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(CNNMoney website, by Les Christie, December 23, 2013)

U.S. Postpones 2014 Hike in Mortgage Fees

 It's a Christmas miracle! Planned fee increases that would have added to the cost of millions of mortgages will be postponed.

Currently, borrowers seeking loans backed by Fannie Mae and Freddie Mac are set to pay higher upfront fees starting April 1.

The fees, ordered by the Federal Housing Finance Agency earlier this month, are meant to help safeguard banks against risky borrowers who might default.

But housing experts say they will add thousands of dollars to the cost of all mortgages insured by Fannie and Freddie, with the biggest hits taken by borrowers with less than perfect credit histories.

On Friday, the incoming chief of the FHFA, Mel Watt, said he intends to postpone the fees - and perhaps even cancel them - until more analysis is done. The FHFA oversees Fannie Mae and Freddie Mac.

Watt, a former Democratic member of Congress, has been confirmed to his post by the Senate and takes office on January 6.

In a statement, Watt said he intends to "evaluate fully the rationale" for the fees and their impact on Fannie and Freddie and the "availability of credit."

The mortgage industry has been bracing for substantial increases in the price of loans in 2014.

"If these [policies] had been implemented, it would have increased borrowing costs dramatically," said David Stevens, CEO of the Mortgage Bankers Association.

The hit for individual borrowers would depend on the amount of the home purchase being financed, according to Brian Koss, executive vice president at Massachusetts-based lender Mortgage Network.

Borrowers would have paid a fee when they took out the loan, or they could have effectively rolled the higher fees into their interest rate, raising monthly mortgage payments by as much as a quarter percentage point.

Even with the reversal, however, mortgages will probably get more expensive over the next few months anyway as the Federal Reserve cuts back on its purchases of mortgage backed securities, a program designed to keep interest rates low.

Stevens, the mortgage industry representative, said the proposed increases made little sense. Defaults on mortgages made in recent years have been much lower than on those made before the housing crash.

As a result, Fannie and Freddie are flush with profits, so much so that they have already returned almost all of their $187 billion taxpayer-funded bailout.

"The GSEs are making a lot of money," said Stevens. "There's no rationale for the increases."


(Birmingham News,, Jon Reed, November 20, 2013)


Birmingham, Alabama - Birmingham, like the rest of the United States, isn't getting any younger.

The fastest growing age group in the metro area from 2000 to 2010 was people from 45 to 64. Just in Jefferson County, that was the only age group that grew during that decade.

That trend is what University of North Carolina - Chapel Hill professor Jim Johnson calls the "silver tsunami." for the next two decades, he said, about 8,000 Baby Boomers will turn 65 every day, and that can radically transform society.

"For most of us, child care will not be the issue," he said. "It will be elder care."

Aging ones just one of the demographic forces affecting the United States Johnson discussed with a group of Birmingham leaders at the Westin Hotel Tuesday night.  The discussion, sponsored by Leadership Birmingham and the Community Foundatin of Greater Birmingham, was aimed at shedding light on the issues affecting Alabama and the rest of the United States.

Johnson, who works at UNC's Kenan-Flagler Business School, also talked about the country's growing diversity, the declining percentage of men in the workforce, and the South's rising population.

Illegal immigation, which Johnson said he gets a lot of calls about because of his focus on demographics, is often oversimplified and stereotyped, he said. A lot of illegal immigrants aren't jumping the border - they're overstaying travel visas.

"Forty to 45 percent of illegal immigrants walk through the door with papers from the federal government," he said.

These people start out in a category he called non-immigrants, people who are in the country legally and temporarily, including tourists, diplomats, students and baseball players. Those who overstay visas, though, become illegal immigrants. He said several of the 9/11 plane hijackers were those kinds of illegal immigrants, that they were in the country legally for a while first.

"If you're worried about homeland security," he said, "it's probably not the poor Mexican who just wants to work and feed his family that you have to worry about."

As for legal immigration, that's coming more and more from Latin America and Asia, Johnson said, and those immigrants are younger than the majority white population in the U.S. The resulting effect -- an influx in Hispanic and Asian populations and higher birth rates among those populations -- creates what Johnson termed the "browning of America." By 2050, he said, less than 50 percent of the U.S. population is expected to be white.

That shift is already being seen in many counties across the country where the majority of voting-age people -- many of them older -- are white and the majority of school-age children are not. In these places, he said, school districts often run into funding and support problems because older voters don't have as much of a stake in the schools.

"Kids of color in America are between a rock and a hard place and by no fault of their own," he said.

Johnson said the key way to make the future better is to make sure the next generations are successful.

"It is imperative for all of us to become actively engaged in K-12 education," he said.

Johnson also discussed the rise of women in the workforce, which he said doesn't necessarily mean women are making as much money as men or getting the same prestige. The rising percentage of working women has more to do with problems with men; skill issues, disabilities and incarceration.

In 2010, he said, more than half a million more college degrees were awarded to women than men, he said, and college completion rates for men pretty much peaked in 1977.

That also means more women are breadwinners or co-breadwinners in their households, he said. In 2007, he said, more than 63 percent of women were breadwinners or co-breadwinners, up from less than 28 percent four decades before.

As for regional migration, Johnson said the South has been the target of migration from the Northeast and the Midwest since the 1970's. The country's population is shifting to the South and West.

"The South went from the place to leave to being the place to be," he said. "The South became the cat's meow."

But those people aren't all moving to Alabama. More than 70 percent of the South's migrants are moving to Texas, Florida, Georgia, and North Carolina.

If Birmingham wants to attract those people, he said the city should look to young people who have left the area but still have roots. Aside from those people, he said areas that want to get younger and more diverse should show that they can accommodate those needs, through housing, culture and education.

"You redefine the community as a healthy, viable community that attracts all ages," he said.


JEFFERSON COUNTY HOME VALUES DROP (By Jeff Hansen, The Birmingham News, June 17, 2012)

Home values down 4th straight year as Birmingham shrinks

Home values have taken another hit in Jefferson County, dropping for the fourth straight year.

The average home slumped 3.7 percent in value, according to Birmingham News analysis of the just-completed Jefferson County property revaluations for 2012. For most homeowners, this will mean a slight drop in their property tax bill this fall. And for schools and governments, it will mean another bite out of their tax revenue in a year when money is scarce.

Hardest hit was the city of Birmingham, where average home values plunged 8.1 percent. This was closely followed by Center Point, down 6.8 percent; County Line, down 5.6 percent, and Fairfield, down 5 percent.

The only area in the county out of 39 cities and unincorporated Jefferson County to see an increase in average value was Sylvan Springs, and that appears to be related to tornado recovery, said Robert Rogers, chairman of the Jefferson County Board of Equalization and Adjustments. The Board of Equalization is the department tasked with making annual revaluations of property in the county.

This year's revaluation reflects sales between Oct. 1, 2010, and Sept. 20, 2011.

Overall, 2012 revaluation is part of a four-year drop in average home values of about 8 percent. The driver of this has been the Great Recession, which began in December 2007 and lasted for 18 months. The economy since the end of that 2007-09 recession has been sluggish.

"The older housing stock and the general reduction in people in Birmingham - reflected in both Census figures and the declining school enrollment -  seems to me why Birmingham leads the list in value reduction," said Tom Brander, author of the blog, "Market Trends: Alabama Real Estate," at

Jefferson County has more than 316,000 parcels. Of those, about 195,000 are single-family homes.

The board of equalization divides those homes into 493 residential neighborhoods that average about 395 homes apiece. To do its annual revaluation, the board then looks for comparable sales in each neighborhood to gauge where the market is. The board of equalization neighborhoods do not correspond with the political neighborhoods established by the city of Birmingham.

In this year's revaluation, about 93 percent of the homes in Jefferson County had their property values decreased by the board of equalization.

Hardest hit were 15 of the 493 neighborhoods where the average home value fell between 10.3 percent and 17 percent. In the Green Acres South neighborhood in Birmingham, for example, the average home value dropped 16.6 percent to $74,721.

An additional 34 neighborhoods saw average home values drop between 5 and 10 percent.

The board on Friday sent out this year's revaluation notices, but only to property owners who had increases in value or had the shapes of their parcels change. That mailing was fewer than 18,000 notices, which Rogers said will save the county between $80,000 and $100,000.

Any property owner who wishes to protest this year's revaluation must do so by July 15, Rogers said.

The board plans to post a searchable database of property values, as well as a link to the protest form, on its website but was still tweaking its new program on Friday.


FORECLOSURE SALES IN METRO AREA CLIMBING (By Dawn Kent, The Birmingham News, May 13, 2012)

Push is on to unload distressed properties

Home sales are rising across metro Birmingham as the summer buying season nears, but there's a shadow lurking over the market as sales of foreclosed properties are also climbing.

