By JEANNINE AVERSA, AP Economics Writer

A Federal Reserve plan being unveiled Tuesday would give people taking out home mortgages new protections against shady lending practices.

The rules to be proposed are especially geared to providing some future safeguards to the riskiest “subprime” borrowers, already painfully stung by the housing and credit debacles. The proposal is expected to apply to new, or future, loans made by all types of lenders, including banks and brokers. The plan could be finalized next year.

The Fed, which has regulatory powers over the nation’s banking system, is considering:

_barring or restricting lenders from penalizing subprime borrowers — those with tarnished credit or low incomes — who pay their loans off early.

_forcing lenders to make sure that borrowers, especially subprime ones, set aside money to pay for taxes and insurance.

_barring or limiting loans that do not require proof of a borrower’s income.

_setting new standards for how lenders determine a borrower’s ability to repay a home loan.

Fed policymakers also will look into improving financial disclosures so people better understand the terms and conditions of their mortgages. It will consider ways to crack down on misleading mortgage advertising.

The Fed’s response has taken on heightened importance given the meltdown in the housing and credit markets that has led to record numbers of home foreclosures. The crisis has raised the odds that the economy might fall into a recession, roiled Wall Street and given Democrats and Republicans much fodder to blame each other.

The plan, if ultimately adopted, offers Federal Reserve Chairman Ben Bernanke, who took over the helm in February 2006, an important opportunity to put his imprint on the Fed’s regulatory powers. Some critics have complained that Bernanke’s predecessor — Alan Greenspan, who ran the Fed for 18 1/2 years — failed to act as a forceful regulator especially during the 2001-2005 housing boom, where easy credit spurred lots of subprime home loans and many exotic types of mortgages.

When the housing market went bust, the carnage was the worst in subprime loans.

Of the nearly 3 million subprime adjustable-rate loans surveyed by the Mortgage Bankers Association from July through September, a record 4.72 percent entered the foreclosure process during those months. At the same time, a record 18.81 percent of the subprime adjustable-rate loans were past due.

When home values weakened, borrowers were left with loans balances that eclipsed the value of their homes. They also were clobbered when their loans reset with much higher interest rates.

Provisions of the Senate bill are less aggressive than the House version. Differences will be reconciled in conference.

By Les Christie, CNNMoney.com staff writer, December 17 2007

A Senate bill that would expand the functions of the Federal Housing Administration (FHA) could help upwards of 200,000 homeowners - though a similar House bill that passed last month is more aggressive.

Christopher Dodd (D - Conn.), the sponsor of the Senate bill, which passed last week, hopes to make low-cost, fixed-rate mortgages available to more homebuyers and to homeowners seeking to refinance out of expensive adjustable rate mortgages (ARMs).

“This measure can shield homeowners from harm by helping families find safe, fair and affordable mortgages,” said Dodd in a statement. It can help provide credit, both for new homeowners and those seeking a way out of abusive loans in which they are currently trapped.”

FHA-insured loans have become an important element in the proposed solutions to the subprime mortgage crisis. There is bipartisan Congressional support for the measures and from the Bush administration.

FHA mortgages are consumer friendly loans made by private banks that are insured by the government. That makes them especially attractive to lenders because the government guarantee enables the lenders to easily sell off the loans.

Borrowers pay up-front premiums of 1.5 percent of the loan value, and 0.5 percent of the monthly payment each month. In return for that premium, the borrower gets a loan at a reasonable rate. The premium ends when the loan balance dips to less than 78 percent of the value of the home.

The Senate FHA-modernization bill differs in some significant ways from the House bill and is in addition to the FHASecure program that launched last summer, and was geared toward helping delinquent subprime borrowers refinance into affordable, fixed-rate loans.

Both the House and the Senate versions raise cap limits, the maximum dollar amount of mortgages that are eligible for FHA insurance, but the House bill is much more aggressive in nearly every one of its provisions.

The House would set the cap at $729,750, which is more than twice its current amount. That will give many more home buyers, especially those in high-priced areas like California, access to FHA-insured loans.

The cap under the Senate bill would max out at $417,000, the same amount as loans conforming to Freddie Mac and Fannie Mae limits.

If the House cap limit is adopted, the rough estimate of 200,000 eligible for help will expand, according to Bill Glavin, special assistant to the FHA commissioner.

The cap for low-priced areas in both bills would be raised to $271,050, again allowing more homebuyers into the program. The previous maximum was $200,160, less than the cost of building in many areas. “[With that cap] we’ve been priced out of new construction,” said Glavin.

The House will also allow more people in by accepting no-money-down deals, unlike the current policy, which mandates a 3 percent down payment. The Senate bill still requires a down payment but halves it to 1.5 percent.

In addition, the House bill would extend the maximum term of the mortgage to 40 years from 35, again making the loans affordable for more homebuyers. The Senate bill does not change the term limit.

Another difference is that the House bill would introduce risk-based pricing into the FHA program for buyers putting down less than 3 percent. That would mean higher premiums for borrowers to pay for their greater risk of default. The Senate bill calls for a 12-month moratorium on the implementation of risk-based pricing.

Both bills relax the strict provisions that have kept FHA insured mortgages of limited use in buying condos and manufactured homes.
‘Hitting the number’

Both bills take aim at some of the shiftier lending practices of the past few years, especially those involving appraisal scams. The Senate bill would penalize any fraud having to do with an FHA mortgage. The House would impose civil penalties on anyone who exercises undue influence on appraisers in connection with an FHA-insured mortgage.

Appraisers have been subjected to intense pressure in the past to overvalue homes - it’s called “hitting the number” - in order to make sales work. If home valuations come in at less than selling prices, deals fall through because borrowers can’t obtain mortgages for the amounts they need.

Appraisers say they are often told, in so many words, to hit the number consistently by real estate agents and mortgage originators. If appraisers don’t co-operate and overvalue the properties, they may be frozen out of future work.

The next step for the FHA modernization bill is for members of the House and Senate to work out the differences in the two versions. That may happen as early as this week.

So-called FHA reform reached an important milestone on Friday when the U.S. Senate overwhelmingly approved its version of the legislation.

