 in January, down 6.7 percent from $285,920 in December.  The median price also dropped 3.9 percent from the revised $279,220 median price recorded in January 2011.
  
  
• “The decline in the January median home is largely a reflection of an increase in the share of distressed home sales,” said C.A.R. Vice President and Chief Economist Leslie Appleton-Young. “Seasonal factors in the non-distressed market also played a role in the softening of the median home price, as prices typically decline in the non-peak home buying season.”
  
  
• California’s housing inventory rose in January, with the Unsold Inventory Index for existing, single-family detached homes increasing to 5.5 months in January, up from 4.1 months in December but down from the 6.8-month supply in January 2011.  The index indicates the number of months needed to deplete the supply of homes on the market at the current sales rate.

Read the full story 

In other news ...

 CNNMoney

Home buying : Most affordable in decades
According to the National Association of Home Builders/Wells Fargo Housing Opportunity Index, 75.9 percent of all new and existing homes sold during the fourth quarter 2011 could have been comfortably purchased by families earning the national median income of $64,200.

Read the full story

  The Los Angeles Times

Mortgage reports shine rays of home for housing
A Mortgage Bankers Association report Thursday said that after seasonal adjustments, 7.58 percent of all residential mortgages were delinquent by at least one payment as of the fourth quarter of 2011.  That was down from 7.99 percent in the third quarter of 2011 and 8.25 percent in the fourth quarter of 2010.

Read the full story

  The Wall Street Journal

Housing agency’s reserves at risk
The Federal Housing Administration will exhaust its reserves over the coming year, according to budget projections released Monday, which would require a Treasury infusion for the first time in its 78-year history.

Read the full story

  The San Diego Union Tribune

How to spot signs of a foreclosure scam
Renters in areas hit hard by foreclosures have been tartgeted with panic-inducing flyers stating they will be evicted.  However, renters living in properties that have been freshly foreclosed upon have rights.

Read the full story

  The Los Angeles Times

Consumer bureau to unveil monthly mortgage statement prototype
The Consumer Financial Protection Bureau this week will unveil a prototype for a new monthly mortgage statement for consumers designed to clearly show important information from their servicer.

Read the full story

  The New York Times

Loan terms made to order
Customized mortgages aren’t new, but industry experts say they are seeing more and more borrowers opt for fixed-rate loans with terms other than the standard 30 or 15 years, especially when it comes to refinancings.

Read the full story

  The Los Angeles Times

Parts of Obama’s mortgage refinancing package will be reality
Though it was pronounced dead before arrival by opponents on Capitol Hill, President Obama’s new mortgage refinancing package contained far more than legislative proposals.

Read the full story 

Talking Points

• Home buying doesn’t begin with home searching; it begins with a mortgage pre-approval.  Often, first-time home buyers fear getting pre-approved because they’re afraid the lender may tell them they do not qualify for a mortgage or they qualify for a loan smaller than expected.  However, by getting preapproved, buyers will make a financial decision rather than an emotion one.
  
  
• Another mistake first-time home buyers make is not thinking of a house as a long-term commitment.  If a buyer may have to switch jobs in a year or two and may have to move for the job, they should think twice about buying a house.  Ideally, buyers should picture themselves living in the house for five to seven years.
  
  
• Some first-time buyers make the mistake of spending all of their savings on the down payment, closing costs, and coming up with a 20 percent down payment to avoid paying for mortgage insurance.  However, most real estate experts advise against this because the borrower will be left with no savings at all for home repairs and other unexpected expenses.



Talking Points

• The CALIFORNIA ASSOCIATION OF REALTORS (C.A.R.) Pending Home Sales Index (PHSI)* fell from a revised 108.7 in November to 91.6 in December, based on signed contracts. The index was up from the revised 82.5 recorded in December 2010, marking the eighth consecutive month that pending sales rose from the previous year. The decline follows a normal seasonal drop that usually occurs in November and December.
  
  
• Pending home sales are forward-looking indicators of future home sales activity, providing information on the future direction of the market.
  
  
• C.A.R. also reported that sales of distressed properties increased in December, as lenders pushed to close REOs and short sales to move them off their balance sheets before the end of the year.
  
  
• The total share of all distressed property types sold statewide rose to 47.3 percent in December, up from Novembers 44.9 percent but down from 48.3 percent in December 2010.
  
  
• Of the distressed properties sold statewide in December, 22.2 percent were short sales, up from the previous months share of 21 percent and up from last Decembers share of 19.6 percent.

The share of REO sales rose in December to 24.6 percent, up from Novembers 23.5 percent, but down from the 28.3 percent recorded in December 2010.

The Wall Street Journal

The new American home continues shrinking
The nations average home size, which peaked at 2,500 square feet in 2007, is expected to shrink to 2,152 square feet by 2015, according to the National Association of Home Builders.

Read the full story

CNNMoney

New home construction gathers momentum
The Census Bureau reported that housing starts fell to 657,000 on an annual basis, down 4.1 percent compared with November.

Read the full story

The Orange County Register

Calif. house price drop 7th biggest in U.S.
California house prices had the seventh-biggest price drop among U.S. states in November, falling 5.9 percent from year-ago levels, according to data firm CoreLogic

Read the full story

The Wall Street Journal

Places for home builders to dig in
Amid a flurry of housing news this week, including President Obamas latest mortgage-refinance proposal, comes an interesting piece of real-estate analysis in the building sector. Metrostudy has analyzed the strongest markets for home builders, which include: San Diego; Southern California; Texas Rio Grande Valley; St. George, Utah; and Orlando.

Read the full story

The Los Angeles Times

Consumer group tentatively supports $25-billion mortgage deal
The Center for Responsible Lending has called a proposed $25-billion settlement over faulty foreclosure practices between attorneys general, federal agencies, and the mortgage industry an important step in addressing foreclosure abuses.

Read the full story

The Wall Street Journal

Housing inventory ends year down 22 percent
There were fewer houses for sale at the end of 2011 than in any of the previous four years, a positive sign for the housing sector.

Read the full story

The Mercury News

Fed: Interest rates should stay low until late 2014
The Federal Reserve said its unlikely to raise its benchmark interest rate before late 2014, extending its time frame by at least a year and a half.

Read the full story

The Wall Street Journal

Sales stir hope for housing market
Existing-home sales increased 5 percent in December from a month earlier, to a seasonally adjusted annual rate of 4.61 million units, the NATIONAL ASSOCIATION OF REALTORS said Friday.

Read the full story

The New York Times

A reprieve for unemployed borrowers
Fannie Mae and Freddie Mac recently extended their foreclosure forbearance programs to give short-term aid to unemployed homeowners, but housing counselors warn that these borrowers will need to look at longer-term solutions.

Making sense of the story

• In a forbearance program, a lender agrees not to foreclose on a property and gives the borrower several months grace from or reduction in monthly mortgage payments. The programs work best for temporary setbacks, like job loss, health problems, or natural disasters.
  
  
• There are drawbacks to the forbearances though. The most-significant drawback is a larger total debt from the smaller payments. The unpaid balance continues to increase during this time.
  
  
• The new temporary mortgage payment is often set to 31 percent of the household income; in some cases lenders agree to accept no payments. Fannie Maes extended unemployment program, first offered in the fall of 2010, limits any nonpayment or other forbearance plans to one year, with the second six months requiring approval by both Fannie Mae and the lender.
  
  
• However, even with the program in place, the lender could still report a mortgage as delinquent, which could adversely affect the borrowers credit score.
  
  
• Because some agreements add onerous term and conditions, homeowners should also consult with a housing counselor certified by the Dept. of Housing and Urban Development.

Read the full story

The Mercury News

Pay off mortgage early to save money
Paying off a mortgage might sound like an ambitious plan, especially for those who have recently refinanced into a 30-year term. But its still smart for homeowners to give some serious thought as to how theyll pay off their loan; if not in 2012, then sometime.

Read the full story

The Wall Street Journal

Amid squeeze on home equity, a revival for reverse mortgages
Converting home equity into cash has been a challenge for homeowners since the real-estate downturn, but a growing number of lenders are quietly reviving a loan for seniors that does just that: The reverse mortgage.

Read the full story

The New York Times

Shopping for the best rates

Interest rates are the lowest in decades, enticing many borrowers to shop for a loan. Mortgage lenders adjust their rates based on perceptions of risk, so unless the borrower can show theyre a low-risk individual, the borrower is unlikely to qualify for a rate that matches those seen in recent advertisements and headlines.

Making sense of the story

• The rates quoted are averages drawn from a variety of financial institutions, and lenders use varied approaches to set them. Consumers who want to try for the lowest rates available need to consider basic factors, such as credit score, points, property type, down payment, and length of the loan.
  
  
• Credit score: The ideal borrower has a FICO score of 740 or higher, which puts the individual in the best place for pricing.
  
  
• Points: The lowest rates usually are decreased by paying a fee called a point, or 1 percent of the loan amount. Borrowers may buy points in order to get the best rates at many banks. Points might make sense depending on the borrowers financial situation and how long they expect to stay in the home.
  
  
• Property type: Borrowers planning to buy a duplex or a four-unit build likely will have a higher interest rate. Condominiums also may have a rate premium rate, especially if they are newer or the down payment is less than 25 percent. Lenders also may charge more if the borrower is not planning to live in the home.
  
  
• Down payment: Borrowers who put down at least 25 percent are more likely to obtain the best interest rates. Lenders offer different breaks on rates if equity in the property is higher, so borrowers should ask what is available.
  
  
• Length of loan: Borrowers who are likely to move in a few years may want to look into an adjustable-rate loan with a low interest rate fixed for a few years, and adjusted afterword.

California house sales up, prices down

California home sales posted an increase both on a monthly and annual basis in November, marking the fifth consecutive month of year-to-year sales increases, according to figures released today from the CALIFORNIA ASSOCIATION OF REALTORS (C.A.R.). Meanwhile, the statewide median price of an existing, single-family detached home sold in California rose 1 percent compared with October, but declined 5.2 percent compared with a year earlier.

Making sense of the story

Closed escrow sales of existing, single-family detached homes in California rose to a seasonally adjusted 503,570 units in November, up 2.1 percent from a revised 493,140 in October, according to information collected by C.A.R. from more than 90 local REALTOR associations and MLSs statewide.

November home sales also were up 2.3 percent from the revised 492,040 units sold during the like period a year ago. The statewide sales figure represents what would be the total number of homes sold during 2011 if sales maintained the November pace throughout the year. It is adjusted to account for seasonal factors that typically influence home sales.

The November statewide median price of an existing, single-family detached home sold in California was $280,960, up 1 percent from $278,060 in October but down 5.2 percent from the $296,480 median price recorded for November 2010.

The Unsold Inventory Index for existing, single-family detached homes was 5 months in November, down from 5.3 months in October and down from a 6.2-month supply in November 2010. The index indicates the number of months needed to deplete the supply of homes on the market at the current sales rate.

San Francisco Chronicle

HARP 2 refinance plan a boost to borrowers, banks
The Obama administration announced broad outlines of the revised Home Affordable Refinance Program on Oct. 24. Fannie Mae and Freddie Mac issued guidance last week that filled in most of the details.