Already this year, sales of such properties, which drag down average prices, are up in nearly every part of the metro area compared to last year. Nationwide, the numbers of foreclosure-related sales are expected to increase in 2012 as lenders get more aggressive in unloading their distressed assets at deep discounts.

For surrounding homeowners, the impact of foreclosures depends on a variety of factors such as the number of foreclosed homes in a neighborhood and those properties' conditions.

Nationwide, according to the California-based mortgage researcher RealtyTrac, foreclosure properties sold at an average discount of 32.6 percent versus non-foreclosures in 2011. In Alabama, that number was 29 percent.

Across metro Birmingham, the average price for a home - including foreclosures and market-price sales - has fallen 13.6 percent since the local market's peak in 2006. That year, the average price was $198,340 and by last year it was $171,275. So far this year, average prices are even with last year.

So far in 2012, foreclosures are making up a substantial percentage of sales.

In the western region of the Birmingham area, which includes Bessemer, Ensley, Fairfield, Hueytown, McCalla, West End, and other neighborhoods, foreclosure sales account for 61 percent of total home sales through the first four months of this year, up from 55 percent during all of 2011, according to data from Birmingham Area Multiple Listing Service.

Even in the metro's southern region, with the affluent over-the-mountain communities and the fast-growing areas of Shelby County, foreclosure sales account for almost a quarter of all home sales so far this year, compared to 21 percent last year.

37.5 percent

Overall, there have been 1,198 foreclosure sales in metro Birmingham in this year's first quarter, or 37.5 percent of all home sales. That's up from 33.5 percent during 2011.

But foreclosure sales, as well as their impact on the market, are very local, and not all communities are seeing a lot of them, said Brian Sparks, president of the Birmingham Association of Realtors.

For instance, in Mountain Brook, foreclosure sales account for 4.5 percent of all home sales from January 2011 to March 2012, he said. In the Hoover/Ross Bridge area, that number is 14.5 percent.

"There are some hard-hit areas that are bringing that overall number up, but it's very local and you really have to look at your market," said Sparks, of Ingram & Associates.

 Additionally, Birmingha and Alabama have experienced just a fraction of the frenzied foreclosure activity - and resulting dicounted sales - that have crippled markets in Florida, Arizona, and Nevada.

But, Sparks said, foreclosed properties that are for sale do compete for buyers with non-foreclosures. They also can affect a home's appraisal, if there are a number of them in the immediate vicinity.

Data also vary based on the type of foreclosure sale.

RealtyTrac counts 3,830 foreclosure sales in Alabama during 2011, the latest data available. That's a 17.5 percent increase from the previous year that accounted for 13 percent of all home sales last year.

Nationwide, 2011 foreclosure sales totaled 907,138, droping 2 percent from the previous year. That portion comprisedx 23 percent of all U.S. home sales for the year.

RealtyTrac says the easing of mortgage servicing gridlock will help pave the way for more foreclosures to complete the process and be sold.

Another trend expected this year is the rise of short sales, when a lender agrees to sell a home for less than what is owed on the property. This type of pre-foreclosure sale could actually help to lower the number of foreclosures this year by diverting distressed properties into short sales rather than the foreclosure process, said Daren Blomquist, vice president for RealtyTrac.

While short sales still represent a distressed sale where a homeowner is lsoing their home under duress, they are a more efficient way for the market to absorb these distressed properties. The properties are sold sooner than bank-owned foreclosures, for higher average prices, and typically without having a vacant property sit in disrepair for several months.

"The impact this trend will have on the market in the short term is more short sales will continue to weigh down overall home prices, although  less than bank-owned foreclosures sales weigh down home prices," Blomquist said. "But in the long term the short sales are a necessary process that will help the market hit a reset button and get these distressed properties into the hands of homeowner who can afford them."

More sold

Through April of this year, 3,195 homes had been sold in metro Birmingham, a 17 percent increas from the first four months of 201, according to the Reators group. The year-to-date average sales price is $162,864, even with the year-ago period.

For the same time period, the average foreclosure price is $80,057, while the average non-foreclosure price is $212,348.

Local agents say they have noticed a substantial rise in activity in the market.

Birmingham area real estate analyst Tom Brander, through a partnership with the Alabama Center for Real Estate, has projected a 16.7 percent increase ini ovferall unit sales for the year, compared to 2011.

The current projections are more optimistic because of improving unemployment.

Brander, who tracks monthly sales on his blog (, says the price declines in the market are not necessarily due to foreclosure sales but because of a large inventory and buyers' drive to find a bargain.

The Birmingham market's inventory of homes has declined significantly, but it's still larger than it needs to be to achieve equilibrium.

"I think we're going to continue to see prices deteriorate at a lesser rate, but we're going to see sales volume go up," he said.

By the end of the year, he hopes to see an equilibrium in prices.

"I would expect the decline in prices to end around the end of the year," Brander said. "Prices will begin to level - that doesn't mean a recovery in prices, but we hope we won't be losing any more value."



READY TO REBOUND, by Jonathan R. Laing

After falling 34% over the past six years, U.S. home prices will soon bottom. They could turn back up by spring 2013. 

It hit with the ferocity of an Old Testament plague, wiping out large populations of homeowners in the U.S. Five million of the country's 76 million mortgage holders have lost their homes to foreclosure or lender-ordered short sales since 2006, and an estimated 14 million more owe more on their homes than their properties are currently worth. In all, some $7.4 trillion in homeowners' equity has been destroyed, according to Mark Zandi, chief economist at Moody's Analytics, and more than two million jobs in the home-building industry disappeared.

At year end 2011, the S&P/Case-Shiller Natioal U.S. Home Price Index fell to a record low, 33.8% below the boom peak level, recorded in 2006's second quarter. The descent has been all the more hideous in such once-manic markets as Las Vegas, Phoenix and Miami, which, according to the Case-Shiller 20-City Composite Index, have fallen 61%, 55%, and 51%, respectively, from their high-water marks.

Everyone has shared the pain. The negative wealth effect from the price decline both contributed to the virulence of the Great Recession and crimped the subsequent recovery. Yet as grim as these year-end readings appear to be, there are signs that the long nightmare for American homeowners is in its terminal stage, and that, maybe, just maybe, home prices will bottom and begin to turn by the spring of 2013 - if not before. Certainly, the economy is doing better these days- the sine qua non for improved demand for housing. Jobs numbers have been up sharply three months in a row, leading to a jump in consumer confidence of late.

The near-record low in mortgage rates and concomitant slide in home prices has made houses and condos stunningly affordable (although stiff underwriting standards have made getting home loans more difficult). This is captured in the National Association of Realtors Housing Affordability Index, which measures how much purchasing power a median-income family needs in order to buy a median-priced home, using conventional mortgage financing.

This measure stood at 206 in January, which meant that the typical family has more than double the income needed to purchase an average home. That reading is more than twice the 102.7 at the peak of the bubble in July 2006.

MUCH OF THE HOME-PRICE DECLINE in the past six years has been feuled by the distress sales of foreclosed properties, which typically sell at discounts of 30% or more to dwellings in the conventional sales market. Distressed sales, along with vacant houses and condos awaiting a sale, trash property values for all the other homes in the immediate area.

These forced sales have weighed heavily on overall market prices that are typically reported on a metropoolitan-area basis that includes cities, surrounding communities and exurbs, which are a good distance from downtown. Within many metropolitan statistical areas, a bifurcated market has developed in which a pricing recovery already is under way in communities and neighborhoods far from the areas still reeling from past excesses of subprime mortgages and predatory lending.

This phenomenon is showing up in the statistical service CoreLogic's Home Price Index, which nicely separates distressed from nondistressed sales. Indeed, for all of 2011, prices fell 4.7% nationally from the previous year's level. Excluding distressed sales, however, home prices dropped just 0.9%.

Of greater moment, perhaps, CoreLogic data show that nondistressed sales prices rose 0.2% month over month in December 2011 and 0.7% in January 2012. Could this be an augur of better times to come?

Absolutely, in the opinion of Karl Case, professor emeritus at Wellesley College and one of the progenitors of the Case-Shiller indexes, launched in 2002. "If you drill down in the numbers by zip code in the Boston area, as I have done, you find that more desirable, affluent neighborhoods like Back Bay and Beacon Hill are doing just fine now - while, say, Fall River is still in the dumps and dragging down the entire Boston Metro area," he asserts.