The bill, which passed by a vote of 93-1, seeks to make the Federal Housing Administration more relevant in the current housing and mortgage lending environment by expanding the agency, loosening some underwriting standards, and raising its current restrictive loan limit.

The FHA was established in 1934 to help borrowers, particularly those with low incomes, purchase homes by guaranteeing banks that those loans would be repaid should the borrower default. But the agency’s loan limits have generally lagged behind those of Freddie Mac and Fannie Mae and as home prices climbed dramatically and lenders with looser underwriting standards proliferated the agency became less and less of a player in the mortgage market.

Over a ten year period ending last December the FHA’s share of new mortgages fell from 9.1 percent to 1.8 percent according to Inside Mortgage Finance. A major reason for the slide is the FHA loan cap which, in many parts of the country such as both coasts, falls short of covering the purchase price of even a low end house.

FHA insured loans have been mentioned as a possible escape hatch for borrowers who may be unable to make payments on their current adjustable rate mortgages when their interest rates reset over the next year. The restrictive loan limits, however, make that impossible for many of those borrowers. There is also a theory that a more widely available federal guarantee would encourage lenders to make more loans in the current tight credit environment.

The Senate version of FHA reform would raise the limit on FHA loans from $362,000 to at least $417,000 which is the current limit on Freddie Mac, Fannie Mae, and Veterans Administration loans.

The FHA estimates that it may be able to help some 200,000 borrowers who are facing foreclosure with the new limits coupled with loosened underwriting standards which were announced by the president several months ago.

In October the House of Representatives passed legislation similar to that passed in the Senate but some differences between the two bills will have to be hammered out before a final version is sent to the president for his signature.

The House bill would raise the loan limit as high as $829,750 in certain areas of the country but the biggest stumbling block to a compromise is a feature of the House bill which establishes a new housing trust fund for troubled borrowers and would require FHA to contribute to it.

Also on Friday the Senate passed a separate borrower relief bill which would end, for three years, a provision in the tax code which has bitten many a homeowner after foreclosure or a loan workout. Under current rules the Internal Revenue Service requires lenders to send borrowers and the IRS a form detailing any loan amounts written off by the lender after a foreclosure, short sale, or loan restructure. The IRS treats that forgiven debt as ordinary income and taxes the borrower accordingly.

The House had earlier passed similar legislation but without the three year sunset provision.

In other mortgage news, Reuters reported on Friday that the hotline established by the HOPE NOW alliance had received 45,000 calls in the three days after its establishment was announced by President Bush. The hot-line provides foreclosure prevention counseling to borrowers who qualify for an interest rate freeze worked out between the Treasury Department and major lenders. The telephone number for the program is 1-888-995-HOPE.

By Alan Zibel, South Florida Sun-Sentinel.com, THE ASSOCIATED PRESS

December 11, 2007

WASHINGTON

Bucking conventional wisdom, a trade group for real estate agents Monday said the battered housing market is on the verge of stabilizing and inched up its outlook for 2007 and 2008 home sales.

The revised monthly forecast from the National Association of Realtors, which followed nine consecutive months of downward revisions, calls for U.S. existing home sales to fall 12.5 percent this year to 5.67 million — the lowest level since 2002.

Last month, the association predicted 5.66 million existing homes would be sold this year, down from 6.48 million last year.

The Realtors’ group also forecast sales will rise slightly in 2008 to 5.7 million, up from last month’s prediction of 5.69 million.

Numerous other economists, however, are far less optimistic than the trade group.

They predict weak sales and falling prices through next year and beyond, and emphasize that those problems could worsen if the economy sinks into a recession.

Patrick Newport, an economist at Global Insight, forecasts that home sales will drop from 5.66 million this year to 4.7 million in 2008 — 1 million fewer home sales than the real estate group’s forecast.

“With the economy and job growth slowing … it is hard to believe that we have hit bottom,” Newport said in a note to clients Monday. “Our view is that prices need to drop further, and that housing activity will hit bottom about the middle of 2008.”

Joel Naroff, chief economist for Commerce Bank, said the United States is 12 to 18 months away from a “normal housing market” in which sales are growing and prices are rising or stable. Furthermore, he said the trade group’s 0.2 percent revision to its sales forecast should be taken with a grain of salt, given the difficulty of projecting with any certainty.

Nevertheless, the Realtors group’s chief economist, Lawrence Yun, gave a positive outlook for job growth and the replacement of subprime lenders to borrowers with weak credit with government-backed loans as reasons for the improved outlook.

“Despite overexaggerated negative coverage on the housing conditions, many local markets are actually seeing price increases,” Yun said. “Mortgage availability is improving.”

While Yun acknowledged that housing prices soared relative to buyers’ availability to afford homes in places like Miami and San Diego, he said housing “remains affordable in vast parts of the country” — particularly in the Midwest.

The trade group also said its index that forecasts near-term home sales inched upward in October.

Copyright © 2007, South Florida Sun-Sentinel

By Paul Owers; South Florida Sun-Sentinel; December 7, 2007

South Florida won’t get a big boost from President Bush’s plan to freeze interest rates for homeowners nationwide who are bracing for sharp increases in their adjustable-rate mortgages, analysts say.

Many distressed borrowers across the region can’t benefit because they’re investors or homeowners at least 90 days late on their house payments. To qualify for help under the program announced Thursday, residents must be living in their homes and current on their mortgage payments.

What’s more, Bush’s proposal is focused on preventing a national foreclosure crisis and not meant to aid individual states, such as Florida and California, that are leading the housing bust after the boom of 2000-2005.

Some economists say there’s nothing in the president’s proposal that will trigger a rebound in a South Florida housing market that has been mired in a slump for almost two years.

“It’s not going to help areas that need help the most, and Florida certainly is one of those,” said Per Gunnar Bergland, chief economist for Moody’s Economy.com, a Pennsylvania research firm.

Bush said relief is designed for homeowners holding adjustable-rate subprime mortgages they took out between Jan. 1, 2005, and July 31, 2007, and are facing a steep increase in their interest rates before July 31, 2010.