Making sense of the story

• HARP 2 greatly reduces or eliminates the risk-based fees Fannie and Freddie charge on many loans and virtually eliminates the chance that lenders will have to pay for losses on loans that go into default if they made underwriting mistakes. It also vastly streamlines the underwriting process.
  
  
• Although lenders can begin taking applications Dec. 1, it could take several months before the new loans are made. Fannie Mae said it won't begin buying certain types of refinanced loans until March.
  
  
• To qualify, the existing loan must have been sold to Fannie Mae or Freddie Mac on or before May 31, 2009. The loan balance must be more than 80 percent of the home's market value. The loan must be current for the past six months, with no more than one late payment in the past 12 months. Those who previously refinanced through HARP are ineligible.
  
  
• The new program improves on the existing HARP refi program by letting borrowers refinance into a new fixed-rate loan regardless of how much is owed. The existing program caps the new loan at 125 percent of the home's market value.
  
  
• Homeowners also can refinance into a new adjustable rate loan that has a fixed rate for at least the first five years, but in this case the new first mortgage cannot exceed 105 percent of the home's value.
  
  
• In most cases, borrowers won't have to pay for a new appraisal (Fannie or Freddie will use their automated in-house appraisals) or have any particular debt-to-income ratio or credit score.
  
  
• Borrowers who refinance through their existing loan servicer generally won't have to document their income or assets or have a particular credit score or debt-to-income ratio. The lender will only have to verify that one borrower on the loan has a job or other source of income, but not the amount of income.
  
  
• Homeowners who refinance through a new lender will have to meet additional underwriting requirements, but not as many as people who are refinancing through traditional routes.
  
  
• Borrowers can have a second loan on the house of any amount and still qualify, as long as the holder of the second mortgage resubordinates it to the new loan. Most of the big lenders have agreed to do so, but there is no guarantee they or others will.
  
  
• If borrowers have mortgage insurance on the existing loan, they must maintain it, but they should be able to transfer that insurance to the new loan at the old premium rate, according to Freddie Mac. The big mortgage insurers have agreed to allow this, but again there is no guarantee all will.
  
  
• There are still many questions about the program, such as what interest rates banks will charge, whether they will impose additional fees or underwriting requirements beyond what Fannie and Freddie require, and whether investors will be willing to buy securities backed by these new HARP 2 loans.

Foreclosure review under way

The Office of the Comptroller of the Currency (OCC) and the Federal Reserve Board announced Tuesday that the independent foreclosure reviews of 14 large servicers issued in April now are underway.

Approximately 4.5 million borrowers could have their loans reviewed and potentially be compensated for imposed financial hardship, according to a previous statement by the OCC.

According to the OCC, the review will take several months due to the volume of potential foreclosures to review.

The foreclosure review is part of a broader list of enforcement actions for the servicers to rectify missteps in the foreclosure process. The enforcement actions mandated by the OCC include improved borrower communications, greater oversight of third-party vendors, updated management information systems, and the elimination of dual tracking which takes place when a servicer forecloses while a borrower is being considered for a modification.

Borrowers wishing for review may visit IndependentForeclosureReview.com, or call 1-888-952-9105 Monday through Friday between 8 a.m. and 10 p.m. Requests for reviews will be accepted through the end of April.

Talking Points

• As the warm summer days begin to turn into cool fall and winter nights, many homeowners see increases in their electricity bills as they try to keep their homes warm.
  
  
• To help lower the cost of heating a home this winter, homeowners can weatherstrip their homes. According to the U.S. Dept. of Energy, there are many kinds of weatherstripping products on the market. Since each product is designed to work in a different area of the home, homeowners should read product packaging carefully to determine if it is best suited for windows or doors, as well as indoor or outdoor use.
  
  
• Another tip for winterizing a home is to get a furnace or heating system inspection, which most professionals recommend homeowners do at least once a year. An inspection of the working parts can ensure that the house has heat when needed and can prevent costly repairs in the future.

Bloomberg

REALTORS expect 1 percent rise in Calif. home sales
The CALIFORNIA ASSOCIATION OF REALTORS (C.A.R.) released its 2012 Housing Market Forecast this week during CALIFORNIA REALTOR EXPO 2011 in San Jose. The forecast calls for California home sales and median price to improve only slightly in 2012, as the continuation of the tepid economic recovery, uncertainty about the future, and funding challenges for residential mortgages are expected to keep the market moving sideways, with little foreseeable momentum in either direction.

Making sense of the story

• The forecast for California home sales next year is for a slight 1 percent increase to 496,200 units, following essentially flat sales of 491,100 homes this year compared to the 491,500 homes sold in 2010.
  
  
• Discretionary sellers will play a larger role in next years housing market, said C.A.R. President Beth L. Peerce. Those who held off selling in 2011 may list their homes in 2012, thereby improving the mix of homes for sale compared with the last few years. Additionally, distressed sales will remain an important segment of the overall market as lenders continue to work through the foreclosure process.
  
  
• The California median home price is expected to increase 1.7 percent in 2012 to $296,000 in 2012, according to the forecast. Following a double-digit increase in the median price in 2010, the median home price will decrease a projected 4 percent in 2011 to $291,000.
  
  
• View a video of C.A.R. Vice President and Chief Economist Leslie Appleton-Young discussing the 2012 Housing Market Forecast.
  
  
• 2012 will be another transition year for the California housing market, as the continued uncertainty about the U.S. financial system, job growth, and the stability of the overall economy remain in the forefront for all market participants, said C.A.R. Vice President and Chief Economist Leslie Appleton-Young. An improvement in job growth, consumer spending, and corresponding gains in housing are essential to a broader recovery in the economy, but would-be buyers will remain cautious as they weigh these myriad uncertainties against the clear opportunities presented by todays very affordable housing market.

SmartMoney

The case for downsizing your home

Most boomers want to wait until the housing market improves before downsizing, but the savings of a smaller home may make long-term sense.

The Los Angeles Times

U.S. to have tough time in suits against 17 banks over mortgage bonds

Federal regulators allege 17 banks misled Fannie Mae and Freddie Mac over the safety of mortgage bonds, but analysts say the two mortgage giants should have known that the loans behind the bonds were toxic.


San Diego Union-Tribune

How will Fed decision affect home loan rates?

The Federal Reserve on Wednesday announced it's changing its investment strategy, which could translate into lower mortgage rates down the road, market watchers say.


The Los Angeles Times

Sales of previously owned homes jump in August

The number of homes sold increased 7.7 percent in August compared with July and 18.6 percent from August 2010, the NATIONAL ASSOCIATION OF REALTORS said this week.


HousingWire

Five more years of housing problems, with some stability in local markets

The housing market remains shaky and is unlikely to deliver significant growth in prices over the next five years, according to a new survey of economists, real estate professionals and analysts.


The Los Angeles Times

Mortgage rates hold steady, Freddie Mac survey says

The interest rate on a 30-year fixed mortgage held steady this week at a 60-year low while the 15-year fixed loan edged down to a new record low, mortgage finance company Freddie Mac said in its weekly rate snapshot.


The Mercury News

Community group urges residents to fight foreclosure

A coalition of community groups kicked off their "Refund and Rebuild California" campaign last week by releasing a report called "The Wall Street Wrecking Ball, What Foreclosures are Costing San Jose Neighborhoods. The report claims San Jose homeowners will have lost $22 billion in home values as a result of the more than 43,500 homes foreclosed here from 2008 through next year. As a result, the city of San Jose has lost an estimated $135 million in property tax revenue.


Short Sale Protection Expanded

The Mercury News

Home buyers find themselves aced out by investors
In the Bay Area, about one-fifth of all homes sold in July were purchased by absentee buyers, mostly investors looking for rentals of properties to fix up and then sell, according to DataQuick.

The Wall Street Journal

Mistakes housing investors make
With traditional investments delivering low returns, some are considering buying rental housing. However, potential investors should do their homework and avoid the following common mistakes.

Making sense of the story

• Investing in real estate right now can be profitable, if everything goes as planned. Rents are increasing in many areas, and more properties may be coming on the market.
  
  
• Last month, the Obama administration asked for proposals on how to convert at least some of Fannie Maes and Freddie Macs inventories of foreclosed homes into affordable rentals.
  
  
• Traditionally, investors rented out properties for 1 percent of the purchase price per month. However, according to one property management firm, today, some investors are receiving as much as 2 percent of the purchase price.
  
  
• While it may be true that in some areas home prices are relatively low, that doesnt mean the property can be rented out. Homes in deserted subdivisions arent any more appealing to renters than they are to buyers. The same is true for less-attractive properties or those in less-desirable school districts.
  
  
• Prior to purchasing a property, investors should also factor in closing costs of 3 percent to 6 percent, the costs to fix up the place and maintain it, and the holding costs.
  
  
• Investors become landlords, and as such, need to keep in mind that, just like homeowners, tenants may not always be able to pay rent. Evicting tenants can take several weeks.
  
  
• Its also important to remember that owning a rental is not the same as owning a home. An owner may put up with flaws in a home that a renter wouldnt tolerate. Additionally, many states and communities have strict laws for landlords, even for those who own only one

Talking Points

• Closed escrow sales of existing, single-family detached homes in California rose to a seasonally adjusted 497,390 units in August, up 8.6 percent from a revised 457,930 in July, according to information collected by the CALIFORNIA ASSOCIATION OF REALTORS (C.A.R.). August home sales were up 10.2 percent from the revised 451,520 units sold during the like period a year ago.
  
  
• The August statewide median price of an existing, single-family detached home sold in California was $297,060, up 1 percent from a revised $294,050 in July, but down 7.4 percent from the $320,860 median price recorded for August 2010.
  
  
• The Unsold Inventory Index for existing, single-family detached homes was 5 months in August, down from 5.5 months in July and down from a revised 5.8 months in August 2010. The index indicates the number of months needed to deplete the supply of homes on the market at the current sales rate.

San Francisco Chronicle

Getting a fair appraisal in a tough market
Since the real estate market took a downturn, some people have complained they couldnt buy, sell, or refinance a home because an appraiser used bank-owned (REO) or short-sold homes as comparables in the valuation process, which dragged down the value of their home. While using REO and short-sold properties can lower the value of a home, some homeowners are upset that their county assessor will not use these properties as comps for their property taxes.

Making sense of the story

• In California, some assessors will consider distressed sales when looking at comps, but it varies widely by county, neighborhood, and house. In general, assessors will always look at non-distressed sales first and if there are enough, disregard REO and short sales. However, if there are not enough standard sales, or the home is in an area dominated by distressed sales, the assessor likely will take these properties into account.
  
  
• Under Proposition 13, property is assessed upon a change in ownership at its fair market value. That is usually the same as the sale price. However, with distressed property, the sale price may not equal fair market value.
• Between changes of ownership, assessors can raise values only by an inflation rate, not to exceed 2 percent per year, plus the value of major improvements or additions.
  
  
• Under Prop. 8, owners who think the market value of their property has fallen below its assessed value can ask for a temporary reduction to the fair market value.
  
  
• Homeowners who think their homes are worth less than the assessed value can usually ask their assessor for an informal review. If they are still not satisfied, they can file a formal appeal with their countys assessment appeals board by Sept. 15 or Nov. 30, depending on the county.