This bifurcated market is seen all across the country. While the Nob Hill neighborhood in San Francisco never saw values drop drastically and is now recovering nicely, Stockton, Calif., remains in the dumps. It's a tale of two cities elsewhere, too. The Santa Monica real-estate market is doing fine, while the desert towns to the east are still suffering. And, in the Miami environs, South Beach is strengthening; Hialeah, Fla., isn't.

Then, there are areas that have been so depressed that the only direction now seems to be up.

In fact, woebegone Detroit was the only place in the latest Case-Shiller National Index to show an annual increase for December. True, the price increase was a skimply 0.5%, but that was lots better than the 12.8% slide notched by the Atlanta area for 2011. And the only two metro areas that showed month-over-month gains in December were Miami, up 0.2%, and Phoenix, up 0.8%.

TO BE SURE, PLENTY OF headwinds remain for home sales. Unlike the stock market, home prices display much long-term momentum and inertia. Prices, all other factors being equal, tend to move in their past direction, and lenders, chastened by recent experience, remain tight with mortgage credit. Going through the home-loan application process these days is like undergoing a financial colonoscopy. In contrast, during the salad years of the housing boom, banks were shoving money at borrowers, with few questions asked.

The biggest impediment to a turn in the home market remains the so-called shadow inventory of some 3,671 million homes, according to estimates by Mark Zandi of Moody's Analytics; those that remain somewhere in the foreclosure pipeline. Payments on some are 90-plus days delinquent; others are already lender-owned properties, known as REOs (real estate owned), that haven't yet been listed for sale.



USA, 1/25/12

WASHINGTON - The Federal Reserve said Wednesday that it would leave the target for short-term rates unchanged at 0.25% and does not plan any changes until late 2014. Tuesday's statement marks a shift in the Fed's stance. Since August, the Fed has said in policy statements that it planned to keep its benchmark rate at a record low until at least mid-2013, as long as the economy remained weak.

When the Fed's policymaking meeting ended Wednesday, the Fed released a statement, which says that "the economy has been expanding moderately." But it also pointed out that "the unemployment rate remains elevated. Household spending has continued to advance, but growth in business fixed investment has slowed; and the housing sector remains depressed."

At 2 p.m. Eastern time, the Fed released for the first time its policymakers' economic projections, although their individual forecasts were not identified. The consensus of those projections mean that the Fed is downgrading its outlook for economic growth this year but is slightly more optimistic about the unemployment rate.

The Fed expects the economy to grow between 2.2% and 2.7% this year. That's down from November's forecast of between 2.5% and 2.9%. In November, the Fed forecast that the economy would grow between 2.5% and 2.9% at an annual rate in 2012, exceeding the forecasts of many private economists.

But it sees unemployment falling to as low as 8.2%, an improvement from December's 8.5%.

The Fed's revised quarterly forecast also shows that some voting policymakers wanted to extend the period of record-low interest rates beyond 2014.

The Fed also offered a firmer target for inflation - 2% - in a statement of its long-term policy goals.

During the Fed meeting, voting members saw two charts to signify the thinking on rates of each of the Fed's 17 policymakers (five Fed governors and 12 presidents of Fed regional banks). One chart illustrates how high each committee member thinks the Fed's benchmark rate will be at the end of 2012, 2013 and 2014. A second chart shows how many members think the first rate increase will occur in each year from 2012 through 2016. No one is identified by name on either chart.

The policymakers' projections explain the thinking behind the Fed's policy statement released at 12:30 p.m. Eastern time Wednesday. Releasing the projections to the public right after the policymaking meeting ends is part of a Fed drive to make its policy more transparent and its communications with the public more clear and open.

The Fed's post-meeting announcement Wednesday, as expected, did not include any new Fed actions to try to lift the economy although the Fed said it does plan to continue its program of buying and selling securities in its portfolio so that the average maturity of those securities is longer-term. Most analysts expected Fed members would put off any new steps, such as more long-term bond purchases, to see whether the economy can extend the gains it has made in recent months without any help from the Fed.

Although it's clear that the Fed is leaving  the door open to taking action if the economy weakens dramatically the next few months. This year's roster of new voting members on the Fed's policy panel suggests that fewer voters would likely have opposed further steps to boost the economy. Twice last year, Fed action to try to further lower long-term rates drew an unusual three dissenting votes out of 10. The committee is supposed to be made up of 12 members, which the seven board of governors of the Fed, the president of the New York Fed. Although dissents are not that out of the ordinary, discussion among policymaking committee members typically continues until there is unanimous agreement about what the Fed will decide to do.

The Fed already has taken numerous unorthodox steps to try to strengthen the economy. Since 2008, for example, it has kept its key rate, the federal funds rate, at a record low between zero and 0.25%. It's also bought long-term government bonds and mortgage-backed securities to try to reduce long-term rates and ease borrowing costs for consumers, homebuyers, and businesses.

The idea behind the Fed's two rounds of bond buying was to drive down rates to embolden consumers and businesses to borrow and spend more. Lower yields on bonds also encourage investors to shift money into stocks, which can boost wealth and spur spending.

Some Fed officials have resisted further bond buying for fear it raises the risk of high inflation later. And many doubt it would help much since Treasury yields are already near historic lows. The path to such a move could be easier because three regional Fed bank presidents who dissented last year from further Fed action are no longer voting members of the committee. They're being replaced by three who are seen as more likely to back additional efforts to aid the economy.

Call it the changing of the guard.

Twice last year, Fed action to try to further lower long-term interest rates drew three dissenting votes out of 10. It was the most dissents in nearly 20 years. The "no" votes came from three regional Fed bank presidents who worried that additional moves to try to reduce long-term rates could fan inflation.

A fourth regional bank president twice dissented last year for the opposite reason; He wanted to go further to help the economy. All four dissenters have lost their votes on the Fed's policymaking committee.

Replacing them are: Jeffrey Lacker, president of the Richmond regional Fed bank; John Williams of the San Francisco Fed; Sandra Pianalto of the Cleveland Fed; and Dennis Lockhart of the Atlanta Fed.

Should Bernanke pus a new bond-buying program, only Lacker is seen as a probable dissent.

Lacker is viewed as the most "hawkish" of the new voting members. Williams the most "dovish." Hawks tend tobe most concerned that super-low interest rates could ignite inflation. Doves put a higher priority on boosting the economy and reducing unemployment.

Pianalto and Lockhart are seen as centrists unlikely to break from the majority view.

Fed Chariman Ben "Bernanke will have the votes to pursue an easier credit policy if he needs to do so, but I just don't think the Fed will go further unless Europe goes bad," siad David Wyss, former chief economist at Standard & Poor's. "Things in the U.S. economy are beginning to look better - not great, but better."

Vincent Reinhart, a former Fed economist who is chief U.S. economist at Morgan Stanley, says he thinks the Fed will launch another round of bond buying in the spring. That's because he thinks the economy will slow in the current January-March quarter compared with the final months of 2011.

Some think the Fed is most likely to buy more mortgage-backed securities. Doing so could help further reduce record-low mortgage rates and help boost home sales. The weak housing market has held back the economy.

Brian Bethune, an economics professor at Dartmouth College, expects another round of bond purchases in the second half of this year. Bethune thinks the Fed will use those purchases to counter the economic drag that could result if government spending cuts start next January. Those cuts are to take effect unless Congress resolves an impasse on extending tax cuts first passed during the Bush administration.

Some private economists say the Fed would start a new bond-buying program only after it resolves an internal debate on its communications strategy - which could happen as soon as this week.

"They want to get the communications changes out there and get them understood before they do anything else," said Alan Levenson, chief economist at investment firm T. Rowe Price.



Year-ago Housing sales in 2010 were unusually slow

by Dawn Kent, News Staff Writer

Metro Birmingham home sales jumped 36 percent in July, reversing the trend of falling numbers that's been seen all year.

Sales totaled 1,001 last month, compared to 735 in July 2010, the Birmingham Association of Realtors said Wednesday.

But while the growth was significant, the celebration was muted.

That's because the year-over-year comparison is skewed by the fact that home sales in the year-ago period were unusually low.

Last year, a federal tax credit for homebuyers program expired in June, so there was a dramatic sales drop-off the following month.

Compared to June of this year, when 987 homes in the area were sold, July's home sales saw a more modest increase, at 1.4 percent.

Brian Sparks, president-elect of the Realtors' group, said July's numbers show that houses are still selling in Birmingham.

"The next few months going forward, we'll really get a better comparison," he said.

Until July, sales during every month of 2011 fell compared to the year-ago period. Much of that was due to the tax credits being in effect during the first half of 2010, inflating sales.

On a month-to-month basis, sales have risen almost every month, like they typically do as the weather gets warmer.

So far this year, metro Birmingham home sales total 5,587, trailing 2010 by 10.4 percent.