About 1.2 million people could be eligible for help, but only a fraction will get the five-year rate freeze. Others would get assistance in refinancing with their lenders and moving into loans secured by the Federal Housing Administration, Bush said.

Also, the aid will come only to those who ask for it, he said. Thousands of borrowers who are falling behind on their payments have been sent letters about the options, and the president also urged people to call a new hotline: 1-888-995-HOPE.

“There is no perfect solution,” Bush said, as he announced the agreement hammered out with the mortgage industry. “The homeowners deserve our help. The steps I’ve outlined today are a sensible response to a serious challenge.”

About 2 million subprime mortgages — loans to borrowers with poor credit histories — will reset over the next two years from their introductory rates of around 7 percent to 8 percent to levels as high as 11 percent, adding hundreds of dollars to the typical monthly payment.

A recent surge in mortgage defaults in South Florida and nationally has contributed to the worst housing slump in more than two decades and piled up billions of dollars in losses for big banks, hedge funds and other investors while hammering financial markets worldwide. Some economists fear the housing problems may push the country into a recession.

“We should not bail out lenders, real estate speculators or those who made the reckless decision to buy a home they knew they could never afford,” Bush said after meeting with industry leaders at the White House. “But there are some responsible homeowners who could avoid foreclosure with some assistance.”

As of June, 6.6 million homeowners nationwide had subprime mortgages, Economy.com’s Berglund said. Of those, 1.7 million face resets to higher interest rates between January 2008 and July 2010.

Last year, 42 percent of mortgages originated in Broward County were subprime, according to the U.S. Department of Housing and Urban Development. In Palm Beach County, 32 percent were subprime mortgages.

The number of Americans who fell behind on their mortgage payments in the third quarter rose to a 20-year high, the Washington-based Mortgage Bankers Association said.

In Broward County, 2,110 residents were behind on their mortgages in November, almost triple the 770 of a year ago, according to Realestat.com of Plantation.

Palm Beach County had 1,387 residents behind on their home loans last month, up from 515 a year ago.

People facing foreclosure typically are behind on their mortgage payments at least three months and have been notified by lenders that they intend to take back the properties.

Louis Spagnuolo, vice president of mortgage banking for WCS Lending in Boca Raton, thinks that Bush’s plan will help.

He said people still can qualify if they are no more than 60 days behind on their house payments. They also must have at least 3 percent equity in their properties and a credit score of 660 or lower.

Berglund, wonders, though, whether lenders and loan servicers will be sued by investors for altering the terms of the loans. He also points out that many subprime borrowers obtained loans with little or no documentation and may be unable or unwilling to prove their income now to qualify for the rate freeze.

“We don’t think this will be enough to turn the market around or even stabilize it,” he said.

Lauderhill Mayor Richard Kaplan, who will deliver a report Monday to the City Commission about the effect of subprime mortgages on local governments, said more has to be done to help those people who need it.

“This is a good first step, but it’s not the last step,” Kaplan said.

Meanwhile, as the foreclosure pressure intensifies, people are seeking relief from consumer-based groups across South Florida.

Through Sept. 30, the Consumer Credit Counseling Service in West Palm Beach has worked with 2,411 clients who sought relief from mounting housing costs. For all of last year, the nonprofit agency worked with 900 such clients.

The vast majority of clients took out adjustable-rate loans that are due to reset in the coming months, said Jessica Cecere, president of the counseling service.

“We’re definitely hearing the same old sad song over and over again,” Cecere said. “There are a lot of variables to this plan, but the premise on which it stands — to stop the bleeding, if you will — sounds good to me.”

This story includes information from wire reports.

Copyright © 2007, South Florida Sun-Sentinel

By Blanche Evans, December 5, 2007

To hear the national media tell it, homebuyers are fools to buy right now. Home prices have dropped 5 percent since October 2006. Our economic problems aren’t over, so home prices are bound to drop further. Why would anyone catch that falling knife? But there are some markets out there that are making monkeys out of housing bears.

According to the National Association of Realtors, home prices are higher in 93 out of 150 metro areas.

Which markets are sizzling? Charlotte, North Carolina, San Francisco; Albuquerque; and Green Bay, Wis., among others.

But don’t take NAR’s word for it.

Forbes Magazine has noticed the red glow from those cities and others. The magazine just named 10 cities where home prices are going through the roof, including

Forbes: 2007 Best U.S. Housing Markets:

* Salt Lake City, 246,700, up 14.1%
* Charlotte, S.C., $220,000, up 11%
* San Jose, Ca., $852,500, up 9.4%
* San Francisco, Ca., $825,400, up 8.6%
* Raleigh, N.C., $229,500, up 7.5%
* Austin, Tx $188,200, up 7.2%
* Pittsburgh, Pa., $127,700, up 6.1%
* Seattle, Wa., $394,700, up 6%
* San Antonio, Tx, $154,700, up 5.7%
* Portland, Or., $299,700, up 5.2%

Realty Times has its own reporters telling us that a few of their markets are turning around. In Tucson, Realtor Barbara Lasky tells us that October pending home sales are up 26 percent over last year. Tulsa Realtor Curtis Kretchmar says home prices are up nearly 6 percent over 2006.

Not convinced? In 2004 and 2005, 40 percent of homebuyers were investors or second home buyers. Since then, investors have pulled out of the market, leaving places like Florida and Las Vegas cold. Colorado was also hit hard, but suddenly resorts are in again. Realtor Kim Stevenson says new ski-in, ski-out condominiums are selling as soon as they are available.

The point is that things change. And people are smart enough to jump on good opportunities when they see them.

Copyright © 2007 Realty Times. Used with permission.

The biggest obstacle to a mortgage bailout plan could be the investors who wound up with the bad debt.

By Les Christie, CNNMoney.com staff writer
December 4 2007: 3:26 PM EST

A sweeping solution to the subprime lending crisis could get snagged by a big sticking point at the end of the mortgage chain.

On Monday, Treasury Secretary Henry Paulson said in a speech that its Hope Now coalition of government, industry and community groups is developing a streamlined way to move able homeowners into sustainable mortgages.

A large part of that plan, it’s been widely reported, is to broadly rework adjustable rate mortgages (ARMs) for all borrowers who qualify and freeze their interest rates before they jump to unaffordable levels.