Talking Points

• Often times, first-time home buyers are so excited at the prospect of becoming homeowners that they start their home search immediately, without knowing how much house they can afford. To avoid wasting time looking at houses out of their price range, buyers are advised to begin the home-buying process by meeting with lenders and getting pre-approved for a mortgage loan.
  
  
• Unlike getting prequalified, which is just a ballpark figure and doesnt require the lender to check the borrowers credit history, a preapproval provides the borrower with a Good Faith Estimate spelling out the terms of the loan, the interest rate, the type of loan, and the closing costs.

Talking Points

• Getting a mortgage is a complex, time-consuming process that is generally one of the most significant events in ones life. Because of this, there are several potential pitfalls borrowers should avoid.
  
  
• Applying for new credit and a mortgage simultaneously is never recommended. Anytime a borrower applies for new credit, the borrower is seen as a greater credit risk, at least initially. If the borrower also applies for a credit card or auto loan around the same time as applying for a mortgage, the borrowers credit score might get dinged enough to increase the interest rate applied to the loan, or disqualify the borrower altogether. Borrowers should first apply for a mortgage, then apply for other consumers loans after the mortgage has been funded.
  
  
• Another mistake some borrowers make is failing to look at the total housing payment. A mortgage payment consists of principal, interest, taxes, and insurance (PITI). Commonly, some prospective home buyers forget to factor in the property taxes and insurance premium into the overall mortgage budget.

Talking Points

• Accurately pricing a home for sale continues to be one of the most important factors in determining whether a home sells or lingers on the market. In some cases, sellers may need to reduce their asking price to attract buyers and offers. Some homeowners may struggle with determining whether or not they should reduce their list price. Receiving the guidance of a REALTOR may help sellers decide if they should reduce the asking price. Sellers also may want to consider reducing their asking price if the following applies:

The sales prices of recently sold homes in the area are
lower than the list price of the home listed for sale.

Feedback from buyers agents suggests the home is
overpriced.

The home isnt receiving any showings, even though it is
well marketed.

There have been multiple offers, but they consistently have
been significantly lower than the list price.

Talking Points

• Before you sign on the dotted line for that apartment or home whose great price you just can't pass up, make sure you've figured out how your new location is going to fit into your life. It might just end up costing you more in commute costs as affordable housing moves from the urban cores to the suburbs.
  
  
• A new study by the Center for Neighborhood Technology has found that a growing number of communities that are considered affordable aren't quite so affordable when transportation costs are factored in to the median income.
  
  
• Its analysis of 377 metropolitan areas, which includes 161,000 neighborhoods and 80 percent of the U.S. population, found that even though seven out of 10 U.S. communities are considered affordable, that number decreases to two in five -- or 39 percent -- when transportation costs are included in the mix.
  
  
• Housing is considered affordable if it costs less than 30 percent of household income, and the analysis ups that to 45 percent when transportation costs are added in.
  
  
• But considering that transportation is the second-largest household expense next to housing, it often costs more than the allotted 15 percent of the budget.
  
  
• The Center for Neighborhood Technology actually found that the portion of household income most people spend ranges from 12 percent in walkable communities with sidewalks, nearby stores, and public transportation to 32 percent for those who have no option but to drive long distances to get anywhere.
  
  
• When communities have few transportation options and require driving long distances for basic necessities, already stressed household budgets are very vulnerable to spikes in gas prices and rising transportation costs," said Scott Bernstein, president and founder of the center.

Talking Points

• First-time buyers planning to make the shift from renter to homeowner this year should begin preparations as early as possible. Prior to starting the home-buying process, potential buyers should make sure they are ready to buy a home where they will live for three to five years or longer, since it can take that long to build equity in a home and recoup investment costs.
  
  
• The first step a home buyer should take in the home-buying process is to check their credit score. Lenders base mortgage qualification on a variety of factors, including income and assets, the borrowers debt-to-income ratio, pattern of savings, and job stability. However, the most important factor is the credit score. Lenders tie the interest rate the borrower pays to the credit score, so borrowers with a credit score of 720 and sometimes 740 and above are the only ones who will pay the lowest mortgage rates. Borrowers with a credit score below 620 may not qualify for a mortgage at all until they can improve their score.
  
  
• A lender tells the borrower how much they can borrow, but each potential homeowner should create a simple budget for themselves with income and spending to determine how much they are willing to spend on housing payments. Financial experts recommend that homeowners spend a maximum of about 30 percent of their gross monthly income on principal, interest, homeowners insurance, and taxes. Included in the budget should be approximately 1 percent of the home price for condo or homeowner association fees and maintenance costs.

Talking Points

• Historical data from the National Association of Realtors (and adjusted for inflation by Businessweek.com) show that in 18 of the 25 largest metro areas in the U.S., the value of homes purchased in 1990 had increased by 2010, often by double digits. And this in a year when real estate prices around the country have softened since their peak in 2006. These houses would have been worth even more a few years ago.
• In an analysis of the country's 25 largest metro areas, Businessweek.com found that the Portland, Ore., area had the largest real price gain since 1990, with the median sale price in this year's third quarter ($242,100) up about 85 percent over 1990, in inflation-adjusted terms. Home prices in the Denver, Baltimore, and Seattle areas also made gains of more than 50 percent in that period.
• Yet in some other markets where homeownership skyrocketed during the housing boom, inflation-adjusted prices have fallen so dramatically that they are now below 1990 levels. Real prices in the Atlanta metro, for instance, are down about 21 percent compared with 20 years ago, and in Sacramento they are down 19 percent.
• After recovery from the housing bust, home prices are expected to settle into a price-growth trend that's slightly higher than inflation over the long term. So in that sense, housing is still a long-term investment with a positive yield.

Talking Points

• As the warmfall days begin to turn into cool winter nights, many homeowners will find their electricity bills have increased as they try to keep their homes warm. To help lower the cost of heating a home this winter, homeowners can weatherstrip their homes. According to the U.S. Dept. of Energy, there are many kinds of weatherstripping products on the market. Since each product is designed to work in a different area of the home, homeowners should read product packaging carefully to determine if it is best suited for windows or doors, as well as indoor or outdoor use.
  
  
• Another tip for winterizing a home is to get a furnace or heating system inspection, which most professionals recommend homeowners do at least once a year. An inspection of the working parts can ensure that the house has heat when needed and can prevent costly repairs in the future.

Talking Points

As the new year gets underway, there are four housing issues consumers should keep a close eye on: Jobs, foreclosure delays, Washington, and lending standards and rates.

Jobs: If the job market improves, the demand for housing picks up, and many other challenges facing the housing market can more easily take care of themselves. However, if it doesnt, home prices will decline further, and more homeowners will fall underwater.

Foreclosure delays: In September 2010, some of the nations largest lenders suspended foreclosures due to potentially fraudulent document-handling procedures. Regulators and state prosecutors have launched a series of reviews, and investigations could shed more light on abuses, such as misapplied or excessive fees by servicers, their attorneys, or other third-party vendors. If foreclosures are more difficult and expensive to process, banks and investors could step up bulk sales of loans or foreclosure alternatives such as short sales.

Washington: This month, the Obama administration is set to issue an initial set of recommendations for how to remake Fannie Mae, Freddie Mac, and the broader mortgage market. Meanwhile, regulators also are writing new rules on provisions outlined in the Dodd-Frank Act that will clarify how banks must retain some of the risk on loans that are bundled and sold off as securities and define what constitutes a qualified residential mortgage that is exempt from such rules.

Lending standards and rates: The government continues to dominate the mortgage-lending landscape, with more than nine in 10 new loans backed by Fannie Mae, Freddie Mac, or government agencies such as the Federal Housing Administration. While some analysts have raised red flags over the FHAs finances and say that loans with 3.5 percent down payments are leading the agency to take on too much risk, others worry about tighter lending standards that could further pinch demand.

The New York Times

The price of a no-cost loan

Some home buyers who may be concerned about paying high closing costs might be tempted by a zero-cost or no-cost loan option, which requires no cash outlay, but typically adds a half percentage point to the rate. However, some financial consultants say these loans tend to be most beneficial to buyers planning to have the loan for less than five years.

MAKING SENSE OF THE STORY:

• One of the primary differences between a no-cost loan and similar loans is that no-cost loans do not tack on closing costs to the balance, but instead increase the rate.
  
  
• With no-cost loans, third-party fees including the appraisal, credit report, title insurance, recording, and the use of a mortgage broker are paid by the lender. The fees, including the amount the broker is being paid, are disclosed on the closing statement.
  
  
• Home buyers who bypass a broker and work directly with a lender may encounter less transparency, as loan officers are not required to disclose the amount the bank is making on the loan.
  
  
• Borrowers weighing their loan options are advised to use a mortgage amortization calculator to compare the costs for a conventional loan compared with a no-cost loan. The Federal Reserve provides an amortization calculator on its Web site at www.federalreserve.gov.

Talking Points

• The recent nationwide foreclosure moratorium brought about a new term used to describe people who sign documents without carefully reading them: robosigning.
  
  
• Although robosigning described bank employees who signed off on thousands of documents without reviewing them, theyre not the only ones blindly signing documents they havent thoroughly read. Consumers often do the same thing.
  
  
• It is especially important that consumers dont robosign on a new mortgage. When reviewing loan documents, consumers are advised to search for two particular terms: A prepayment penalty and the margin rate on adjustable mortgages.

• A prepayment penalty a fee for paying off a mortgage early ranges from 1 percent to 3 percent of the total mortgage amount. Consumers who find this clause in their mortgage note and werent told about it are advised to ask to have it removed during the loan application process.

• For borrowers with adjustable-rate mortgages (ARM), consumers should check how their rate will adjust after the first few years. The adjustment is based, in part, on the profit the lender makes when it sells the loan to an investor, which is called the margin rate. Buyers can find the margin rate on the second page of their mortgage note. If the number is higher than 3 percent, consumers should question the margin rate. Reasonable rates generally are considered to be in the 2.5 to 3 percent range.

• As winter approaches, homeowners may be looking for ways to cut energy bills. To assist with the cost of making energy-saving home improvements, the federal government is offering tax credits for qualified purchases. However, some of the credits expire Dec. 31, 2010.
  
  
• Homeowners can get a tax credit for installing certain wood or pellet stoves; energy-efficient furnaces, water heaters, and air-conditioning systems; insulated roofs, windows, and doors; and wall and ceiling insulation. The tax credit covers 30 percent of the purchase costs, up to $1,500. A full list of eligible purchases can be found at www.energystar.gov.
• Homeowners insurance is not only required to obtain a mortgage, it also makes sound financial sense to cover homeowners valuable assets. It is important that homeowners take the time to read through their homeowners insurance policy to understand what is covered and what, if any, coverage needs to be added.
  
  
• Standard homeowners insurance, known as HO-3, protects the property against damages and provides personal liability coverage. Certain natural disasters are not covered under a standard policy. A typical homeowners insurance policy covers the home and personal property against damage from fire, lightning, tornadoes, and hurricanes. HO-3 insurance covers losses due to theft, riot, and vandalism, as well as damage due to frozen plumbing, heating, and air conditioning systems.
• Home buyers considering buying in neighborhoods with large numbers of foreclosures should take into account the amount of crime in the area. According to a study by Woodstock Institute and the Georgia Institute of Technology, a foreclosure rate of 3 percent leads to a 7 percent increase in crime. Home buyers are advised to visit the local police precinct and ask for the areas crime stats, which is public information. Speaking with a police officer and asking whether specific pockets of a neighborhood have recently experienced a spike in crime also can be helpful.
  