For the remainder of 2011, year-over-year sales comparisons could remain somewhat skewed because of the tax credits, which many believe pulled forward sales that would have happened later that year.

Sparks noted that interest rates remain historically low, which is a good sign for future sales. In fact, he's noticed some buyers who are focused more on rates than prices.

On Tuesday, the Federal Reserve announced it would keep its low interest rate policies in place for at least two more years, as talk of a new recession has caused more anxiety for already-wary consumers.

The move should give people considering big purchases, such as homes, more confidence about low borrowing costs.

During July, the average sold price for a home in metro Birmingham was $180,641, a 5 percent rise from a year ago, while the median sold price was $147,500, up 5.4 percent.

Meanwhile, the year-to-date average price is $173,425, up 4.4 percent over 2010, while the year-to-date median price is $142.292, even with last year.

Foreclosures continue to make up a healthy chunk of home slaes and pull down overall prices.

In July, 284 foreclosures were sold, or 28 percent of total sales. The average sold price of foreclosures was $80,262, while the average sold price of non-foreclosures was $209,804.



WHAT THE U.S. DEBT-RATING CUT MAY MEAN FOR MARKETS (Los Angeles Times, Business Section,Money & Company, August 6, 2011)

The decision by credit-rating firm Standard & Poor's late Friday to cut America's rating to AA+ from AAA has stoked fears of more turmoil in financial markets, which already are on edge over the weakening global economy.

Here's a look at what S&P's move means, and the potential effects on interest rates and across the financial markets.

What does the new rating say about the U.S. government's creditworthiness?

It's really a subtle shift. S&P says a country rated AA has "a very strong capacity to meet its financial commitments, as opposed to the "extremely strong" capacity of an AAA-rated nation.

The bottom line is that an AA-rated country's creditworthiness differs from an AAA-rated country "only to a small degree", S&P says.

What's more, by adding a "+" to the U.S. rating S&P signals more confidence in the country's finances than if the rating were AA alone.

Then why is the downgrade such a big deal?

Because it's a watershed moment many people never thought they'd see -- the credit of the most powerful country on Earth is being questioned, even if the element of doubt is minor.

The drop in the rate puts the U.S. in the same general camp as other AA-rated countries including China and Japan, (both rated AA-), along wtih Spain, Kuwait, and Slovenia (all rated AA).

Do other credit-rating firms agree with S&P?

No. Its two main rivals, Moody's Investor Service and Fitch Ratings, last week said they were keeping their U.S. ratings at a AAA for now. Both warned that a downgrade could occur if the U.S. failed to rein-in growth of its debt load, now $14.3 trillion.

How much does this downgrade have to do with Congress' recent fight over the federal debt ceiling?

That was one of the key elements S&P cited, saying the battle over the debt ceiling showed that U.S. policymaking was becoming "less stable, less effective, and less predicatble than what we previously believed."

In effect, S&P is treating the U.S. like a much smaller country prone to more political risk than would be expected of a great power.

Will S&P's new rating cause some big investors to sell their Treasury bonds, driving interest rates up?

That's possible. But analysts say relatively few investors would be forced to sell simply because the U.S. rating now is AA+ rather than AAA.

U.S. banking regulators on Friday said they would not require commercial banks to build up more capital to compensate for the lower rating on the Treasury securities they now hold as a cushion.

Also, although S&P cut its long-term debt rating for the U.S., it maintained its separate rating on short-term debt at the highest grade. That means the $2.6-trillion money market mutual fund industry wouldn't have any reason to bail out of short-term Treasury issues.

Foreign investors are a bigger question mark. Many, including China, the single largest foreign holder of U.S. Treasuries (it owns $1.2-trillion worth), have expressed growing uneasiness about soaring U.S. debt levels.

If investors dump Treasuries, where would the money go?

They don't have a lot of options if they want to keep their money in something relatively safe.

The bond markets of other countries still rated AAA- including Germany, Canada, France, Finland and Australia - are far smaller than the U.S. debt market. The appeal of the Treasuries input is their great liquidity, meaning it's easy for investors to instantly buy or sell bonds.

What's more, Europe has its own worries; The continent's government-debt crisis has worsened in recent weeks, with investors now fearing that Spain and Italy could be forced to seek European Union bailouts, following the paths of Greece, Ireland, and Portugal over the last 15 months.

Some investors are likely to run to gold, another classic haven. Gold has been streaking this year, rising 16% year to date through Friday, to $1,648.80 an ounce.

Haven't Treasury interest rates been falling lately, anyway?

Yes. Investors have been pouring cash into Treasury securities since mid-April, driving interest rates down, as global economic growth has faded. The rate on the 10-year Treasury note, a benchmark for mortgage rates and other long-term interest rates, fell as low as 2.40% last week, from 3.59% in mid-April.

Because worries about the economy have only worsened in recent weeks, many analysts believe that any jump in Treasury rates related to S&P's downgrade could quickly bring a torrent of buyers into the market, happy to snag higher yields.

"The fundamentals of U.S. and global growth are weakening and that's a fertile time to be in Treasuries" as a haven said William O'Donnell, head of Treasury-bond strategy at RBS Securities.

If Treasury rates do rise, what would the effect be on other interest rates?

Mortgage rates almost surely would rise from what are now near-record-low levels. The average 30-year home loan rate was 4.39% last week, according to mortgage giant Freddie Mac.

Likewise, other rates that key off Treasury rates - foreign bond and corporate bond yields, for example- could rise.

Many consumer loan rates, however, are pegged to banks' prime rate. That rate, in turn, is tied to the Federal Reserve's benchmark short-term rate, which remains near zero. And Fed policymakers, who will meet Tuesday are highly unlikely to be raising their rate anytime soon given the struggling economy.

Interest rates that some state and local governments pay to borrow via municipal bonds could rise even if Treasury rates don't. That's because S&P is expected to follow its U.S. downgrade with cuts in ratings of some bond issuers, particularly states that get significant amounts of federal funding.

What about the stock market?

With share prices already in steep declines worldwide over the last week on concerns about the global economy, analysts worry that S&P's move will give investors another excuse to sell riskier securities such as stocks. The Dow Jones industrial average plunged 5.8% last week, its worst weekly decline since the depts of the recession in March 2009.

Ironically, the U.S. downgrade "is more likely to lead to a sell-off in risk assets than a stampede out of Treasuries," said Mohamed El-Erian, head of money management firm Pimco in Newport Beach.

--Tom Petruno



COMPANIES ARE STILL 'ROBO-SIGNING' (by Michelle Conlin and Pallavi Gogoi, The Birmingham News, Business Section, Tuesday, July 19, 2011)

Mortgage industry employees are still signing documents they haven't read and using fake signatures more than eight months after big banks and mortgage companies promised to stop the illegal practices that led to a nationwide halt of home foreclosures.

County officials in at least three states say they have received thousands of mortgage documents  with questionable signatures since last fall. Lenders say they are working with regulators to fix the problem, but cannot explain why the practice, known collectively as "robo-signing," has continued.

Last fall the nation's largest banks and mortgage lenders, including JPMorgan Chase, Wells Fargo, Bank of America and an arm of Goldman Sachs, suspended foreclosures while they investigated how corners were cut to keep pace with the crush of foreclosure paperwork.

Critics say the new findings point to a systematic problem with the paperwork involved in home mortgages and titles. And they say it shows that banks and mortgage processors haven't acted aggressively enough to put an end to widespread document fraud in the mortgage industry.

Robo-signing is not even close to over, says Curtis Hertel, the recorder of deeds in Ingham County, Mich., which includes Lansing. It's still an epidemic.

Suspect signatures

In Essex County, Mass., the office that handles property deeds has received almost 1,300 documents since October with the signature of Linda Green, but in different handwriting styles and with many different titles.

Linda Green worked for a company called DocX that processed mortgage paperwork and was shut down in the spring of 2010. County officials say they believe Green hasn't worked in the industry since. Why her signature remains in use is not clear.

"My office is a crime scene," says John O'Brien, the registrar of deeds in Essex County, which is north of Boston and includes the city of Salem.

In Guilford County, N.C., the office that records deeds says it received 456 documents with suspect signatures from Oct. 1, 2010, thorugh June 30. The documents, mortgage assignments and certificates of satisfaction, transfer loans from one bank to another or certify a loan has been paid off.

Suspect signatures on the paperwork include 290 signed by Bryan Bly and 155 by Crystal Moore. In the mortgage investigations last fall, both admitted signing their names to mortgage documents without having read them. Neither was charged with a crime.