But investors in mortgage-backed securities, who buy the loans wholesale from lenders, aren’t exactly jumping on board.

“You have contracts in place guaranteeing investors a fixed rate of returns,” said Jim Carr, Chief Operating Officer of the non-profit advocacy group, National Community Reinvestment Coalition. “They have no immediate incentive to give up those returns.”

Foreclosure rescue: No help for you

Modification options for mortgage servicers are limited by contracts and tax laws. Servicers decide who would or would not qualify for a loan rework, but they can’t make widespread modifications without an okay from investors.

Contracts between lenders and investors typically state that servicers can modify up to five percent of loans within a group without clearing it in advance. But modifying a higher percentage requires approval. The reworks called for by Secretary Paulson would probably exceed that five percent threshold in many cases.

But relaxed guidelines in October from private watchdog the Financial Accounting Standards Board gave servicers greater leeway in reworking loans if the modifications were in the best interest of investors.

The move was supposed to give the green light to a large-scale reworking of potentially delinquent loans. But investor reluctance stills seems to be a hurdle in applying the fix to an entire group of borrowers.

The American Securitization Forum (ASF), which represents investors and is part of Paulson’s coalition, supports easier ways to modify mortgages for troubled borrowers, but according to spokeswoman Katrina Cavelli, it does not back an across-the-board solution to the problem.

In congressional testimony Friday, ASF Deputy Executive Director Tom Deutsch said that certain modifications are preferable to foreclosures, but they “should be considered and made on a loan-by-loan basis.”

“There’s a lot of technical work that has to be done before this program can be put into place,” said Carr. There’s also a rights issue, he said. “It could be argued that all borrowers within a group be treated the same.”

I want a rate freeze too

Then there’s the threat of investor lawsuits. Contracts between mortgage servicers and investors typically have two competing clauses, according Joe Mason, professor of finance at Drexel University. One requires servicers to act in the best interest of investors, and the other sets specific limitations on what servicers can do, including what modifications to loans can be made.

“Modifications are proceeding,” said Mason, “and servicers are using the ‘best interest’ clause. It’s not clear if that opens them up to investor lawsuits. It will be up to the courts to decide which clause wins.”

Ultimately a mortgage rate freeze would result in higher home prices, according to Peter Schiff, president of retail investment brokerage Euro Pacific Capital.

“The [investor] will say, ‘Wait a minute. The government can come back in a few years and alter contracts based on economic emergencies,’” he said.

Investors will want a higher return from their securities, and charge more for that added risk. “Because of government intervention, people will pay too much for their houses.”

© 2007 Cable News Network LP, LLP.

by Kevin Lim & Alan Raybould, Reuters c/o Yahoo.com; 12/03/2007.

The Federal Reserve will cut interest rates by 100 basis points before June to help the housing market, Citigroup’s chief economist, Lewis Alexander, said on Monday.

Alexander, who worked at the Fed before joining Citi, also said Asian economies would probably suffer only a modest slowdown as a result of the U.S. housing turmoil as the spillover effect from housing was much smaller than from sectors such as information technology.

“When the tech bubble burst, there was a substantial amount of capital and employment that had to be worked off,” he said at a talk for Citi clients in Singapore.

Citi, he said, expected the Fed to cut its Fed funds rate by 25 basis points when it meets later this month and by 50 basis points in the first quarter of 2008. The final 25 basis-point cut would probably take place in the second quarter.

Alexander said the Fed would not be too concerned that the drop in the dollar would be inflationary. Studies carried out over the years had shown that the dollar’s value had little impact on consumer prices in the United States, he said.

“The vulnerability of inflation to a weaker dollar is not a major risk.”

The dollar’s fall from its peak in 2002 had had only a minor impact on inflation in the United States, he said, noting U.S. retailers were facing intense pressure to lower prices rather than raise them.

He also said a weakening dollar had not resulted in a general aversion to U.S. assets, noting Treasuries had rallied in recent months and equity markets had stayed relatively firm.

Citi does not expect the United States to fall into recession as energy prices are unlikely to rise from current levels as the global economy slows. The anticipated Fed rate cuts will also help calm the housing and credit markets, he said.

According to a Citi report on November 21, the dollar was expected to decline to 1.57 to the euro in the first quarter of 2008 before recovering to end the year around 1.47. The euro bought around $1.4660 on Monday.

Copyright © 2007 Reuters Limited. All rights reserved.

By Holden Lewis, Bankrate.com

The House of Representatives has passed a mortgage reform bill that is as remarkable for what it doesn’t do as for what it does. It doesn’t include a bailout of borrowers or lenders.

The Mortgage Reform and Anti-Predatory Lending Act of 2007 seeks to prevent borrowers and lenders from making dumb choices. It doesn’t help troubled borrowers and lenders who made poor decisions in the past.

The bill “cannot undo what happened, but it makes it much less likely that it will happen in the future,” Rep. Barney Frank, the measure’s architect, said a few hours before the House passed it last week, 291-127. “The fundamental principle of the bill is not to put remedies in place to deal with these problems when they occur, but to stop them from occurring in the first place.”

Bursting housing bubbles have exposed bad lending practices. From 2003 until early 2007, mortgage lenders grew ever more lax in their lending decisions. House prices skyrocketed in many markets because nontraditional loans made it possible for buyers to overreach.

The vicious circle
Thus, loose lending led to higher house prices, which led to looser lending, which led to still higher prices. Now the vicious circle is working in reverse: Foreclosures are rising, lenders are tightening their standards, and house prices are dropping. Falling prices encourage lenders to tighten standards more, so fewer would-be borrowers can qualify for loans, which leads to lower house prices. 2007 will be the first year since the Great Depression when average house prices nationally will have fallen, says Lawrence Yun, chief economist for the National Association of Realtors.

Frank, D-Mass., and co-sponsors came up with a bill that tries to arrest any future cycles of loose lending and skyrocketing prices.

Points and fees at issue
One of the most controversial parts of the bill addresses yield spread premiums, which are commissions that lenders make to mortgage brokers. A broker might get a commission of 1 percent of the loan amount; in exchange, the rate is boosted a quarter of a percentage point.