  
• When it comes to remodeling or replacing home appliances, some homeowners have found that making purchases during the off-season for certain improvements can save money. For example, adding a new patio or law irrigation system in the autumn; finishing a basement or installing central air during the winter; and replacing a furnace or installing a gas fireplace during the summer can save homeowners as much as 10 percent.
  
  

Many professionals charge a four-hour minimum, for example, or a service charge, to make minor tasks worth their time. Homeowners can save money on repairs and remodeling by saving up odd jobs, such as replacing a faucet or installing a ceiling fan, and hiring someone to do them all at once.

Bull vs. Bear: Will housingrebound?

Posted by Nin-Hai Tseng, writer-reporter

December 27, 2010 3:00 am

It's a question many Americans want answered: Will the value of my home rise or fall next year? Smart minds fall in both camps -- here are both sides of the coin on real estate.

One of the most closely watched sectors in 2011 will continue to be real estate a wildly emotional and divisive topic that's puzzled investors and economists since the housing bubble burst around 2007. Earlier this year, many observers thought the market would turn around in a big way as federal tax credits spurred home purchases and the economy added jobs following hundreds of billions of dollars of government stimulus spending.

As the end of the year approaches, the prospects of a real recovery look much dimmer. For one, it's become clear that we won't see a true rebound until we have job growth. With unemployment showing few signs of improvement so far, the bullish take on housing seems hard to swallow, especially when many experts say home prices still have room to fall before hitting bottom.

But a bullish take doesn't necessarily mean that prices would significantly rise. These are unprecedented times, and even the more cheery views fall short of predicting a steady surge in home values.

Here's a bullish and bearish look at real estate for 2011.

Bull: Buy real estate!

One of the most vocal bulls on housing for 2011 has been Bill Ackman, founder and CEO of hedge fund Pershing Square Capital Management. At the Value Investing Congress in November, Ackman made a bold presentation called "How To Make A Fortune," highlighting why it's the right time to invest in real estate.

Ackman laid out several reasons but some key points include: With the fall in home prices and mortgage rates still relatively low, affordability is at its highest level in decades. What's more, while there's clearly still a glut in the supply of unoccupied homes, it will start to decline given that the rate of home construction is at historic lows.

Some of Ackman's points sound similar to the reasons billionaire investor Warren Buffett gave earlier this year for his prediction that the real estate slump would end by about 2011.

Of course, this doesn't mean he thinks home prices will return to their 2007 peak. In Buffett's annual letter to shareholders of his Berkshire Hathaway (BRKA), which owns real-estate brokerage and manufacturer

Clayton Homes

, he predicted that demand for homes would catch up with supply following a period where the glut of unsold property caused home construction to dramatically fall.

In 2009, housing starts (the supply side) were 554,000 by far the lowest number in the 50 years for which

Berkshire

could date. "Paradoxically, this is good news," Buffett wrote.

And with home prices falling, he said families who couldn't afford to buy a few years ago would finally be able to afford to do so. Buffett put it this way: "Prices will remain far below 'bubble' levels, of course, but for every seller (or lender) hurt by this there will be a buyer who benefits."

It's anyone's guess if Buffett's position on housing will change much in his letter to shareholders next year. It also remains to be seen if Ackman will continue to trump his "How to Make a Fortune" pitch with the recent rise in mortgage rates. For now, at least, both investors see promise in housing.

Bear: What bottom?

While home prices have for the most part stopped their freefall, some economists believe they haven't hit bottom yet.

Rick Sharga, a senior vice president at RealtyTrac, an online marketplace for foreclosure properties, recently told The Wall Street Journal that foreclosures for 2011 could top the estimated 1.2 million bank repossessions this year, which reflected an increase of 900,000 from 2009. This is partly due to the so-called "robosigning" mess that forced some lenders to stall a flurry of foreclosures.

While Sharga predicts that home prices nationally could still fall by about 5%, others say they could drop much more at about 10%.

Some might argue that further declines coupled with relatively low mortgage rates might just spur a flurry of home purchases, but Daryl Jones, an analysts at investment research firm Hedgeye says that's unlikely given that credit standards at virtually all major lenders are much higher and typically require larger down payments that would actually add to costs. Jones also thinks that home prices could fall another 15% to 30%, which means homes are actually still overpriced and might not attract more buyers as Ackman argues.

And while home construction is at all-time lows, Hedgeye says the trend is probably not as promising as Buffett and Ackman might think. The supply of housing is still very high the firm estimated in November that there's still 11 months of supply on the market to absorb, which is close to levels seen in 2009.

With so many variables working against the housing market, the bearish takes becomes all the more convincing. But one can always hope they're wrong.

Foreclosure rescue scams are going strong

According to the U.S. Government Accountability Office (GAO), the two most common foreclosure scams are advance-fee loan modification schemes and sales-leaseback schemes, with advance-fee schemes.

In an advance-fee scheme, someone charges the homeowner a fee in advance to negotiate a deal with the mortgage lender. They may even offer a money-back guarantee, but the usual outcome is that they take the money (the average is about $3,000), provide little or no service, and then refuse to refund the fee.

In a sales-leaseback scheme, the scammer persuades the homeowner to transfer the deed to them by offering to assume payments and let the homeowner pay rent while the rescuer gets the houses affairs in order. The scammer generally promises to sell back the property to the homeowner once the homeowners financial situation improves, but they don't. Often they take out another loan on the home or even sell it out from under the homeowner.

Talking Points

• Potential home buyers still waiting on the sidelines for home prices or interest rates to decline further might want to consider that conditions for buying a home are better today than at any time in recent history.
  
  
• The average rate for a 30-year, fixed-rate mortgage for the week ending Oct. 21 was 4.21 percent and 3.64 percent for a 15-year-fixed, according to Freddie Mac. By comparison, the average 30-year-fixed mortgage was 5.09 percent in January and approximately 6 percent two years ago.
  
  
• In August, the median price of an existing, single-family home in California was $318,600. At this weeks 4.21 percent rate for a 30-year-fixed mortgage, the monthly principal and interest payment on a median-priced home in California would be $1,555 likely the same or possibly less than the amount paid monthly in rent

Talking Points

• The median price of an existing, single-family detached home sold in California during September was $309,900, down 2.7 percent from Augusts $318,660 median price, but up 4.5 percent from the $296,610 median price recorded for the same period a year ago, according to the CALIFORNIA ASSOCIATION OF REALTORS (C.A.R.) September sales and price report. September also marked 11 consecutive months of year-over-year price gains.
  
  
• C.A.R.s report also showed that, contrary to the national picture, the housing supply in California has been below normal throughout 2010. C.A.R.s Unsold Inventory Index for existing, single-family detached homes remained relatively unchanged in September at 6.2 months but was up from the 4.5 months recorded in September 2009. The index was 6.1 months in August. The index indicates the number of months needed to deplete the supply of homes on the market at the current sales rate.

CNNMoney.com
A service of CNN, Fortune & Money
By Les Christie, Staff writerSeptember 15, 2010: 5:43 AM ET

California housing prices on the rebound

The national housing market is shrouded in uncertainty. But in California, there are glimmers of stability.

Home prices are rising in virtually every corner of the state. They've climbed for nine consecutive months, and in July posted a 10.4% gain year-over-year. That puts the state's median price at $315,000 -- nearly twice the national median of $183,000.

And the news is even better in coastal cities. San Francisco posted the biggest gain of any U.S. metro over the past year, rising 14.3%. The median price there is now more than $607,000. Meanwhile, San Diego has climbed 11.2% (median price: $389,000) and Los Angeles jumped 9.2% (median price: $345,000).

Meanwhile, Florida, Arizona and Nevada -- California's erstwhile bubble-state partners -- continue to struggle. So where is the Golden State's strength coming from?
"I think it comes from the fact that prices went down so far and so quick," said Lesley Appleton-Young, California Association of Realtors' chief economist. "That left a lot of people here saying, 'Wow, affordable California housing.'"
However, a quick home price rebound was delayed by the crush of foreclosures that accompanied the subprime mortgage meltdown. California real estate had become so expensive that a basic single-family home required many buyers to overextend themselves with exotic loans.

That is no longer the case. Most of the subprime-related distressed properties have been flushed from the system. And when a foreclosure does hit the market, it's snapped up. The median days it took to sell a home in July was just 44 -- lightening fast.
"It's the dearth of supply for distressed properties that has put pressure on home prices," said Appleton-Young. "More than half the homes on the market last year drew multiple offers."

Plus, the California economy is picking up. Even in a recession, it has remained one of the world's 10 largest economies, mainly because it is driven by every major industry -- aerospace, tech, software, finance, agriculture, tourism. So as more of those industries recover and employment picks up, demand for housing will jump.
"California is a much larger, stronger and more diversified economy than the other [bubble] states," according to Stuart Gabriel, director of the Ziman Center for Real Estate at UCLA.

Another factor that has helped lift prices is a trend toward more short sales. Fewer of the distressed properties are going all the way through the foreclosure process. "The shift to short sales in itself would increase home prices," said Mark Goldman, who teaches real estate at San Diego State University. That's because short sellers usually occupy and take care of the homes until they're sold, leaving the properties in better condition and worth more than similar foreclosed homes.
Goldman added that California markets are, generally, more constrained than any of the other bubble states. Florida and Nevada, for example, still have room to develop and grow in most areas. But the lack of developable land is especially acute in California, pushing home prices up.

Finally, the California state government has not sat idle. "California provided markets with more significant price support," he said, "That played a role in elevating prices."
The state support came in the form of tax credits of up to $10,000 for first-time homebuyers and buyers of new homes. Some purchasers were able to combine the state credit with one from the federal government to reduce their costs by $18,000.
For home sellers in other states, what's happening in California is encouraging. Trends often begin on the coast, so they're hoping the recovery will roll eastward.

The Wall Street Journal Brett Arends, SEPTEMBER 16, 2010, 4:33 P.M. ET

10 Reasons To Buy a Home

Enough with the doom and gloom about homeownership. Brett Arends explains why owning a home is a good thing.
Sure, maybe there's more pain to come in the housing market. But when Time magazine starts running covers that declare "Owning a home may no longer make economic sense," it's time to say: Enough is enough. This is what "capitulation" looks like. Everyone has given up.
After all, at the peak of the bubble five years ago, Time had a different take. "Home Sweet Home," declared its cover then, as it celebrated the boom and asked: "Will your house make you rich?"
But it's not enough just to be contrarian. So here are 10 reasons why it's good to buy a home.