And in Michigan, a fraud investigagor who works on behalf of homeowners says he has uncovered documents filed this year bearing the purported signature of Marshall Isaacs, an attorney with foreclosure law firm Orlans Associates. Isaacs' name did not come up in last year's investigations, but county officials across Michigan believe his name is being robo-signed.

The nation's foreclosure machine almost came to a standstill when the nation's largest banks suspended foreclosures last fall. Part of the problem, banks contended, was that foreclosures became so rampant in 2009 and 2010 that they were overwhelmed with paperwork.

The banks reviewed thousands of foreclosure filings, and where they found problems, they submitted new paperwork to courts handling the cases, with signatures they said were valid. The banks slowly started to resume foreclosures this winter and spring.

The 14 biggest U.S. banks reached a settlement with federal regulators in April in which they promised to clean up their mistakes and pay restitution to homeowners who had been wrongly foreclosed upon. The full amount of the settlement has not been determined.

No charges so far

So far, no individuals, lenders or paperwork processors have been charged with a crime over the robo-signed signatures found on documents last year. Critics such as April Charney, a Florida homeowner and defense lawyer, called the settlement a farce because no real punishment was meted out, making it easy for lenders and mortgage processors to continue the practice of robo-signing.

Robo-signing refers to a variety of practices. It can mean a qualified executive in the mortgage industry signs a mortgage affidavit document without verifying the information. It can mean someone forges an executive's signature, or a lower-level employee signs his or her own name with a fake title. It can mean failing to comply with notary procedures. In all of these cases, robo-signing involves people signing documents and swearing in their accuracy without verifying any of the information.

Most of the tainted mortgage documents in question last fall were related to homes in foreclosure. But much of the suspect paperwork that has been filed since then is for refinancing or for new purchases by people who are in good standing in the eyes of the bank. In addition, foreclosures are down 30 percent this year from last. Home sales have also fallen. So the new suspect documents come at a time when much less paperwork is streaming through the nation's mortgage machinery.

None of the almost 1,300 suspect Linda Green-signed documents from O'Brien's office, for example, involve foreclosures. And Jeff Thigpen, the register of deeds in North Carolina's Guilford County, says fewer than 40 of the 456 suspect documents filed in his office since October involved foreclosures.

Banks and their partner firms file mortgage documents with the county deeds offices to prove that there are no liens on a property, that the bank owns a mortgage or that a bank filing for foreclosure has the authority to do so.

The signature of a qualified bank or mortgage official on these legal documents is supposed to guarantee that this information is accurate. The paper trail ensures a legal chain of title on a property and has been the backbone of U.S. property ownership for more than 300 years.

The county officials say the problem could be even worse than what they're reporting. That's because they are working off lists of known robo-signed names, such as Linda Green and Crystal Moore, that were identified during the investigation that began last fall.



If you want to buy a $300,000 house, you'll need $60,000 as a down payment to get the best interest rate on your home loan, according to a proposal released Tuesday by federal regulators.

A group of federal agencies announced a high standard for home buyers to get the best mortgage rates; Only those who can make a 20 percent down payment and have not had problems paying mortgages in the recent past would be eligible.

The regulators are trying to prevent the kinds of practices that dumped so many risky mortgages into the financial system several years ago.

But the proposal has sparked concerns from some groups, which worry that a 20 percent down payment is too onerous for many working-class borrowers. Banks also oppose the heightened down-payment requirement, which regulators had considered setting as low as 10 percent.

The proposal, which could be makde official this summer, is unlikely to make a major difference in the market for a while, because most home loans are insured by federal agencies using taxpayer dollars. Those mortgages would be exempt from the proposed requirements.

The regulatory effort comes as the Obama administration and House Republicans have made proposals to begin winding down Fannie Mae and Freddie Mac, the government-backed mortgage giants, in part by reducing the competitive advantages they have over banks. This could include requiring that the two mortgage firms begin charging higher fees. The aim would be to draw private firms back into the mortgage market, which they exited during the financial crisis.

In the years leading up to the financial cirsis, lenders could hand off loans- many of them high risk - to other companies for a fee. Without skin in the game, they could continue to make risky loans.

Officials say the new rules would correct that.

"Properly aligned economic incentives are the best check against lax underwriting," said Sheila C. Bair, chairman of the Federal Deposit Insurance Corp., which announced the beginning of the public omment period on the proposed rules.

The new standard was proposed by the FDIC and the Federal Reserve. Other regulators are expected to follow suit.

The rule, known as "risk retention," would require that mortgage lenders invest in the loans they make, so if the loans go bad, the lender would suffer. Lenders would have to accept 5 percent of the losses.

But banks would not have to retain any risk for mortgages made to borrowers who put down at least 20 percent - making the loans relatively safer. As a result, the cost to the banks would be less, and they would be able to offer lower interest rates for these loans.

Some critics say these conditions would keep eligible borrowers from getting good terms on their loans.

"If we require 20 percent down payments to get a loan, we will ensure broad swaths of working- and middle-class people will not be able to get a loan," said John Taylor, chief executive of the National Community Reinvestment Coalition, a group advocating an extension of credit to low- and moderate-income borrowers.



MARCH HOME SALES RISE (by Shobhana Chandra, April 25, (Bloomberg))

Purchases of new houses in the U.S. rose in March from a record low as the weakest industry in the economy strained to recover.

New-home sales, tabulated when contracts are signed, climbed 11.1 percent to a 300,000 annual pace, faster than forecast, figures from the Commerce Department showed today in Washington. The median estimate in a Bloomberg News survey called for a rise to 280,000. Housing prices fell from a year ago.

The market for new homes faces competition from a glut of foreclosed properties that may keep prices depressed this year, discouraging new construction. Unemployment above 8 percent and housing's struggles help explain why the Federal Reserve may announce at the end of this week's policy meeting that it plans to complete the purchase of $600 billion of Treasuries by June.

"It's a nice rebound from February but the bottom line is housing is continuing to trend sideways," said Omair Shariff, an economist at RBS Securities Inc. in Stamford, Connecticut, who correctly forecast March sales. "Builders have been doing their bit in paring inventory but the problem is they're facing competition from distressed properties, high unemployment and prices that are still falling."

Estimates in the Bloomberg survey of 68 economists ranged from 247,000 to 300,000. Sales in February were revised to a 270,000 annual rate from a 250,000 previously reported.

Stocks held earlier losses after the report and Treasuries were little changed. The Standard & Poor's 500 Index fell 0.2 percent to 1,334.69 at 10:11 a.m. in New York. The yield on the benchmark 10-year note was 3.38 percent.

Median Price

The median sales price decreased 4.9 percent from the same month last year, to $213,800, today's report showed.

Purchases rose in three of four U.S. regions last month, led by a 67 percent surge in Northeast aftera 54 percent slump a month earlier. Sales in the South were little changed at a 162,000 pace after February's 163,000.

The supply of homes at the current sales rate fell to 7.3 month's worth in March from 8.2 months. There were 183,000 new houses on the market at the end of March, the fewest since August 1967, indicating builders are reducing construction.

Previously-owned home purchases climbed 3.7 percent to a 5.1 million annual rate in March as a mounting supply of properties in or near foreclosure lured investors, a National Association of Realtors report showed April 20. All-cash deals accounted for 35 percent of the transactions, the most on record, while distressed properties including foreclosures and short sales made up 40 percent of all deals, the group said.

Existing-Home Sales

New-home sales are considered a more timely barometer than purchases of previously owned homes, which are calculated when a contract closes. Resales account for about 95 percent of the housing market so far this year.

Housing demand gyrated in 2010, reflecting a boost from a homebuyer tax incentive of as much as $8,000 that gave way to a plunge in sales by mid-2010 after the credit ended.

While sales have steadied, they have yet to strengthen, keeping builders pessimistic. The National Association of Home Builders' confidence index fell to 16 this month from 17 in March.  A reading under 50 means a majority of builders view conditions as poor.

KB Home

KB Home, the Los Angeles-based homebuilder that targets first-time buyers, reported a bigger-than-expected loss for the quarter ended Feb. 28 as orders plunged.

"A sustained, broad-based housing recovery will not occur until we start to experience material job creation," Chief Executive Officer Jeffrey Mezger said during a conference call with analysts on April 5.

An unemployment rate projected to average 8.7 percent in 2011, according to a Bloomberg survey earlier this month, may restrain demand and lead to more distressed properties. Foreclosure filings will climb about 20 percent in 2011, reaching a peak for the housing crisis, according to a forecast in January from RealtyTrac Inc., an Irvine, California-based data seller.

The housing market was either "little changed from low levels" or weaker across the country, the Fed said in its Beige Book report on April 13. The lack of a sustained housing rebound is among reasons policy makers will complete their $600 billion asset purchase plan and hold borrowing costs near zero to spur growth.