The borrower pays the higher rate in lieu of paying an origination fee to the broker.

In early drafts, the bill banned yield spread premiums. Brokers lobbied successfully for a change.

“Most consumers want a zero-point loan,” says Marc Savitt, president of The Mortgage Center in Martinsburg, W.Va., and president-elect of the National Association of Mortgage Brokers.”Most people today don’t want to pay any points or origination fee. They want it all to be financed.”

Under the bill, brokers would be able to collect yield spread premiums for their own compensation, or to raise enough cash to cover some of the borrower’s other closing costs, too.

Protect consumers — from themselves?
The bill’s opponents complained that it was too vague, and that it would make a terrible housing market even worse.

Rep. Ed Royce, R-Calif., said the bill has “murky language (that) would invite litigation from every borrower who misses a payment.” He added that “the main loser will be the subprime borrower who will pay higher rates — if he or she can get a loan at all.”

Other Republicans warned that it would be foolish for Congress to restrict credit at a time of falling home sales and house prices. “It will deepen the crisis we’re facing by limiting peoples’ opportunities to refinance or finance their home,” Patrick McHenry, R-N.C., said. “It will limit homeownership and limit the opportunities and options that Americans have.”

But that argument didn’t carry the day, as the majority of the House agreed with Maxine Waters, D-Calif., who said that the foreclosure rate has almost quadrupled in her state in the last year. “Clearly, we need to prevent the now widespread practice of getting people into loans that they can’t afford,” she said.

The debate over mortgages moves to the Senate, where Christopher Dodd, the Connecticut Democrat who chairs the Banking Committee, has blamed the mortgage meltdown partly on regulators who, he says, haven’t exercised their full authority. He said in the spring that he intended to introduce legislation to address predatory lending, but he is not expected to follow through until next year.

By John Voket, RISMEDIA, Nov. 29, 2007

Anyone willing to embrace the growing diversities among consumers should expect numerous opportunities in the real estate space, according to Oscar Gonzales, president and founder of diversity marketing firm The Gonzales Group. Gonzales shared his thoughts at a session titled “Five Reasons Why You Must Learn about Emerging/Specialty Markets,” during RISMedia’s 18th Annual Leadership Conference.

Along with Gonzales, the panel included: Frances Martinez Myers, senior vice president with Prudential Fox & Roach; Alan Thompson, vice president and regional director of emerging markets for Stewart Title; and Margaret Ling, multicultural liaison with Fidelity National Title Group.

Among the many reasons to tap new and emerging specialty markets, five major points surfaced during the 90-minute panel:

1. Stats/Growth
Gonzales peppered the panel and audience during introductory remarks, with a goldmine of statistical details, conjuring up visions of real estate booms seldom seen in the past century-and-a-half.

“By 2050, the Asian and Hispanic population will triple over the rest of the non-Asian/Hispanic population growth rate,” Gonzales explained, quoting credible sources, particularly the U.S. Census Bureau. “The Hispanic population in America already crossed the 300 million mark as of February 2007.”

He reminded the crowd that it was only about 20 years ago the Asian/Hispanic numbers were less than 1% of the overall population. He said the rapidly expanding ethnic populations, especially Asian/Hispanic, are predicted to gain a significant degree of influence in the real estate world as early as 2012.

“The industry will be dealing with significant population shifts,” he predicted.

2. Clients with Buying Power
Gonzales didn’t have to work hard to get the audience’s buy-in with predictions about ethnic market buying power.

“By 2012 (African American household) median income will increase 12.69%, a 237% jump,” Gonzales said. “But take a look at this - while Hispanic income is only predicted to rise 9.54 percent, it represents a 434 percent increase.”

And reinforcing a point made time and time again during the workshop, by 2012, Asian household increases will top 11.95%- a 457% increase-crossing $1 trillion mark by 2009.

The panelists agreed Asian markets are particularly accessible right now because of the limited amount of companies successfully capturing these clients, who Ling reminded, usually higher than median income.

“They pay off early and keep the first house and as an investment,” Ling said, adding that in the case of a lot of young couples, “their family will often give a $100,000 down payment or more.”

Myers observed that her Spanish-speaking clients see the current turbulence in the market as an opportunity, so besides the rapidly increasing population of Hispanic clients who need to buy homes, Realtors can count on those who are out looking because they think now is the time.
“They don’t mind the interest rates,” Myers said of the Hispanic buyers, “but they do want to drive the deal.”

3. Clients for Life

As Ling alluded, both Asian and Hispanic real estate customers seldom resign from established business relationships, especially when it involves real estate. So establishing clients from these demographics often means establishing a key referral source for life.

“They need to know you speak their language,” she said.

Through his research, Thompson learned early on that ethnic clients wanted simple things like in-language documentation.

“At the closing they do not want a translator there because they want to be able to go back to the documentation a year or two down the road without a translator, he said. Armed with ideas on how to attract and retain Hispanic clients, Thompson participated in a Peachtree Latino Festival in Atlanta, and in just a few hours, got 1,199 leads including many for mortgages.

4. Buying Habits
Even agents who don’t speak the language find success in catering to emerging ethnic markets, as long as they understanding particulars of the culture. Myers drew a lot of nods from audience members when she referenced her experiences with the vast majority of her Asian clientele.

“Remember, you might be dealing with the whole family,” Myers said. “And once they decide they like it, they bring their Feng Shui expert in. If that fails, move on to the next piece of property.”

She reiterated a point made earlier about recruiting Japanese and Korean staff who she predicted will, “drive business to your office.”

5. Opportunity to Partner in Emerging Communities
While recruiting multi-lingual staff and agents to one’s company can forge expanded inroads to specialty population, the panel members reinforced that it is just half the battle.

“Join community-specific groups and networking opportunities,” Thompson suggested.

Ling joined in encouraging entrenched office cultures to break free of the status quo, engaging in more diverse networking situations. “You’ve got to get people out to their events in the community,” she advised. “Consider establishing an office and brokerage in the neighborhood.”