1. You can get a good deal. Especially if you play hardball. This is a buyer's market. Most of the other buyers have now vanished, as the tax credits on purchases have just expired. We're four to five years into the biggest housing bust in modern history. And prices have come down a long way about 30% from their peak, according to Standard & Poor's Case-Shiller Index, which tracks home prices in 20 big cities. Yes, it's mixed. New York is only down 20%. Arizona has halved. Will prices fall further? Sure, they could. You'll never catch the bottom. It doesn't really matter so much in the long haul.
Where is fair value? Fund manager Jeremy Grantham at GMO, who predicted the bust with remarkable accuracy, said two years ago that home prices needed to fall another 17% to reach fair value in relation to household incomes. Case-Shiller since then: Down 18%.

2. Mortgages are cheap. You can get a 30-year loan for around 4.3%. What's not to like? These are the lowest rates on record. As recently as two years ago they were about 6.3%. That drop slashes your monthly repayment by a fifth. If inflation picks up, you won't see these mortgage rates again in your lifetime. And if we get deflation, and rates fall further, you can refi.

3. You'll save on taxes. You can deduct the mortgage interest from your income taxes. You can deduct your real estate taxes. And you'll get a tax break on capital gainsif anywhen you sell. Sure, you'll need to do your math. You'll only get the income tax break if you itemize your deductions, and many people may be better off taking the standard deduction instead. The breaks are more valuable the more you earn, and the bigger your mortgage. But many people will find that these tax breaks mean owning costs them less, often a lot less, than renting.

4. It'll be yours. You can have the kitchen and bathrooms you want. You can move the walls, build an extensionzoning permittedor paint everything bright orange. Few landlords are so indulgent; for renters, these types of changes are often impossible. You'll feel better about your own place if you own it than if you rent. Many years ago, when I was working for a political campaign in England, I toured a working-class northern town. Mrs. Thatcher had just begun selling off public housing to the tenants. "You can tell the ones that have been bought," said my local guide. "They've painted the front door. It's the first thing people do when they buy." It was a small sign that said something big

5. You'll get a better home. In many parts of the country it can be really hard to find a good rental. All the best places are sold as condos. Money talks. Once again, this is a case by case issue: In Miami right now there are so many vacant luxury condos that owners will rent them out for a fraction of the cost of owning. But few places are so favored. Generally speaking, if you want the best home in the best neighborhood, you're better off buying.

6. It offers some inflation protection. No, it's not perfect. But studies by Professor Karl "Chip" Case (of Case-Shiller), and others, suggest that over the long-term housing has tended to beat inflation by a couple of percentage points a year. That's valuable inflation insurance, especially if you're young and raising a family and thinking about the next 30 or 40 years. In the recent past, inflation-protected government bonds, or TIPS, offered an easier form of inflation insurance. But yields there have plummeted of late. That also makes homeownership look a little better by contrast.

7. It's risk capital. No, your home isn't the stock market and you shouldn't view it as the way to get rich. But if the economy does surprise us all and start booming, sooner or later real estate prices will head up again, too. One lesson from the last few years is that stocks are incredibly hard for most normal people to own in large quantitiesfor practical as well as psychological reasons. Equity in a home is another way of linking part of your portfolio to the long-term growth of the economyif it happensand still managing to sleep at night.

8. It's forced savings. If you can rent an apartment for $2,000 month instead of buying one for $2,400 a month, renting may make sense. But will you save that $400 for your future? A lot of people won't. Most, I dare say. Once again, you have to do your math, but the part of your mortgage payment that goes to principal repayment isn't a cost. You're just paying yourself by building equity. As a forced monthly saving, it's a good discipline.

9. There is a lot to choose from. There is a glut of homes in most of the country. The National Association of Realtors puts the current inventory at around 4 million homes. That's below last year's peak, but well above typical levels, and enough for about a year's worth of sales. More keeping coming onto the market, too, as the banks slowly unload their inventory of unsold properties. That means great choice, as well as great prices.

10. Sooner or later, the market will clear. Demand and supply will meet. The population is forecast to grow by more than 100 million people over the next 40 years. That means maybe 40 million new households looking for homes. Meanwhile, this housing glut will work itself out. Many of the homes will be bought. But many more will simply be destroyedeither deliberately, or by inaction. This is already happening. Even two years ago, when I toured the housing slump in western Florida, I saw bankrupt condo developments that were fast becoming derelict. And, finally, a lot of the "glut" simply won't matter: It's concentrated in a few areas, like Florida and Nevada. Unless you live there, the glut won't have any long-term impact on housing supply in your town.

Want a loan modification? Get your paperwork ready.

More underwater homeowners to get cuts in principal balance

Lenders have resisted forgiving debt as part of mortgage modification programs, but the outlook for that step is changing.

March 28, 2010 - By Kenneth R. Harney

Reporting from Washington For hundreds of thousands of homeowners who are underwater on their mortgages, it's been a tantalizing question: Is there any way that our lender might agree to lower the amount we owe -- not just the monthly payments but the principal debt itself?

Until now, the answer almost always has been a resounding no. Lenders and investors were willing to cut interest rates, reschedule payments, even write off some late fees, but they were dead set against forgiving even a dollar of the principal balance.

The Obama administration's loan modification programs had sidestepped the subject as well, focusing on lowering troubled borrowers' monthly payments to more affordable levels rather than wiping out debt.

But the outlook for principal reductions is on the verge of change. Bank of America Corp. recently unveiled the mortgage industry's first large-scale principal forgiveness program, potentially involving up to 45,000 underwater borrowers and $3 billion in debt write-offs.

And on Friday, the Obama administration announced measures aimed at getting lenders to reduce underwater borrowers' principal balances and refinance their mortgages into government-sponsored loans. The changes could affect modifications offered by substantial numbers of banks and mortgage companies.

BofA's new program targets borrowers who are deeply underwater -- those with loan-to-value ratios of 120% or more. This means they owe at least 20% more on their mortgage balances than the current market worth of their homes. There is no upper limit on how far underwater borrowers can be, but the program has a 30% maximum reduction of any principal balance.

Barbara Desoer, president of BofA Home Loans, said the program attempted to address the problems of the most "severely underwater mortgages with some of the highest rates of delinquency," and could "become an industry model for principal reductions" on a far broader scale.

The program targets three mortgage products popular during the housing boom: subprime loans; payment-option mortgages with negative-amortization features; and "2-1" adjustables that offered teaser interest rates for the first two years, then converted into loans whose rates adjust once a year.

As part of its ongoing loan modification efforts, the bank will look to phased-in principal forgiveness as the first step toward keeping an underwater borrower out of foreclosure. Previously the bank looked first to lowering a homeowner's interest rate and monthly payments.

Here's how it will work, according to BofA officials: Say you're deeply underwater on a subprime mortgage that you took out from Countrywide Home Loans, which was acquired by BofA in 2008. Say your mortgage balance is $250,000, but your house is worth only $200,000.

If you're eligible, the new program could reduce your balance by $50,000 and your new payments would be based on the lowered principal debt and possibly a lower interest rate. This would be accomplished by the creation of an interest-free forbearance account covering a five-year period. Assuming you made regular payments at the lower amount during the first year, $10,000 would be forgiven by the bank.

The same would be true for the second and third years. By that point, $30,000 of your principal debt would have been extinguished. During the fourth and fifth years, the bank would appraise your property. If its value had appreciated in either year to the point where your loan-to-value ratio had dropped below 100% -- you were no longer underwater but still benefiting from the lowered payments -- there would be no forgiveness that year. If you remained underwater, you would receive the scheduled $10,000-per-year principal reductions, extinguishing the full $50,000 during a five-year span.

For certain payment-option loan borrowers who are underwater in part because of the negative amortization features of the mortgage, the bank will forgive the negative amortization amount down to a 95% loan-to-value level.

Without fanfare, Wells Fargo, the country's largest volume lender, also has moved to selectively offer principal reductions for certain underwater payment-option loans.

With the Obama administration supporting the concept, principal forgiveness might well become a lifeline for a much wider group of homeowners.

Foreclosure Consultants Beware!

According to DataQuick, there were more than 84,000 foreclosures in California in 2007, and that number is likely to more than double in 2008. The vast number of foreclosure has created new opportunitiesmany legitimate, others illegal.

It is unfortunate, but some unsavory types have seized the opportunity to take advantage of vulnerable homeowners facing foreclosure. At the heart of these foreclosure schemes is the collection of advance fees.
Unscrupulous operators comb the public records to obtain information on the properties against which a notice of default has been filed. These operators then contact the borrowers with promises of rescue in exchange for an advance fee. Often, the advance fee is collected by credit card and ranges from several hundred dollars to several thousand dollars. To induce the borrower to pay the fee, scammers tell the borrower they have the expertise and connections that ensure a loan modification can be negotiated with the borrowers lender to permanently reduce payments to sustainable levels. However, once the money is collected, no work is performed and the victim loses their home to foreclosure.

Housing Assistance Services in Garden Grove, California: Marc Shecklers company, Housing Assistance Services, Inc. (HAS), targeted homeowners in Orange County when they received notices of default. HAS mass marketed official-looking "Fresh Start Program" letters in the mail offering to provide counseling on the options for avoiding foreclosure and to negotiate loan modifications with the lenders. To sign up, a homeowner paid an upfront basic fee of $750 to $1,250 and agreed to pay additional fees for credit reports, "docusave" services, processing reinstatements, monitoring repayment plans, and financial education materials. HAS representatives instructed homeowners not to talk to their mortgage lenders. Whenever homeowners voiced concern about the impending foreclosure sale, HAS reassured the homeowners that things would be worked out. The California Attorney Generals Office received numerous complaints from consumers who paid the fees, but claimed that HAS never provided the services as promised. In 2004, California Attorney General Bill Lockyer filed a $2 million lawsuit against HAS and obtained a court order freezing HAS's assets.
Rodriguez in Downey, California: From 2003 to 2005, Martha Rodriguez and others ran a foreclosure rescue scam in Southern California. They located their victims using computerized lists of properties going into foreclosure. The defrauders promised to help homeowners refinance their loans and save their credit, but what they did in reality was arrange for straw buyers to buy the homes. By the time the defrauders were finally caught by the authorities, they had victimized over 100 homeowners and amassed over $12 million. Rodriguez ran this scam while awaiting sentencing on another loan fraud scheme. In February 2007, she pleaded guilty to criminal charges for the foreclosure rescue scam and faces a possible sentence of 40 years in federal prison.
Rice in Orange County, California: In 1990, Evelyn Onofrios home was in foreclosure when Marshall Rice paid her a house call. He offered to help her but did not give her a written foreclosure consultant contract. He arranged a secured loan for her, but at 35% interest payable to Rice's own wife. When Onofrio defaulted on the loan, Rice and his wife commenced foreclosure proceedings and acquired the property at the trustees sale. Onofrio sued Rice for, among other things, violating the foreclosure consultant law and breaching his fiduciary duties as a real estate broker. Rice violated the foreclosure consultant law by, among other things, acquiring an interest in the property and failing to provide a written foreclosure consultant contract. The court awarded Onofrio monetary damages, attorneys' fees, and costs, and cancelled not only the transfer of title to Rice, but the relevant deeds of trust as well. This case is Onofrio v. Rice (1997) 55 Cal .App. 4th 413.
Alburez and Silva in Alameda, California: Sonia Alburez and Verena Silva went by several names, such as Community Home Savers and California Home Saver Program. They used lists of homes in default from the county recorder's office to send out mailers to homeowners in foreclosure. They allegedly told homeowners that, for an upfront fee plus additional monthly payments, they could save their homes from foreclosure. In reality, Alburez and Silva merely transferred a fractional interest of a home to a sham corporation. The sham corporation would then file bankruptcy, but as soon as the foreclosing lender challenged the bankruptcy, the sham would be uncovered and the foreclosure would resume. Alburez and Silva were arrested in Alameda County in March 2008.
Hutchings in San Diego, California: William Hutchings and his cohorts ran a foreclosure rescue scam in San Diego for over two years, and duped hundreds of homeowners out of their homes and money. Targeting mostly non-English-speaking homeowners, Hutchings held seminars on how he could help homeowners stop foreclosures by transferring title to their homes to his company. He claimed he could file a governmental land grant on their behalf which would extinguish their mortgages in four years, at which time the homeowners could reacquire their homes from Hutchings free and clear. He bolstered his claims by using visual aids, such as antiquated maps and land surveys. In reality, the last legitimate use of a land grant was in 1848 when Mexico ceded property to the U.S. at the end of the Mexican-American War. Yet, someone who attended one of Hutchings seminars observed that, when the seminar concluded, the homeowners would flood to the back of the room to stand in line to sign up for the program by signing over their properties and paying up to $10,000 upfront. Hutchings and the others were arrested in May 2008 and face over 100 felony charges.