Fed central bankers conclude a two-day policy meeting on April 27. At their March 15 meeting, officials said in their statement that the "housing sector continues to be depressed."




The House Financial Services Committee, after a day-long hearing Tuesday, passed proposed legislation by a 45-19 margin that would institute sweeping reform across the mortgage banking industry.

The Mortgage Reform and Anti-Predatory Lending Act of 2007, introduced by Reps. Brad Miller (D-NC), Mel Watt (D-NC) and Barney Frank (D-MA), would establish federal licensing standards for mortgage brokers and bank loan officers, as well as introducing some liability for issues in the secondary market for mortgage-backed securities. The bill would also establish foreclosure protections for leaseholders when a property owner defaults.

From MarketWatch:

The measure won support from the committee's top Republican, Spencer Bachus of Alabama, on Monday. Bachus said it has significant safeguards against abusive lending and beefs up consumer protection.

"Whether you took out a subprime loan or not, you suffered from the subprime cirsis," Bachus said Tuesday, citing the steep decline in the housing market and the fallout in financial markets.

Members debated the bill during an all-day session on Tuesday. Rep. Jeb Hensarling, R-Texas, took exception to the bill's provision about proving a borrower's ability to pay a loan, saying consumers should be be able to choose their financial transactions.

"Who are we to say not?" asked Hensarling.

The bill now heads to the full House for a vote, and awaits Senate action. It's been suggested in the media and by sources that spke with HW that a modified form of this bill could pass the House before Thanksgiving.

The full committee markup surrounding H.R. 3915 and related proposed housing legislation is available for those that are interested.



The number of borrowers who owe more on their mortgages than their homes are worth took a huge leap in the fourth quarter of 2010. A full 27 percent of borrowers are now "underwater" on their mortgages, up from 23 percent in the previous quarter, according to a new report from Zillow. Foreclosure moratoriums and falling home prices are to blame.

Adding to a slew of negative reoprts on home prices, Zillow found home values posted their largest quarter-over-quarter decline, 2.6 percent, since the beginning of 2009. The home buyer tax credit, which inflated home prices artificially in the first half of the year, resulted in a Fall hangover. Home prices plunged 5.9 percent compared to the fourth quarter of 2009.

With foreclosure moratoriums in place due to charges of faulty paperwork at some of the nation's largest mortgage services, many homes with underwater mortgages that should have been repossessed by lenders were not, and instead boosted volume in the negative equity pool. Falling prices didn't help.

"Home value trends in the fourth quarter remained grim, but the good news is that these declines, while painful in the short-term, mean we're getting closer to the bottom," notes Zillow's chief economist, Dr. Stan Humphries.

Home prices generally lag home sales, on the way up and on the way down. Home sales have gained over the past few months, but with distressed sales, that is foreclosures or short sales, making up anywhere from 25 to 50 percent of a local market's numbers, prices will continue to be under pressure for some time.

Negative equity  is one of, if not the, primary drivers of mortgage default, but as banks ramp up reposessions, the percentage of underwater loans should fall back to previous, albeit historically high, percentages.

While local markets in Florida, California, and Arizona that suffered most from the subprime mortgage collapse continue to post high negative equity rates, other less likely candidates are climbing. Over one third of Chicago borrowers owe more than their homes are worth, and in Atlanta over half are underwater. Denver and Minneapoplis are also well over the national rate.

Negative equity not only makes it harder to sell a home, it also makes it more difficult to modify a troubled loan. Some also blame negative equity for high redefault rates on loan modifications, as some borrowers choose to walk away.


THE REAL ESTATE LOBBY IS READY TO RUMBLE (Lorraine Woellert,Bloomberg Businessweek,  February 7 - February 13, 2011)

Financiers, homebuilders, and real estate agents are uniting to s,, , ave mortgage subsidies

"We're preparing for one hell of a fight"

Barbara J. Thompson plans to put a human face on the high stakes debate over whether to preserve cherished U.S. government  subsidies for home loans. Hundreds of faces, in fact. Next month, she'll lead a legion of "everyday people" to Capitol Hill to affirm the virtues of homeownership and urge Congress not to abandon federal support for low-cost mortgages. "These are your neighbors, they're the people who teach your kids at school, they're your firefighters," says Thompson, executive director of the National Council of State Housing Agencies, whose members help provide loans to first time home buyers. "The middle working class is the bedrock of our country."

Joining Thompson's cause will be thousands of homebuilders, real estate agents, civil-rights leaders, and bankers who aim to deliver a similar message to Congress: Preserve government support for housing. Together, these groups represent what one might call, with apologies to President Dwight D. Eisenhower, a real estate-industrial complex that transcends partisan politics, geography, and socio-economic divides.

What unites them is a desire to protect a near century of grants, tax breaks, and insurance policies funneled in large part through the government-owned mortgage-finance companies Fannie Mae and Freddie Mac, which played starring roles in the U.S. housing crisis. Fannie and Freddie brought home loans from banks and sold them to global investors with an implicit government guarantee to cover losses in the event of a default. The arrangement helped foster an $11 trillion mortgage industry and supported a housing sector that overheated - and then started unraveling in 2008.

Now as lawmakers begin to overhaul the system, the housing lobby is mobilizing against its common enemy; a Republican plan to eliminate the federal government's guarantee of mortgages. "It's a coalition that's going to be very difficult for our adversaries to beat," says Jerry Howard, president and chief executive officer of the National Association of Home Builders. "We're preparing for one hell of a fight."

The group includes financiers who want to keep capital flowing on Wall Street, legions of real estate brokers and builders whose incomes depend on a robust housing market, and activists committed to the cause of shelter as a basic right. Among the ranks are some of Washington's biggest players, including the National Association of Realtors, whose members donated $3.9 million to candidates in the last election cycle, making it the nation's biggest political action committee. Then there's the American Bankers Association, another powerhouse, which spent $6.2 million on lobbying last year, according to the Center for Responsive P, , o, litics. "It's David and Goliath," says Daniel J. Mitchell, an economist at the free-market Cato Institute who favors eliminating the government guarantee. "Not all hope is lost, but I'm not brimming with optimism."

On Feb. 16, the National Fair Housing Alliance, a civil-rights coalition, will bring together the Financial Services Roundtable and the Center for American Progress, a think tank aligned with the Obama Adminstration, along with other influential players to explore areas of common interest. The mortgage guarantee will be one of them, says Deborah Goldberg, who is leading the alliance effort. "Eliminating the governmental role in the secondary market is not the fix anybody is looking for," Goldberg says.

Lax subprime lending standards and conflicts between the public's interest and obligations to shareholders helped drive Washington-based Fannie Mae and Freddie Mac, based in McLean, Va., to the brink of collapse in 2008. The U.S. Treasury Dept. took control of the companies that year and has since advanced them $151 billion in taxpayer money to keep them solvent. Fannie and Freddie spent more than $164 million on lobbying in the decade leading up to the financial collapse. They now are banned from influencing Congress.

The real estate-industrial complex is doing that for them. In fighting to preserve some level of government insurance on mortgages, housing lobbyists are defending a crucial role played by Fannie and Freddie in greasing Wall Street's securitization machine. The duo now owns or guarantees more than half of all U.S. Mortgages.

This month, Treasury Secretary Timothy Geithner will formally kick off the public debate when he presents Congress with a range of options for reducing the government's role in home financing while also encouraging Wall Street firms to take on some of the risk Administration officials call the document "a path" to fixing housing finance and are lowiering expectations that they will provide a magic bullet.

Republicans and their free market allies want the mortgage system to stand on its own, and they've targeted the government guarantee for extinction. The House Financial Services Committee plans to begin hearings on Feb. 9. "There can't be any explicit guarantee," says Representive Scott Garrett (R. - N.J.), who will have a lead role in housing legislation. "The taxpayer has been on the hook for this credit risk for a long time."

For Garrett and other Republicans, withstanding the lobbying onslaught might be difficult. Homebuilders and real estate agents in particular tend to support Republicans, according to the Center for Responsive Politics, and both groups are enlisting local business leaders and donors to make their case directly to lawmakers. "We're looking to make the arguments in a very personal way with each congressman," says Ronald Phipps, president of the National Association of Realtors. "We represent not just the 1.1 million Realtors and the 46 million consumers who have mortgages but also the 75 million homeowners in the U.S.," Phipps says.