“From a marketing perspective, think outside the box. Go to populations who aren’t being served,” Thompson said, recalling a former employer who successfully marketed to a growing Native American population.

“We knew Native Americans were interested in buying properties,” Thompson said. “You’ve got to be fishing upstream, getting the clients before someone else is thinking about it.”

RISMedia welcomes your questions and comments. Send your e-mail to: realestatemagazinefeedback@rismedia.com.

By Holden Lewis , Bankrate.com, Posted: Nov. 15, 2007

Mortgage bankers are eagerly going back to basics before Congress makes them.

At the annual convention of the Mortgage Bankers Association, or MBA, the most oft-spoken phrase was “back to basics.” No matter what you were doing — walking past a shoeshine stand, staring mutely at your shoes in an elevator or waiting in line for lunch — you heard someone uttering “back to basics.”

What’s the hottest mortgage product today, Doug Duncan? “The 30-year fixed-rate mortgage,” Duncan, chief economist for the MBA, said with a tight smile. “It’s pretty much anything that’s fixed rate and conforming.”

In other words, the home loan du jour conforms to standards set by mortgage giants Fannie Mae and Freddie Mac: It isn’t a jumbo (a mortgage for more than $417,000), isn’t subprime (for a borrower with iffy credit), and doesn’t have an adjustable rate. Preferably, the borrower totes a good-size down payment (if buying) or sports serious equity (if refinancing).

If the mortgage business is going back to basics, then, by definition, it wandered away from the basics. Indeed, that’s what happened.

Retro mortgages

Now the housing bubble has burst and home prices are falling. Foreclosures are surging as homeowners fall behind on their mortgage payments and then discover that they owe more than their homes are worth. In response, lenders have pulled back. Subprime loans are drying up, more borrowers are asked to document their incomes, many lenders require bigger down payments than they used to, and jumbo loans are harder to get and have higher rates.

It’s as if the mortgage world has gone from cell phones all the way back to rotary-dial landlines. Or, at the very least, back to the days of cell phones that could barely fit in a purse.

“We’re getting back to basics. You’ll find that the loans that are originated in the last half of 2007 will be very different from what were originated in 2006 and the first half of 2007,” said Michael Gross, managing director of loan administration for Countrywide Financial Corp., at a panel discussion from the annual convention of the MBA in Boston.

Mitch Ohlbaum, president of Legend Mortgage in Los Angeles, said: “Twelve months ago, it was sort of ‘anything goes.’ The rules were slim to none. Everyone was coming out with more aggressive deals every day.”

And now? “You will see a return to basics,” Ohlbaum said. Mortgage insurance already is making a comeback, and he expects to see more carrybacks, in which the seller lends some of the money. More people will make down payments with money given by their families. “I think we’re going back to where 10 percent is going to be the standard” for a down payment, Ohlbaum said.

These are the conditions that today’s borrowers can expect.

“There’s a great, renewed appreciation for the stable, secure, fixed-rate mortgage, which is still out there,” said Susan Wachter, professor of real estate at the University of Pennsylvania’s Wharton School of Business.

Bob Moulton, president of Manhasset, N.Y.-based Americana Mortgage, said that the renewed appreciation for the plain-vanilla fixed-rate comes because they “worked for a hundred years. Then, when the exotics came out, we got creative. The homeowner wanted that house. They probably should have continued to rent.”

History of the 30-year fixed

Moulton is three-quarters correct about the fixed-rate mortgage working for a hundred years. The 30-year fixed has been in widespread existence since 1934 — and it was introduced by the federal government as part of a bailout during a foreclosure crisis.

In a research report for the Federal Reserve Bank of America, authors Matthew Chambers, Carlos Garriga and Don E. Schlagenhauf wrote: “Prior to the Great Depression, the typical mortgage contract had a maturity of less than 10 years, a loan-to-value ratio of about 50 percent, repayment of interest only during the life of the contract and a balloon payment at expiration.”

Except for the low loan-to-value ratios, mortgages in the early part of the 20th century were similar to the subprime and interest-only loans that were all the rage in the first years of this century. In both eras, interest-only loans were popular. In both eras, the mortgages were time bombs: In the early 1900s, the entire loan amount was due in a lump sum after a few years; in the early 2000s, the initial interest rate on an ARM was due to skyrocket after a few years. In both eras, homeowners were expected to refinance themselves out of peril.

And in both eras, home values plummeted in some parts of the country, trapping people in loans for more than their houses were worth, unable to refinance.

In 1933, the federal government created an agency called the Home Owners Loan Corp., or HOLC, which within three years bought one-fifth of the nation’s residential mortgages. The HOLC bailed out the owners by converting their loans to something novel: long-term, fixed-rate, amortizing mortgages. The federal government followed up by creating the Federal Housing Administration in 1934, and the 30-year-fixed with a small down payment quickly became the dominant mortgage for home purchases. The Depression-era government bailout of delinquent homeowners succeeded, and the homeownership rate climbed rapidly for three decades.

Government regulation looming

This time around, the mortgage industry is wary of government intervention, as if it had never worked before. At this MBA convention, whenever bankers discussed the prospect of tighter regulations, they did so in tones of warning and foreboding. “We’re going to have legislation, and it’s going to be big,” said Mike McQuiggan, CEO of Tri-Emerald Financial Group, a Lake Forest, Calif.-based lender. He warned that Rep. Barney Frank, D-Mass., chairman of the House Financial Services Committee, was poised to introduce legislation.

You can guess what McQuiggan said next: “The future is back to basics.”

 Sure enough, less than a week after McQuiggan delivered his warning, Frank and a pair of fellow Democrats introduced H.R. 3915, the “Mortgage Reform and Anti-Predatory Lending Act of 2007.” The bill would require lenders to make sure that borrowers have a reasonable ability to repay. It would prohibit lenders from pushing mortgages that aren’t in the borrowers’ interests.

Industry do-it-yourself

The Mortgage Bankers Association’s immediate reaction was to hope that the bill, if passed into law, would pre-empt state and local laws, so the rules would be the same everywhere. The National Association of Mortgage Brokers, or NAMB, was more critical. “We need to have confidence in the market’s ability to correct itself,” NAMB president George Hanzimanolis said in a statement. “Further restrictions through legislation will cripple the industry” and harm consumers.