Standefor in Pasadena, California: Jeanetta Standefor of Accelerated Funding Group operated a fraudulent foreclosure reinstatement scheme for over two years. She convinced over 600 people to invest a total of $18 million by claiming the funds would be used to cure defaults for distressed properties and promising a return of 50 percent in one month. What Standefor was actually doing was operating a ponzi-like scheme using the money from new investors to pay previous investors. She also used $1.9 million of the funds for her own lavish wedding, cars, jewelry, and other personal expenses. In 2008, Standefor was charged with both civil and criminal fraud and securities violations, and faces a statutory maximum sentence of 180 years in federal prison.
Davis of Tiburon, California: Mark Allen Davis placed over 100 newspaper ads around the country from 2004 to 2007 offering callers a list of government foreclosures in their areas for a one-time fee of $83 to $93. Customers were told to call a toll-free phone number, and then instructed to leave their names and bank account information for verification purposes. Davis never sent the lists. Instead, he withdrew $126 to $185 from the accounts of 800 people, totaling over $400,000. When caught, Davis was fined over $328,000 and sentenced to 81 months in federal prison for identity theft, mail fraud, and wire fraud.

Shell Company Preys on Desperate Homeowners!

Keep an eye out for a new "foreclosure assistance" scheme that has surfaced in the region!

Some homeowners have been contacted by a company called United First, Inc. that claims to offer a deal to prevent their homes from going into foreclosure. We have received confirmation from the Santa Clara County District Attorney's Office that this is a scam.

According to the contract with United First, the homeowner pays an initial fee and then a monthly fee to the company, and adds United First to the homeowner's insurance policy.

The homeowner is required to retain Sherman Oaks attorney Mitchell Roth as legal counsel to file a "missing title" lawsuit, based on the claim that the foreclosing bank doesn't really own title to the home. In the unlikely events that the bank cut a deal with the homeowner or somehow the lawsuit won outright, United First would keep half or 80 percent of the profit. There are NO guarantees that this process will work.

United First is a shell company recently registered in Nevada. Its president, secretary, treasurer and director, Paul H. Noe, was convicted in 2003 of five felony counts of aiding and abetting wire fraud among other charges.

An SCCAOR member brought this issue to the attention of the Professional Standards Department, which then contacted the DA's Office.

SCCAOR stays vigilant on protecting the rights of consumers and we urge you to spread the word about this scheme among your colleagues and clients.

For information on Paul H. Noe's past conviction:
Click Here

For an article at sfweekly.com on the United First scam:
Click Here

LOAN MODIFICATION

A loan modification is a permanent change in one or more of the terms of a borrowers loan which if made, allows the loan to be reinstated, and results in a payment the borrower can afford. Modifications may include a change in the interest rate; capitalization of delinquent principal, interest or escrow items; extension of the time available to repay the loan; and/or re-amortization of the balance due.

Modification may be appropriate for borrowers who have experienced a permanent or long term reduction in income or increase in expenses, or have recovered from the cause of the default but do not have sufficient surplus income to repay the arrearage through a repayment plan. To qualify, borrowers must be able to support the monthly mortgage debt after the terms of the loan are modified.

Not all loans are appropriate for modification. Loan characteristics which best support modification include: loans with above market interest rates; lower loan to value ratios; and/or mature terms (loans paid down 10 years or more). The modification tool is valuable when the arrearage can be capitalized into the loan balance, the term extended and/or the interest rate adjusted to current market rate, so that the resulting monthly payment is at a level the borrower can afford.

Modification is most often used to reduce a borrowers payment when the cause of the default is permanent or long term. However, if a borrower has recovered from a short term financial problem and has strong income, a modification may be used to increase the monthly payment slightly, allowing the borrower to repay the arrearage gradually over the life of the loan.

Approximately 96% of all FHA insured loans are securitized in Ginnie Mae guaranteed pools. Prior to modification, but no sooner than the 90th day of default, securitized loans must be purchased from pools. Ginnie Mae has recently streamlined its re-pooling requirements allowing almost all modified FHA loans to be quickly repooled. Details of Ginnie Maes modification policy are found in the All Participants Letter 96-15, Pooling FHA Loans That Have Been Modified as a Result of Loss Mitigation Efforts.

FHA has recently made several changes to its modification program. First, the Department realized that borrowers with below market interest rates were being excluded from the modification program because their loans had to be re-pooled at a discount. When appropriate, lenders may now increase the note interest, not to exceed market rate as defined below in Section F, page 21. Next, to protect borrowers from future payment increases, all modifications must now result in a fully amortizing, fixed rate loan. Adjustable and other variable payment loans will be converted to fixed as a condition of the modification. Finally, the BPO requirement has been eliminated (there is no longer a BPO requirement for any of the reinstatement options). These changes are more fully described below.

A. Loan Delinquency

To modify a defaulted mortgage under the loss mitigation program:

Three or more full monthly payments must be due and unpaid.

At least 12 months have elapsed since the origination date of the loan.

The loan may not be in foreclosure at the time the modification is executed, however, loans removed from foreclosure status may be modified.

The default must be due to a verifiable loss of income or increase in living expenses.

Note: Loans which are not delinquent but are in danger of imminent default may be modified at the discretion of the lender and insurance coverage will be increased above the original certificate amount as necessary. However, performing loan modifications do not qualify for incentives under the Loss Mitigation Program, and may not meet Ginne Mae requirements for re-pooling of modified loans, which requirements are described in Ginne Maes All Participants Letter, 96-15.

B. Borrower Qualifications

Modifications may be offered to borrowers who have stabilized, surplus income which, while not sufficient to sustain the original loan and repay the arrearage, is sufficient to support the monthly payment under the modified rate and/or term.

The borrower must be an owner occupant, committed to occupying the property as a primary residence. Modification may not be used as a means to reinstate a loan prior to a sale or assumption.

C. Property Condition

While the modification option does not include a loan-to-value restriction, and no appraisal or brokers price opinion is required, the lender must conduct any review it deems necessary to verify that the property has no physical conditions which adversely impact the borrowers continued use or ability to support the debt.

A borrower may not be able to support payments under a modification if the property is in such a deteriorated condition that repairs drain the borrowers monthly resources. An analysis of the borrowers surplus income should consider anticipated property maintenance expenses. If the mortgagees inspection identifies a property in extremely poor physical condition, a modification may not offer a permanent resolution to the default.

Costs to complete needed repairs may not be capitalized as part of a modification agreement, nor may a borrower receive any cash back from a modification. Borrowers who have sufficient equity and income to receive cash back should be considered for a delinquent refinance.

D. Financial Analysis

The lender is required to assess the borrowers financial condition as described in Section H, page 10. HUD expects the lender to project the borrowers surplus monthly income for a minimum of three months, and use good business judgment to determine if the borrower has the capacity to repay the arrearage through a repayment or special forbearance plan, before considering modification. If the financial analysis determines that the borrower does not have the ability to support the modified monthly payment, the modification option may not be used.

E. Combining Options

Modification may be utilized as a stand alone tool, or incorporated as part of a repayment, or special forbearance agreement. For example, if a borrower needs time to resolve the default, but will eventually be able to support the debt at the modified rate but no more than that, a repayment plan or special forbearance may culminate in a loan modification. An existing repayment plan, or special forbearance may also be converted to modification if the borrowers circumstances change.

Mortgage modification may not be used in conjunction with a partial claim. If modification is appropriate, it should be used as the primary tool to bring the account current.

F. Allowable Provisions

The following provisions apply to loan modifications:

All modifications must result in a fixed rate loan. ARM, GPM and GEM mortgages may only be modified to fixed payment, fully amortizing loans.

The modification must fully reinstate the loan.

At the lenders discretion, note interest rates may be reduced below market if necessary to resolve the default. Discount fees associated with rate reductions are not reimbursable.

At the lenders discretion, note interest rates may be increased if supported by the borrowers ability to pay. The maximum interest allowable shall be calculated as 150 basis points above the current FHA debenture interest rate. Debenture interest rates are provided semi-annually through mortgagee letter.

All or a portion of the PITI arrearage (principal, interest, and escrow items) may be capitalized to the mortgage balance.

Foreclosure costs, late fees and other administrative expenses may not be capitalized. Lenders may collect the legal and administrative fees (resulting from the canceled foreclosure action), from mortgagors to the extent not reimbursed by HUD, either through a lump sum payment or through a repayment plan separate from, and subordinate to, the modification agreement.

The modified principal balance may exceed the principal balance at origination.

The modified principal balance may exceed 100% loan-to-value.

Lenders may re-amortize the total unpaid amount due over the remaining term of the mortgage, or may extend the term not more than 10 years beyond the original maturity date or 360 months from the due date of the first installment required under the modified mortgage, whichever is less.

G. Lien Status

The lender must ensure first-lien status of the modified mortgage. In satisfying this requirement, the lender must comply with any applicable state or federal laws and regulations.

If title to the property is encumbered with an FHA Title I loan, and the lender servicing the Title II loan has determined that a subordination agreement is necessary, the lender may send a written subordination request to:

U.S. Department of Housing and Urban Development
Home Improvement Branch
451 7th Street, SW, Room 9272
Washington, DC 20410

If title to the property is encumbered with an FHA Title I loan which has been assigned to the Secretary, and the lender servicing the Title II loan has determined that a subordination agreement is necessary, the lender servicing the Title II loan may send a written subordination request to:
HUD Albany Financial Operations Center
Asset Recovery Division
52 Corporate Circle
Albany, NY 12203
(518) 464-4200

H. Required Documentation

FHA does not dictate a specific format for documentation of the modification agreement. The lender is responsible for ensuring that the modification documentation preserves the first lien status of the FHA insured loan. The lender will have to make the determination in accordance with state law as to whether it is necessary to record the Modification Agreement to maintain the first lien requirement.

I. Disclosures

FHA requires lenders to comply with any disclosure or notice requirements applicable under State or Federal law.