Realtors and builders also have a simple message that resonates wtih lawmakers, says Peter J. Wallison, a former Treasury Dept. official and an architect of the Republican plan to dismantle Fannie and Freddie. That message comes down to: One wrong move, and home sales and construction could come to a halt, unsettling the economy just as it seems to be recovering from the Great Recession. Even small-government idealists, such as Tea Party conservatives, could be sympathetic to such bread and butter arguments. "They will say that without the govenrment's backing it will be very difficult for them to build homes or get financiang for mortgages," Wallison says. "We have a very, very difficult road ahead of us."


 The 2011 ECONOMIC OUTLOOK - AND WHAT IT MEANS TO YOU (Wall Street Journal Online1/5/2011, by Alan Murray)

Santa Claus arrived just in time this year, his bag filled to the brim with bipartisan goodies from the politicians in Washington. There was a new payroll tax cut for the employed, extended benefits for the unemployed, an estate-tax cut for the rich and an extension of the Bush tax cuts for all.

But anyone expecting those gifts from Washington to lift the cloud of uncertainty hanging over the U.S. economy will be disappointed. If anything, the outlook is hazier than ever.

Here's what the financial future may hold:

Economic Growth: The tax-cut bill will pump another $850 billion of stimulus into an economy that's already starting to turn the corner, raising the prospects for a decent growth in 2011 - perhaps 3%, according to some forecasters. the economy is still fragile, but the government's determination to do anything in its power to boost short-term growth is likely to pay off in the months ahead.

That's the good news. The bad news is Uncle Sam is achieving this turnaround by printing money and piling up debt. And that profligac, y carries both costs and risks. Read on.

Inflation: Don't let the gold bugs scare you on this one. In spite of the fact that the Federal Reserve is working the printing presses overtime, inflation isn't a problem - nor will it become one anytime in 2011.

But if economic growth picks up, what may happen is this: Fed officials will start to worry about the prospect of inflation in future years, and turn off the money spigot. Because monetary policy acts with long lags, they see their job as anticipating future inflation, not responding to current inflation. As former Fed Chairman William McChesney Martin once put it, they'll "take away the punch bowl just as the party gets going."

Interest Rates: This is where it starts to get interesting. As growth picks up, private-sector borrowing will start to pick up as well. And public-sector borrowing, fueled by excessive spending and the new round of tax cuts, will continue unabated. Meantime, the nation's top source of cheap credit - the Federal Reserve - will be ending its largesse. The result is likely to be a credit squeeze that pushes interest rates higher. Exactly when this will happen is hard to predict - it may or may not happen in 2011. But the foreshadowing can already be seen in the recent increases in long-term interest rates.

And keep a close eye on the nations's other major creditor - China. The Chinese government may lose its willingness to keep buying American government debt. A change in government policy or an economic hiccup on the home front could create a further squeeze in interest rates.

The Dollar: And by the way, if China shows signs of reducing its purchases of government debt, the dollar could take a nasty fall as well. To date, the dollar has been buoyed by the fact that debt problems in Europe are greater, and have more immediate consequences, than the debt problems in the U.S. (in large part because the Chinese aren't as willing to buy European debt as they are to buy American debt). That makes predicting the dollar's movements in the short term a bit difficult.

But any economics professor will tell you that over time, easy money and spiraling debt are a textbook formula for a weaker dollar. And all these trends have teh ability to become a self-reinforcing spiral. A weaker dollar could force the Fed to boost interest rates higher yet, in order to continue to attract capital from abroad.

Employment: With 3% growth, the unemployment rate shoud start to fall in 2011. But don't expect it to fall fast. For one thing, there are a lot of discouraged workers who aren't even looking for jobs anymore and, therefore, don't show up in today's unemployement statistics. But once growth starts to rise, they may re-enter the labor force, slowing any decline in joblessness.

And then there are those pesky interest rates mentioned above. As they rise, they could act like the governor on an old-fashioned steam engine, choking off growth just as it gets going. The result could be a long period - maybe years - of subpar growth and uncomfortably high unemployment rates.

Taxes: Rising interest rates could force the folks in Washington to recognize what they've been ignoring for years: Budget deficits have real consequences and can inflict serious costs on the economy. That could be a prod for bipartisan action to tackle the deficit, which almost certainly will result in higher taxes, as well as reduced spending.

But the smart money is betting that, absent another big financial crisis, that won't happen in 2011 or even in 2012. ,, neither political party is in a mood to make painful compromises ahead of the critical 2012 election, which is likely to turn into a major debate on the role of government in the economy.

Exports: OK, let's end on an optimistic note. There is a scenario that will allow the U.S. to survive the challenges enumerated above, and make it through the coming years in economic top shape.

Economists call this the "rebalancing scenario." The U.S. government starts this year to take on the budget deficit in a serious way, and puts it on a 10-year glide path to balance - easing some of the upward pressure on interest rates. China and the developing world continue to grow strongly for the next decade, but steadily shift to consumer-let growth instead of export-led growth. The dollar drifts downward, and the Chinese currency drifts upward. The Fed successfully drains the excess money and credit it has poured into the economy, avoiding both inflation and painfully high interest rates.

This scenario gives the U.S. economy an opportunity to slowly wean itself off of debt and imports. And here's the key: For this scenario to work, the U.S. economy has to sharply boost its exports. That's why President Obama has called for a doubling of exports over the next five years. It won't be easy for an economy that's been driven for decades by consumer spending and housing investment to meet that high bar. But it offers the best opportunity for strong job creation and growth.


So how should you prepare for this new and uncertain economic environment? A few simple rules seem clear:

* Pay down your debt, or lock in interest rates, early in the year, so you won't take a hit if and when interest rates start to rise. If you have an adjustable-rate mortgage, refinance to a fixed-rate mortgage. And if you've been thinking about buying a home - first or second - do it now.

* Enjoy the lower taxes in 2011, and possibly 2012, because they probably won't last much longer than that. For high earners in particular, if you can shift income into 2011 and 2012 to take advantage of those lower rates, do it. Switching from an ordinary IRA to a Roth IRA may also make sense, since the Roth IRA lets you take the tax hit now and avoid it in the future.

* Diversity your investments abroad. There's little doubt that the developing world will grow faster than the developed world over the next five years, and the dollar's value will fall. Now is the time to move money into investments in China and other parts of the developing world, if you haven't already.

* Prepare for the unknown. If the last few years have taught us anything, it's that no one can predict with certainty what's coming next.


MORTGAGES LOST IN THE CLOUD (Bloomberg Businessweek, October 18-24, 2010)

The U.S. and other Western democracies have grown wealthy over the past three centuries for a simple reason: Their citizens have been able to establish clear title to land, buildings, and other property. So argues Hernando de Soto, the Peruvian economist, in his influential 2000 book The Mystery of Capital: Why Capitalism Triumphs in the West and Fails Everywhere Else. While people in developed nations can borrow against their property and use the money to start businesses and accumulate wealth, he wrote, squatters in countries like Peru have no such option. Property rights beget prosperity.

That's why the burgeoning foreclosure mess in the U.S. strikes at the nation's economic heart. Confusion is so rife that Bank of America, the biggest mortgage lender, suspended foreclosures in all 20 states to determine whether faulty documents were used to confiscate homes. Americans took their title-recording system for granted, abused it during the housing boom, and let it deteriorate. "Somehow in the last 10 or 15 years, everything that was good record-keeping isn't telling the truth anymore," says de Soto, reached by phone while traveling in Copenhagen. "My feeling is this: Your recession is going to last. And it's going to last, because essentially the trust has broken down."

De Soto may be an alarmist, but he has correctly identified why the foreclosure mess is not a simple clerical problem. It's part of a broader breakdwon in the financial world - the one that nearly caused a depression in 2008 when banks and other financial players couldn't tell whose balance sheets were stuffed with toxic subpprime mortgage debt and whose weren't. Unable to trust one another, the big institutions pulled back from every asset except Treasury debt. At the height of the crisis, even stalwarts like AT&T couldn't borrow in the commercial paper market for durations of more than a day - meaning they were only 24 hours removed from default.

That crisis is past, but its causes aren't. Uncertainty still reigns. Its current manifestation is faintly ridiculous: Lenders can't say for sure who holds a mortgage - which means that sales can't go through. Buyers won't put down good money for a property if they aren't sure they'll get clear title to it, nor will lenders extend loans. Buyers of hundreds of billions of dollars' worth of mortgage-backed securities may have grounds to sue. That could "rock the market," says Joshua H. Rosner, managing director of Graham Fisher & Co., a research firm.

All this at a time when every imaginable bit of information - from your bank statement to your Facebook photos - seems to be stored in the cloud, ready for instant retrieval. Google "who owns my mortgage?" and you get a quarter of a million results in a quarter of a second. What the cloud can't tell you is what you really want to know, which is who actually does own your mortgage - that is, who has the power to throw you out on the street if you stop paying. The only way to verify that is to leave the cloud and dive into a recording ssytem that predates the founding of the U.S.