The industry is convinced that it has pulled back enough from the excesses of recent years. Fear of business failure on one hand and government regulation on the other has reminded lenders to attend to the fundamentals. That’s the story that lenders like to tell themselves, anyway.

“When people are scared, they get back to basics,” Moulton said. “When there’s fear, they go back to basics. We know the basics work — end of conversation.”

By JESSE J. HOLLAND, Associated Press Writer
The Modesto Bee, Thu, Nov. 15, 2007

WASHINGTON

With home foreclosures skyrocketing, the House on Thursday voted to crack down on mortgage lenders by forcing them to get licenses, making them responsible for discovering whether borrowers can really repay and fining them for steering people toward risky subprime loans.

The measures are designed to keep more people from sinking into the current mortgage crisis, where prospective home owners with shaky credit got mortgages with low interest rates only to see the rates rise and bring monthly mortgages up to prices they cannot afford.

More than 2 million adjustable rate mortgages are scheduled to reset by the end of 2008.
Many American homeowners are expected to go spiraling into debt, with the number of homes involved in foreclosure proceedings nationwide almost doubling in the third quarter of this year when compared with 2006, according to RealtyTrac Inc.

“What we have today is a bill that cannot undo what happened, but makes it much less likely it will happen in the future,” said Rep. Barney Frank, D-Mass., chairman of the House Financial Services Committee.

But Republicans and the White House warned that congressional meddling with mortgage markets could make things even worse. Many Republicans argued the bill would make it harder for borrowers to refinance loans due to reset at higher interest rates, and make it almost impossible for poor people to get loans to buy a house.

“Congress does two things very well: one is nothing and two is overreact,” said Rep. Tom Price, R-Ga. “While we have had a period here where some credit, some loans, were unwisely given, but allowing individuals, allowing Americans to purchase homes and realize their American dream is a good thing.”

But Democrats said the subprime market needs to change to ensure that people get loans that are beneficial to them, not just good for the bottom line of some corporation. “This bill is not designed to harm the subprime market, it’s designed to reform and correct it and make it work properly,” said Rep. Keith Ellison, D-Minn.
The bill passed 291-127. It now goes to the Senate, where a similar bill has been stalled for weeks.

The White House did not threaten to veto the bill. “But the administration has concerns with the bill as drafted because it includes provisions that unduly restrict access to credit for potential homebuyers and reduce re-financing opportunities for current homeowners,” the administration said in a statement.

Included in the legislation are provisions that would:
-Ban lenders from making loans that borrowers don’t have the ability to repay;
-Prohibit lenders from steering homeowners into refinanced mortgages that don’t provide any benefit and create fines of triple the broker fee and costs;
-Make Wall Street banks that package mortgage securities into investments liable for violations of lending laws;
-Prohibit excessive fees for payoff information or late payments, the financing of points and fees and practices that increase the risk of foreclosure like balloon payments and encouraging borrowers to default; and
-Create a nationwide licensing system for mortgage brokers and bank loan officers called the Nationwide Mortgage Licensing System and Registry.

Democrats and Republicans agreed the final product pleased no one.

But “we need not let the perfect get in the way of the good,” said Rep. Spencer Bachus, R-Ala. Rep. Mel Watt, D-N.C., added, “Maybe the best tribute to all of us is that we have a bill that no one is completely comfortable with.”

Republicans were particular perturbed with the idea that lenders are responsible for knowing whether borrowers can actually pay back their loans. “This kind of murky language would invite litigation from every borrower who misses a payment,” said Rep. Ed Royce, R-Calif.Also, the House has provided $200 million for foreclosure prevention counseling in the Transportation, Housing and Urban Development Appropriations conference report. The Senate must now approve the conference report.

The money will be used by nonprofit foreclosure prevention programs to counsel those who may lose their homes because of risky subprime loans.

The bill number is H.R. 3915.

By David Wessel From The Wall Street Journal Online

While we’re sorting out the big question about the subprime debacle, how to preserve the good (hard-working, bill-paying people once barred from the American dream becoming homeowners) without repeating the bad (fraud, reckless lending and fast-talking salesmen peddling mortgages to folks who simply can’t afford them), there’s an issue that can’t wait: a tidal wave of foreclosures.

Interest rates on about two million once-popular, subprime mortgages known as 2/28 or 3/27 (because the rate for the first two or three years is lower) are poised to jump in the next year. Many will rise to a range of 9.5% to 11% from 7% or 8%. That would boost a typical subprime borrower’s payment by roughly $350 a month. For many of those borrowers, that’s the difference between affordable and not.

There’s good reason to presume that someone who stops paying the mortgage will lose the house. If that rule is broken, lenders and the investors to whom they sell mortgages will grow reluctant to lend. Even in good times, though, self-interested lenders often decide they’re better off renegotiating a deal with a borrower than seizing and selling the borrower’s home. Foreclosure costs a lender as much as 40% or 50% of the unpaid balance.

And these aren’t good times.

Sure, a lot of these mortgages shouldn’t have been made. It was foolish for lenders and homeowners to bet housing prices would keep rising. But allowing millions of foreclosures to punish the imprudent isn’t smart. It’ll damage entire neighborhoods.

“It’s not like ‘repo-ing’ cars, where you can move them around,” says Richard Syron, chairman and chief executive of mortgage giant Freddie Mac. An empty house loses 20% of its value in six months, he says.

Even worse, the larger economy is at risk. Cue Federal Reserve Chairman Ben Bernanke: “A sharp increase in foreclosed properties for sale could weaken the already struggling housing market and thus, potentially, the broader economy.”

If renegotiating mortgages is really in the interest of lenders and investors, you’d think they’d be rushing to avoid foreclosures. Yet most still use a case-by-case method ill-suited to the dimensions of today’s problem. “[Mortgage] services are just used to doing things a certain way,” says Sheila Bair, chairman of the Federal Deposit Insurance Corp. “The usual course is not to modify many loans.” Turning mortgages into securities adds to the complexity.