J. FHA Mortgage Insurance

Where the loan modification has been processed in accordance with all HUD requirements, the FHA mortgage insurance coverage will be extended to the new principal balance of the loan following modification of eligible loans. Modification has no effect on the one-time MIP or on periodic MIP payments. Monthly MIP payments must be calculated on the original insurance amount.

K. Lender Incentives

FHA will pay lenders a $500 incentive fee for each modification and will reimburse the actual cost of the title search and/or endorsement to the title policy not to exceed $250.00. No other expenses may be included on the claim.

L. Failure

In the event the borrower becomes delinquent following modification, it shall be treated as a new default and serviced accordingly. In the event the loan is foreclosed following modification, the lender must be prepared to deliver a copy of the modification agreement to the Department when a conveyance claim is filed. The lender shall be responsible for maintaining the first lien status of the insured loan subsequent to modification. Any amount of a loan which is not in the first priority position will be considered uninsured and not subject to claim. HUD reserves the right at the time of claim submission to request documentation (legal or otherwise) establishing the first lien status.

M. Limitations on Use

If a loan has been modified or reinstated using a partial claim within the past three years, re-default risk is presumed to increase following a subsequent modification. Prior to granting a modification in this circumstance, the lender must prepare a written justification, and retain a copy along with supporting documents in the claim review file. It is anticipated that this will be a highly unusual occurrence, and that the cause of the second default will be unrelated to the original problem.

N. Filing For Incentive Payment

The lender must file the claim for incentive payment within 60 days of the execution date of the modification agreement. It is not necessary to send a copy of the modification agreement, however, it must be retained in the claim review file and made available to FHA upon request.

FHA will pay lenders a $500 incentive fee for each modification and will reimburse the actual cost of the title search and/or endorsement to the title policy not to exceed $250.00. No other expenses may be included on the claim.

CALIFORNIAFORECLOSURE ACTIVITY INCREASES; DEFAULT NOTICES DECLINE

Californialed the nation with 72,285 foreclosure filings in July, a 5 percent increase from June and an 85 percent increase from July 2007, according to a recent report by RealtyTrac. Bank repossessions, auction notices, and default notices all increased in year-over-year comparisons. Default notices however, which are the first phase in foreclosure proceedings, declined 4 percent from June, according to the report.

CALIFORNIAENACTS FORECLOSURE REFORM LAW TO PROTECT HOMEOWNERS FACING DEFAULTS

FORECLOSURE RELIEF BILL BECOMES LAW

Brought to you by the California Association of REALTORS

This week, the State Legislature enacted foreclosure reform law to address the adverse effects of high foreclosure rates in

California

. The new law requires lenders to contact homeowners to explore optionsfor avoiding foreclosure at least 30 days before filing a notice of default. It also requires owners acquiring property through foreclosure to maintain the exterior of vacant residential properties. The new law also extends from 30 to 60 days the time for residential tenants to move out of properties that have been foreclosed upon, unless other laws apply. These requirements will remain in effect until January 1, 2013. The full text of Senate Bill 1137 (Perata) is available atwww.leginfo.ca.gov.

Highlights of the new law are as follows:

• Contact Between Lender and Borrower: Effective on or about September 8, 2008, a lender, trustee, or authorized agent may not file a notice of default until 30 days after contacting a borrower to assess the borrower's financial situation and explore options for avoiding foreclosure. A lender must generally contact the borrower in person or by telephone, or satisfy due diligence requirements for contacting a borrower. During the initial contact, the lender must inform the borrower of the right to request a meeting with the lender within 14 days. The lender must also give the borrower the toll-free number for finding a HUD-certified housing counseling agency. A subsequent notice of default must include the lender's declaration that it has contacted the borrower, tried with due diligence to contact the borrower, or the borrower has surrendered the property. A lender who had already filed a notice of default before the enactment of this law must include a similar declaration in the notice of sale. This requirement to contact borrowers applies to loans secured by owner-occupied residences made from 2003 to 2007. Certain exemptions apply if the borrower has filed for bankruptcy, surrendered the property, or contracted with a person or entity whose primary business is advising people, who have decided to leave their homes, on how to extend the foreclosure process and avoid their contractual obligations.
• Maintenance of Vacant Properties: EffectiveJuly 8, 2008,anyone who acquiresproperty through foreclosure must maintain the exterior of vacant residential property. Violations of this law include permitting excessive foliage growth that diminishes the value of surrounding properties, failing to take action against trespassers or squatters, failing to take action to prevent mosquitoes from breeding in standing water, or other public nuisances. This law authorizes a governmental entity to impose a civil fine up to $1,000 per day for any violation, as long as the owner has been given notice and an opportunity to remedy the violation. A violator must be given at least 14 days to begin, and 30 days to complete, such remediation before a fine can be assessed.
• 60-Day Notice to Terminate Tenants: Effective July 8, 2008, a tenant or subtenant in possession of a rental housing unit that has been sold through foreclosure is generally entitled to a 60-day written notice to quit, not just 30 days. However, a borrower who remains on the property after foreclosure may be served a three-day notice to terminate. This law does not affect, among other things,rent-controlled properties with just-cause evictions. Effective on or about September 8, 2008, the lender, trustee, or authorized agent posting a notice of sale must also post and mail a specified notice of a tenant's right to a 60-day eviction notice from the new owner, unless other laws apply. This requirement to notify tenants of their rights applies to loans secured by residential real property where the borrower has a different billing address than the property address.

NEW HOME SALES IN CALIFORNIA DECLINE 51 PERCENT IN MAY

Sales of new homes in California declined 51 percent in May compared with the same month in 2007, according to new data from the California Building Industry Association (CBIA)

Slumping sales in May point to need for Congress to quickly pass stimulus bill

SACRAMENTO The pace of home sales at California new-home communities was significantly depressed in May, reversing what had been a recent trend of shrinking year-over-year sales declines and prompting the California Building Industry Association to urge Congress to quickly pass pending legislation to stimulate the beleaguered housing market.

The monthly CBIA/Hanley Wood Market Intelligence (HWMI) New Home Sales and Pricing Report showed that new home sales in May were 51 percent below May 2007. The drop represents a worsening in the trend of year-over-year decline, which had shrunk to 44 percent in April after coming in at 49 percent in March.

Robert Rivinius, CBIAs President and CEO, said the deteriorating housing climate demands quick Congressional action.

Congress is now debating HR 3221, a major housing stimulus bill that would help ease the foreclosure problem, help stabilize the two federally chartered firms that guarantee most of the nations mortgage loans, provide a tax credit to stimulate home sales, and help reduce mortgage rates in high cost states like California, Rivinius said.

There is bipartisan consensus that these provisions are needed, but there are major differences between the versions of the bill passed by the House and the Senate.

California

homebuilders urge Congress to quickly work out their differences and send this bill to the Presidents desk.

During May, 3,064 homes and condominiums were sold in the subdivisions tracked by Costa Mesa-based HWMI, compared to 6,310 in May 2007, and down more than 66 percent from the 9,053 sales reported in May 2006. During May, sales of single-family homes dropped by 44 percent, while sales of townhomes and plexes duplexes, triplexes, etc. were down 45 percent, and sales of condominiums were down by nearly 74 percent.

Non-seasonally adjusted total new-home sales in May were 5.6 percent lower than levels seen in April, whereas the same month-to-month change a year ago was up by 9 percent. The median price of homes sold compared to last month was nearly unchanged at $375,000.

Jonathan Dienhart, Director of Published Research for HWMI, said the faltering market is likely to face some additional hardship prior to recovery.

What had appeared to be a slow trend of stabilization in new-home sales activity seems to have fallen apart, Dienhart said. With sales continuing to slump, its going to make the rest of 2008 a rocky ride for homebuilders.

He also suggested that foreclosure and bank-owned sales in the existing home market could be partially to blame.

Bargain hunters are the ones out in the market today, and foreclosure/bank-owned property sales are often where the most substantial discounts can be found. Until we move through more of that inventory, the new-home market will face stiff competition from these below-market-rate offerings.

After weeks of internal wrangling, the U.S. Senate last week passed HR 3221, known as the Foreclosure Prevention Act of 2008. Senators added several amendments to an earlier version of the bill passed by the House, which Rivinius said could mean the bill will need even more time before it gets final approval from both houses of Congress. The bill as now written would increase the federal conforming loan limits from $417,000 to $625,000, a long-overdue reform that would let many more buyers take advantage of so-called conforming loan mortgage rates which are significantly less than the larger jumbo loans many

California

buyers must obtain because of the higher costs of housing in most parts of the state.

CBIA is urging lawmakers to make permanent the even-higher loan limit of up to $729,750, which Congress enacted for this year only earlier this year when it passed its first housing stimulus bill.

###
The California Building Industry Association is a statewide trade association representing thousands of homebuilders, remodelers, subcontractors, architects, engineers, designers, and other industry professionals. More information is available on the Association's Web site, www.cbia.org.

Hanley Wood Market Intelligence is the housing industrys leading provider of rich data and consulting services on residential real estate development and new-home construction and is a division of Hanley Wood, LLC, the premier media company serving housing and construction. More information is available on the companys Web site, www.hanleywood.com/hwmior by calling 1-800-639-3777.

Hanley Wood Market Intelligence (HWMI) collects data from new for-sale production subdivisions of 10 units or more on a monthly basis. HWMI Net Sales represent sales contracts signed during the period indicated minus any reported cancellations. Median and Average Prices are based upon the minimum asking price of the plans sold during the period and do not include the cost of any lot/view premiums or upgrades. Because this data is collected monthly and based upon sales contracts that represent future closings, HWMI data is the most forward-looking data source available for new home information in the state of California.