Titles and mortgages on real properety are officially recorded in county clerks' offices, a slow-moving, old-fashioned, deliberate world of ink, paper, and filing cabinets. The process has been perfected over a millennium, going back to the Domesday Book, the survey of English property completed in 1086 for William the Conqueror. This paper-based system, though admirably accurate and permanent, wasn't equipped for the era of rapid-fire refinancing and securitization. When over 8 million new and used homes are sold per year, as at the height of the boom, and most loans are packaged into securities, you need a lot of clerks.

The mortgage industry responded to the scale and speed of the modern housing market by creating an electronic overlay called Mortgage Electronic Registration Systems (MERS) in 1997. MERS, however, lacks the thoroughness and - more important- the legal standing fo the old system. Some judges have rejected foreclosures based on MERS when the party claiming to hold the mortgage couldn't produce the note to prove to the court's satisfaction that it was in fact the creditor. The courts want to see paper.

State and local governments could have invested in digital record-keeping systems for real estate to preserve every legally important feature of the paper method, but with the speed and accessibility of a Google or a Facebook, Why didn't they? William Raftery, a communications and research specialist at the National Center for State Courts in Williamsburg, Va., says three things got in the way: state laws, which no one bothered to amend; court precedents dating back hundreds of years that demand paper records; and inertia. Says Raftery: "Things of this nature only happen when circumstances demand it."

The private sector couldn't afford to , wait for government to catch up. hence the MERS database, a unit of MERSCorp in Reston, Va., which was founded by Fannie Mae, Freddie Mac, and the mortgage industry. The concept was to avoid the cost and delay of recording the passing of loans from one party to another by naming Mortgage Electronic Registration Systems as the mortgagee for the lifetime of the loan, regardless of how many times it changed hands and to whom.

Some judges accepted MERS' right to foreclose on a delinquent homeowner. Others didn't. Instead of untangling the confusion early on, MERS forged ahead. It's now the mortgagee for more than 60 percent of new mortgage loans.

A promissory note - i.e., a paper I.O.U. - is the only legal proof of creditorship that courts ordinarily accept. Incredibly, though, the Florida Bankers Assn. told the state Supreme Court that when its members converted to electronic records, "the physical document was deliberately eliminated to avoid confusion." Further angering judges, MERS deputized bank executives to handle foreclosures, making it unclear who the people appearing in court really worked for. In Brooklyn, state Supreme Court Justice Arthur Schack in 2009 rejected a foreclosure in which a Bank of New York exectutive identified herself as a MERS vice president. He called her "a milliner's delight, by virtue of the number of hats she wears." Ally Financial said in September that it found a "technical" deficiency at its GMAC Mortgage unit that let employees sign foreclosure documents without a notary present or with information they didn't know was true.

If the transition from paper to terabytes were unprecedented, it would be easier to give lenders a pass. but the banks behaved more straighforwardly in 2003 when they sought permission to digitize paper checks - a similar legal leap, since electronic copies had long been considered unacceptable in court. The banks lobbied Congress, which in 2003 passed the Check Clearing for the 21st Century Act. Now your monthly bank statement contains images of your checks instead of the paper, saving time and money. Because the reform was done with the blessing of Congress, there have been few problems.

MERS executives say their ssytem will overcome legal challenges. "We find it very ironic thate we're being accused of all these different wrongdoings when in fact we brought a lot of clarity to not just the industry but homeowners," says Karmela Lejarde, a MERS spokeswoman. There's some truth in what Lejarde says. This year, MERS opened its system so homeowners can find out for free online who their loan's services is and (usually, but not always) who owns the loan.

The problem is that the data in the MERS system isn't verifiable or legally binding. That recalls de Soto's insight into what made the U.S. work so well in the first place. "What characterized the rise of capitalism was that you actually created facts - statements that can be tested for truth.. Now you've got plenty of information, but you don't have facts that can be tested for truth. Can you have a prosperous market economy without knowledge of who owns what and how they're related?" We know the answer to that one -

With John Gittelsohn






BANK OF AMERICA, GMAC SAY THEY'RE READY TO RESUME FORECLOSURES (by Nelson D. Schwartz and Andrew Martin, New York Times, Oct. 19, 2010)

Bank of America Corp. said yesterday that it would resume home foreclosures in nearly two dozen states, despite the ongoing controversy over how banks handled tens of thousands of cases of homeowners facing eviction.

Bank of America, the nation's largest bank and the servicer of roughly 1 in 5 US mortgages, said it had not found a single example where a foreclosure proceeding was brought in error.

The move is likely to encourage other giant lenders to resume the foreclosure process that threatens 2 million homeowners.

Meanwhile, GMAC Mortgage, whose procedures helped prompt the controversy when one of its executives testified that he had signed 10,000 documents in a month, is also moving forward with foreclosures.

"We announced a temporary suspension of evictions and forclosure sales in the 23 judicial states several weeks ago so we could commence the appropriate review," said Gina Proia, a spokeswoman for GMAC. "As cases are being reviewed and, when needed, remediated, the foreclosure process moves forward as appropriate."

Guy Cecala of Inside Mortgage Finance, an industry publication, said: "This draws a line in the sand that the banks expect this problem will be over in relatively short order and it will be back to business as usual."

Bank of America plans to begin filing new paperwork for 102,000 foreclosures by Monday.

Consumer advocates and lawyers for homeowners expressed skepticism that Bank of America could complete a review of the paperwork so quickly. But the banking industry has come under increasing pressure from investors to resolve the problem.

Investors have fled bank stocks, worrying that the foreclosure halt would cost banks billions of dollars and further harm on the housing market.

Bank of America said it would resume foreclosures in the 23 states where judicial approval was required after an internal review turned up no evidence that cases were filed in error.

However, the company's suspension of the process will remian in effect to the 27 other states, including Massachusetts, that do not require a judge's approval to foreclose, as the bank's paperwork review proceeds state by state.  It was the only bank to initiate a nationwide freeze.

"We did a thorough review of the process, and we found the facts underlying the decision to foreclose have been accurate," said Barbara J. Desoer, president of Bank of America Home Loans.

In the other 27 states, Desoer said, she expects foreclosures to resume within weeks.

Bank of America noted that the major holders of mortgages - Fannie Mae and Freddie Mac - as well as pr, iv, ate investors had signed off on its decision.



NEW FHA LOAN GUIDELINES BEGIN OCTOBER 4, 2010  (Wall Street Journal, RIS media,


You've been hearing about it, but the day has finally arrived. Beginning today, October 4th, lenders adopted new guidelines for the origination of Federal Housing Administration loans (FHA). The new rules, in a nutshell, change the insurance premiums charged on FHA loans and that may affect your borrowers.

FHA Loans - Today

All FHA loans originated on or after October 4th with an amortization term greater than fifteen years will charge an increased annual insurance premium, of 0.85% or 0.90% of the loan amount, depending on the loan's LTV ratio. That's up from 0.50% and 0.55%, respectively. However, that increase is countered by a decrease in the upfront, one-time insurance premium from 2.25% to 1.0%. The upfront premium decrease applies to all amortizations.

How Do the New FHA Guidelines Affect Borrowers?

It will make it more difficult for some potential homebuyers to qualify for an FHA loan because an increased annual insurance premium, which is charged monthly, adds to the monthly mortgage payment. For borrowers who are already bumping up against the maximum allowable debt to income ratio, a higher mortgage payment may disqualify them for a loan. Even if they do qualify, their mortgage payment will be higher than it would have been under the old guidelines.

 Why Were Higher Premiums Necessary?

In one word... losses. FHA loans went from being a little used option when conventional and subprime mortgages were booming to becoming the most popular alternative when lenders began to require larger down payments and very good credit.

As originations exploded, so did defaults on FHA loans, and that began to deplete the reserves set aside for losses. (Although offered by lenders, FHA loans are guaranteed by the government against default, and that guarantee is funded by the insurance premiums collected from borrowers.) reported that the FHA reserves, which are mandated by Congress to be at least 2.00% of all outstanding FHA balances, dropped to a dangerous low of just 0.53%. To shore up the reserves as quickly as possible, the monthly premiums were increased.

 An Opportunity?

Real estate professionals have an opportunity to provide much-needed guidance to clients as they try to navigate all of the loan options available. In cases where an FHA loan would have been a no-brainer in the past, that may no longer be true and a conventional loan may be a better fit. By partnering with a lender that is an expert in both FHA and conventional loans and has a long history of providing mortgage lending, you will help your business as well as your customers find the best loan for their situation. Contact me today for more information and to assist your customers with these changes.