It’s easier to persuade a bank that made a loan and held a mortgage to see the benefit of cutting a deal to avoid foreclosure than to persuade trustees for investors who hold a slice of a large collection of mortgages, particularly those with deals that require other investors to absorb losses first.

So the public-policy questions are: Who should be helped, and how?
Some folks should lose property if they can’t make payments: those who lied on applications or speculated by buying properties for investment (although tenants may deserve help). Temporarily cutting mortgage payments for those who never will be able to afford houses they bought is unwise and doomed to failure.

It’s the folks in the middle who need and deserve help from the industry and, if need be, the government: those who are making payments, would have refinanced easily if not for the housing bust and dysfunction of mortgage markets and can’t afford the reset payments.

Douglas Elmendorf, a Brookings Institution economist, argues that government “should encourage and subsidize refinancing” for households that can keep their homes “with a modest amount of help,” even though “many might not own homes today if risks had been recognized fully” when the mortgages were made.

There is a loud effort by the Bush administration to cajole the industry into moving beyond case-by-case efforts and to enlist nonprofit groups to reach out to suspicious homeowners. With more vigor and specificity than others (enough to make some officials uneasy), the FDIC’s Ms. Bair has urged the industry to extend the two- or three-year initial interest rate permanently for homeowners who are current and whose income indicates they can pay at that rate.

“Public cajoling was needed to bring more pressure to bear, and we decided to come out with a specific example of how to do it,” she explains. She says three of 10 top mortgage services are quietly doing what she suggested, although she won’t name them.

But George Miller, executive director of the American Securitization Forum, an industry group, says the FDIC plan is “neither permitted under the applicable contracts nor does it make economic sense” because “you’re likely to be granting windfalls to some borrowers.” The industry favors developing better ways to identify groups of borrowers with whom cutting new deals makes sense, but then treating each case individually.

It would be nice if all this could be handled with taxpayer money, but that’s unlikely. There’s widespread support for Mr. Bush’s proposal, now before the U.S. Congress, to relax the terms and extend the reach of the Federal Housing Authority to help about 300,000 lower-income households refinance their mortgages; currently, the FHA can’t help a homeowner who misses a payment because of a reset rate, for example.

Congress will be tempted to cut a deal with Fannie Mae and Freddie Mac to loosen government constraints on their growth in exchange for doing more to help subprime borrowers, but it’s far from clear that this is in their interest or the long-run interest of taxpayers who effectively backstop the two companies.

That leaves one bunch of unfortunate victims: Those who thought they could be homeowners, and should have been, but will be renters. As Freddie Mac’s Mr. Syron observes: “We’ve gone way, way too far in thinking you can solve the entire homeownership problem on the basis of financing.” Which raises a tantalizing prospect: Perhaps some entrepreneurial investor or nonprofit group will buy houses out of foreclosure at low prices and turn them into low-cost rentals.

Email your comments to rjeditor@dowjones.com.

MortgageNewsDaily.com; Tue, 13 Nov 2007 15:08:40 EST

No matter what you may think about Zillow, the Seattle-based real estate firm and its somewhat crazy approach to the market, credit must be given for its constant innovation.

On Tuesday it announced that it was joining 11 major newspaper publishing companies with a combined total of 282 newspapers throughout the country in a strategic partnership to extend the papers’ local classified advertising to Zillow’s online platform.

The newspaper companies joining Zillow at this point include the Hearst Newspapers; Journal Register Company; Lee Enterprises, Incorporated; Media General, Inc.; MediaNews Group, Inc.; Morris Communications Company, LLC; Paddock Publications; Pittsburgh Tribune-Review; The E.W. Scripps Company; Times-Shamrock Communications and The Day Publishing Company. These companies own or represent such major market dailies as The San Francisco Chronicle, Houston Chronicle, San Jose Mercury News, The Tampa Tribune and the St. Louis Post-Dispatch.

Advertisers in these papers, whether sellers or real estate agents, will have the option of having their listings and open house ads displayed on Zillow where, the company claims, four million people visit each month, with 70 percent either buying or selling a house at present or planning on doing so in the next one to two years.

Zillow’s visitors will see a far more comprehensive set of listings and open house details in their market while the newspapers will be able to provide their advertisers with access to Zillow’s real estate content which includes information on home values, neighborhoods, and market trends.

The parties to the consortium said they expect to roll out the features in the first half of next year and expect other newspapers to join the network before it officially begins.

Lloyd Frink, Zillow president said in a company-prepared press release, “Reading the weekend real estate section is a ritual that many enjoy and to brokers and agents, the paper is a core marketing tool. Now, the process of real estate discovery will be further integrated into the online world. We are honored that this consortium of newspaper companies has chosen Zillow as the partner to fast-track their presence in the digital real estate world. Research shows that 80 percent of home buyers use the Internet in the home-buying process. That, combined with Zillow’s audience of engaged real estate enthusiasts, creates a huge opportunity for local brokerages looking to expand their reach online.”

Speaking on behalf of the newspaper consortium, Lincoln Millstein, senior vice president of Hearst Newspapers, and Gregory P. Schermer, vice president for interactive media at Lee Enterprises, described the partnership as a significant step in the national aggregation of real estate listings online.

“The tremendous local reach of our newspapers and online sites, coupled with our strong local sales forces, provides a powerful springboard for this partnership with Zillow,” Millstein said.

And Zillow continues to grow. Despite the lack of any affiliation with multiple listing services there are now 297,977 homes listed for sale nationwide on the Zillow site and the company’s unique feature “Make Me Move,” in which homeowners virtually dare buyers to make them an offer they can’t refuse, currently features over 92,000 homes.

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By Paul Owers, South Florida, Sun-Sentinel

November 11, 2007

Three years ago, home builders held lotteries to deal with hordes of people, mostly short-term investors, overwhelming their sales centers. Today, with housing markets crashing, builders practically beg for buyers.

“During the boom, you were developing strategies to manage demand,” said Jill DiDonna, a vice president of Sunrise-based GL Homes. “Now your whole modus operandi is trying to stimulate demand. It’s come 180 degrees.”

GL has grown substantially since beginning as a small local company in 1976. At the end of 2006, GL was ranked as the 36th large