Release Date: July 14, 2008

For immediate release

The Federal Reserve Board on Monday approved a final rule for home mortgage loans to better protect consumers and facilitate responsible lending. The rule prohibits unfair, abusive or deceptive home mortgage lending practices and restricts certain other mortgage practices. The final rule also establishes advertising standards and requires certain mortgage disclosures to be given to consumers earlier in the transaction.
The final rule, which amends Regulation Z (Truth in Lending) and was adopted under the Home Ownership and Equity Protection Act (HOEPA), largely follows a proposal released by the Board in December 2007, with enhancements that address ensuing public comments, consumer testing, and further analysis.
"The proposed final rules are intended to protect consumers from unfair or deceptive acts and practices in mortgage lending, while keeping credit available to qualified borrowers and supporting sustainable homeownership," said Federal Reserve Chairman Ben S. Bernanke. "Importantly, the new rules will apply to all mortgage lenders, not just those supervised and examined by the Federal Reserve. Besides offering broader protection for consumers, a uniform set of rules will level the playing field for lenders and increase competition in the mortgage market, to the ultimate benefit of borrowers," the Chairman said.
The final rule adds four key protections for a newly defined category of "higher-priced mortgage loans" secured by a consumer's principal dwelling. For loans in this category, these protections will:
Prohibit a lender from making a loan without regard to borrowers' ability to repay the loan from income and assets other than the home's value. A lender complies, in part, by assessing repayment ability based on the highest scheduled payment in the first seven years of the loan. To show that a lender violated this prohibition, a borrower does not need to demonstrate that it is part of a "pattern or practice."
Require creditors to verify the income and assets they rely upon to determine repayment ability.
Ban any prepayment penalty if the payment can change in the initial four years. For other higher-priced loans, a prepayment penalty period cannot last for more than two years. This rule is substantially more restrictive than originally proposed.
Require creditors to establish escrow accounts for property taxes and homeowner's insurance for all first-lien mortgage loans.
"These changes have made for better rules that will go far in protecting consumers from unfair practices and restoring confidence in our mortgage system," said Governor Randall S. Kroszner.
In addition to the rules governing higher-priced loans, the rules adopt the following protections for loans secured by a consumer's principal dwelling, regardless of whether the loan is higher-priced:
Creditors and mortgage brokers are prohibited from coercing a real estate appraiser to misstate a home's value.
Companies that service mortgage loans are prohibited from engaging in certain practices, such as pyramiding late fees. In addition, servicers are required to credit consumers' loan payments as of the date of receipt and provide a payoff statement within a reasonable time of request.
Creditors must provide a good faith estimate of the loan costs, including a schedule of payments, within three days after a consumer applies for any mortgage loan secured by a consumer's principal dwelling, such as a home improvement loan or a loan to refinance an existing loan. Currently, early cost estimates are only required for home-purchase loans. Consumers cannot be charged any fee until after they receive the early disclosures, except a reasonable fee for obtaining the consumer's credit history.
For all mortgages, the rule also sets additional advertising standards. Advertising rules now require additional information about rates, monthly payments, and other loan features. The final rule bans seven deceptive or misleading advertising practices, including representing that a rate or payment is "fixed" when it can change.
The rule's definition of "higher-priced mortgage loans" will capture virtually all loans in the subprime market, but generally exclude loans in the prime market. To provide an index, the Federal Reserve Board will publish the "average prime offer rate," based on a survey currently published by Freddie Mac. A loan is higher-priced if it is a first-lien mortgage and has an annual percentage rate that is 1.5 percentage points or more above this index, or 3.5 percentage points if it is a subordinate-lien mortgage. This definition overcomes certain technical problems with the original proposal, but the expected market coverage is similar.
One element of the original proposal has been withdrawn. The Federal Reserve Board had proposed for public comment certain requirements pertaining to so-called "yield-spread premiums." During the intervening period, the Board engaged in consumer testing that cast significant doubt on the effectiveness of the proposed rule. As part of its ongoing review of closed-end loan rules under Regulation Z, however, the Board will consider alternative approaches.
In finalizing the rule, the Board carefully considered information obtained from testimony, public hearings, consumer testing, and over 4,500 comment letters submitted during the comment period. "Listening carefully to the commenters, collecting and analyzing data, and undertaking consumer testing, has led to more effective and improved final rules," Governor Kroszner said.
The new rules take effect on October 1, 2009. The single exception is the escrow requirement, which will be phased in during 2010 to allow lenders to establish new systems as needed.
In a related move, the Board is publishing for public comment a proposal to revise the definition of "higher-priced mortgage loan" under Regulation C (Home Mortgage Disclosure), which requires lenders to report price information for such loans, to conform to the definition the Board is adopting under Regulation Z.

Foreclosures Rose 53% in June, Bank Seizures Tripled

By Dan Levy

July 10 (Bloomberg)

U.S.

foreclosure filings increased 53 percent in June from a year earlier and bank seizures rose the most on record as deteriorating property values and higher rates on adjustable mortgages forced more people to give up their homes. More than 252,000 properties, or one in 501

U.S.

households, entered a stage of the foreclosure process, RealtyTrac Inc., a seller of default data, said today in a statement. Bank seizures rose 171 percent, the most since the Irvine, California-based company began tracking statistics on default notices, warnings of a scheduled auction and repossessions in January 2005.

``The foreclosure problem is getting worse and will stay with us well into the next decade,'' Mark Zandi, chief economist for Moody's Economy.com in West Chester, Pennsylvania , said in an interview. ``The job market is eroding and homeowners have less equity. Lenders are much less willing to work with you if you've got negative equity, and you're more likely to give up your house if you're deeply underwater.''

Foreclosure activity is the highest since the Great Depression of the 1930s, said Rick Sharga, RealtyTrac's vice president of marketing. Home prices, which fell the most on record in April, according to the S&P/Case-Shiller index of 20

U.S.

metropolitan areas, have created a cycle where shrinking equity drives homeowners into foreclosure, which in turn further pushes down home prices, Sharga said. 1 Million Homes

``We'll have 1 million bank-owned properties by the end of the year,'' Sharga said in an interview. ``That will represent between one-fourth and one-third of all home sales.''

About 53 percent of borrowers with subprime loans, those with poor or incomplete credit histories, will have negative equity in their homes at the end of the year, and the number will rise to 63 percent in 2009, New York-based analysts at Credit Suisse led by Rod Dubitsky said in an April 23 report.

Tighter underwriting standards mean borrowers whose adjustable-rate mortgages reset to higher payments can't refinance their loans, Credit Suisse said. About 2.7 million subprime borrowers will enter the foreclosure process by the end of 2012, with a peak of new foreclosures in the third quarter this year, the analysts said.

About $3.5 trillion in homeowner equity has been wiped out since the spring of 2006, when housing prices were at their peak, Zandi said.

Glut

Rising mortgage defaults and auctions of foreclosed properties are adding to a glut of unsold homes and prolonging the housing slump. Efforts by the U.S. Congress to insure as much as $300 billion in refinanced mortgages and save up to 2 million borrowers from foreclosure can work only by ``slowing down or reversing home price declines and equity deterioration,'' Credit Suisse said.

Home prices will ``absolutely'' decline another 5 to 10 percent and could fall further if the slowing U.S. economy enters a deep recession, Susan Wachter, a professor of real estate finance at the University of Pennsylvania's Wharton School, said today on Bloomberg Radio.

While foreclosure rates are worst in parts of

California , Nevada and Florida , where lax lending standards put subprime borrowers at risk of defaulting, and Ohio and Michigan

in the U.S. Midwest , where the auto industry cut jobs, other parts of the country remain stable, Wachter said.

``We are in a serious regional recession, but there are many markets where housing prices are not falling,'' she said. Nationwide, Filings fell 3 percent from May. ``May was the highest month we've ever recorded, so a little bit of a drop off was inevitable,'' Sharga said.

Nevada , California

Nevada had the highest foreclosure rate for the 18th consecutive month. One in every 122 households was in some stage of foreclosure, more than four times the national average, and 3,133 properties in the state were seized by lenders, said RealtyTrac. The company has a database of more than 1.5 million properties and monitors foreclosure filings including default notices, auction notices and bank seizures.

California ranked second, with one filing for every 192 households, 2.6 times the national average, and had 20,624 properties seized by banks.

Arizona

ranked third at one in 201 households, almost 2.5 times the national average, and had 4,297 bank seizures.

Florida, Michigan , Ohio , Colorado , Georgia , Indiana and Utah

also ranked among the 10 states with the highest foreclosure rates. `Beyond the Sprawl'

California

had seven of the 10

U.S.

metro areas with the highest rates, including the top three. Stockton, in the state's central valley, was first with one in every 72 households in a stage of foreclosure, followed by Merced, about 110 miles east of San Francisco, with one in 77 households, and Modesto, near the Sierra Nevada mountains, with one in 86 households. Riverside-San Bernardino ranked fifth, Vallejo-Fairfield was seventh,

Bakersfield

was eighth and Salinas-Monterey was tenth. ``The housing beyond the sprawl is going to suffer another serious leg down because of high oil prices,'' Peter Navarro, professor of economics and public policy at the University of California at Irvine, said in an interview. ``A lot of people went out there to get cheaper homes, but this is going to take a big bite out of their mortgage.''

Cape Coral-Fort Myers and Fort Lauderdale , Florida , ranked fourth and ninth, respectively, and Las Vegas

was sixth among metro areas with the 10 highest foreclosure rates.

California

had the most total filings for the 18th consecutive month, increasing 77 percent in June from a year earlier to 68,666.

Florida

was second at 40,351 filings, an increase of 92 percent, and

Ohio

was third at 13,194, an increase of 11 percent.

New York

filings increased 22 percent from a year earlier to 5,367, with one in every 1,473 households in a stage of foreclosure, the 32nd highest rate.

New Jersey

filings rose 5 percent. The state had one in every 695 households in a stage of foreclosure, the 14th highest rate.

• Homeowners insurance is not only required to obtain a mortgage, it also makes sound financial sense to cover homeowners valuable assets. It is important that homeowners take the time to read through their homeowners insurance policy to understand what is covered and what, if any, coverage needs to be added.
  
  
• Standard homeowners insurance, known as HO-3, protects the property against damages and provides personal liability coverage. Certain natural disasters are not covered under a standard policy. A typical homeowners insurance policy covers the home and personal property against damage from fire, lightning, tornadoes, and hurricanes. HO-3 insurance covers losses due to theft, riot, and vandalism, as well as damage due to frozen plumbing, heating, and air conditioning systems.
• Home buyers considering buying in neighborhoods with large numbers of foreclosures should take into account the amount of crime in the area. According to a study by Woodstock Institute and the Georgia Institute of Technology, a foreclosure rate of 3 percent leads to a 7 percent increase in crime. Home buyers are advised to visit the local police precinct and ask for the areas crime stats, which is public information. Speaking with a police officer and asking whether specific pockets of a neighborhood have recently experienced a spike in crime also can be helpful.
  
  
• When it comes to remodeling or replacing home appliances, some homeowners have found that making purchases during the off-season for certain improvements can save money. For example, adding a new patio or law irrigation system in the autumn; finishing a basement or installing central air during the winter; and replacing a furnace or installing a gas fireplace during the summer can save homeowners as much as 10 percent.
  
  

Many professionals charge a four-hour minimum, for example, or a service charge, to make minor tasks worth their time. Homeowners can save money on repairs and remodeling by saving up odd jobs, such as replacing a faucet or installing a ceiling fan, and hiring someone to do them all at once.

World's easiest quiz

Passing requires 4 correct answers

1) How long did the Hundred Years' War last?

2) Which country makes

Panama

hats?

3) From which animal do we get cat gut?

4) In which month do Russians celebrate the October Revolution?

5) What is a camel's hair brush made of?

6) The

Canary Islands

in the Pacific are named after what animal?

7) What was King George VI's first name?

8) What color is a purple finch?

9) Where are Chinese gooseberries from?

10) What is the color of the black box in a commercial airplane?

Remember, you need 4 correct answers to pass.

Check your answers below.

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ANSWERS TO THE QUIZ

1) How long did the Hundred Years War last? 116 years

2) which country makes

Panama

hats?

Ecuador

3) From which animal do we get cat gut? Sheep and Horses

4) in which month do

Russia celebrate the October Revolution? November

5) what is a camel's hair brush made of? Squirrel fur

6) The

Canary Islands in the Pacific are named after what animal? Dogs

7) What was King George VI's first name? Albert

8) What color is a purple finch? Crimson

9) Where are Chinese gooseberries from?

New Zealand

10) what is the color of the black box in a commercial airplane? Orange (of course)


what do you mean, you failed? Me, too.