WASHINGTON (AP) — A federal mortgage rescue to help hundreds of thousands of homeowners avoid foreclosure is in limbo, with the Senate about to pass a bill that has no chance of winning House approval.
Democratic divisions over small but significant details are delaying the plan, despite keen interest by lawmakers in both parties to enact election-year help targeted to the housing crisis at the root of voters' anxiety. Complicating the picture is a White House veto threat.
The measure is expected to pass easily as early as Thursday in the Senate, where it consistently has drawn support broad enough to overcome a veto. But then it will head back where it started, to the House, where leaders have made it clear they must rewrite key portions of it before it has any chance of passage.
Odds are still good that Congress and the White House will be able to agree on a broad housing package this summer to address the mortgage meltdown that has spawned huge numbers of foreclosures throughout the country. But first, Democrats have to smooth out their own divisions on the plan.
House leaders are working to make it more palatable to conservative "Blue Dog" Democrats who complain it would swell the deficit, and lawmakers from the highest-cost housing markets, including Speaker Nancy Pelosi, D-Calif.
Some of the changes being considered could sap the GOP support that the housing rescue needs to clear Congress and be signed by President Bush.
The dilemma reflects a tricky dynamic at work on the housing package, the centerpiece of which would have the Federal Housing Administration back $300 billion in new loans to help borrowers buckling under high monthly payments refinance into safer, more affordable fixed-rate mortgages.
The legislation contains several elements Bush has demanded, including long-awaited overhauls of the FHA and Fannie Mae and Freddie Mac, which together provide huge amounts of cash flow to the home loan market by buying loans from banks. But Bush objects to some central parts, particularly $3.9 billion to buy and fix up foreclosed properties.
Democratic leaders have toiled to cut a bipartisan housing deal that Bush could accept, hoping to claim credit for addressing a chief concern among voters. In the process, though, they have had to jettison some top priorities — including affordable housing funds for states affected by Hurricane Katrina and billions of dollars for buying and rehabilitating foreclosed properties in the hardest-hit neighborhoods.
Now their divisions over the package appear to be putting the compromise at risk.
Rep. Barney Frank, D-Mass., the Financial Services Committee chairman who won House approval of his version in May, has made it clear he does not plan to accept the Senate proposal without changes. He still predicts the package could be enacted by the end of the month.
Sen. Christopher J. Dodd, D-Conn., the Banking Committee chairman, is not so sure. He said further changes could cost the bill crucial momentum.
"My hope would have been that this bill we'll send them is something the House could support — that's still my hope," said Dodd, who crafted the bill with Alabama Sen. Richard Shelby, the panel's senior Republican. "We're getting down to the time here where we may not get a bill if this thing goes on much longer."
Pelosi is working to quell a revolt by the Blue Dogs, who insist that housing tax breaks and any spending in the package must be paid for with tax increases or spending cuts to prevent an increase in the deficit.
That means rewriting a $14.5 billion array of housing tax breaks, which falls $2.4 billion of being fully offset.
It's also sparked an intense push by black lawmakers — who wanted far more money for fixing up foreclosed properties — to keep the $3.9 billion in the Senate measure in the face of the opposition from Blue Dogs and the White House.
"We're going to fight on this," said Rep. Maxine Waters, D-Calif., who made an impassioned plea for the funds in a closed-door meeting of House Democrats this week. "It's extremely important that we fight to help the communities that are being devastated in this subprime (mortgage loan) meltdown."
The Congressional Black Caucus also opposes language in the Senate bill that bars the FHA from insuring mortgages obtained by borrowers whose downpayments were paid by the seller.
Bush also is pressing to do away with seller-funded downpayment assistance, a move black leaders say would disproportionately hurt African Americans.
Steve Preston, the secretary of Housing and Urban Development, said mortgages in which the seller pays the downpayment default at rates three times higher than other home loans, exposing FHA to undue risk.
Lawmakers "know our views very strongly," he told reporters Tuesday.
The two sides are also still divided on how high to place the limits on mortgages that the FHA can insure and Fannie and Freddie may buy. The House sets the caps at about $730,000 for the highest-cost housing markets, while the Senate ceiling is $625,000. And they are battling over when the new regulations for Fannie and Freddie can take effect. The Senate would impose them immediately, while Frank and House leaders are pushing for a six-month phase-in, which would leave them to a new president.
Another House vote on the bill could provide more time for lawmakers and the White House to iron out their differences. Frank and other leaders have been in behind-the-scenes talks with Treasury Secretary Henry Paulson in hopes of finding a compromise that could prompt the White House to lift its veto threat.
Friday, July 11, 2008
Compromise bill
BOSTON - The Patrick administration and state legislators from Springfield yesterday agreed on a bill that would give the city 15 years to pay back a $52 million state loan, or three more than the governor originally proposed last month.
The bill needs approval of the state House of Representatives and the Senate to become law, and the governor would also need to sign the legislation.
Because it would further stretch out the period for retiring the loan, the plan could save the city roughly $1 million a year in payments on the loan.
The revision was made in a bill that Gov. Deval L. Patrick submitted last month to improve the operation of city government. Patrick's bill gave Springfield 12 years to pay back the state loan, a period that was upped to 15 years yesterday.
"That extra three years will give us some substantial leeway," said Rep. Sean F. Curran, D-Springfield.
Under a 2004 law that authorized the no-interest state loan and created the Springfield Finance Control Board to oversee city finances, Springfield is required to pay back the money over five years, or $10 million a year. That could mean some cuts in city services unless a bill is passed to extend the payback period.
State Reps. Cheryl A. Coakley-Rivera, Benjamin Swan and Angelo J. Puppolo Jr., all Springfield Democrats, joined Curran yesterday in spelling out some changes to Patrick's legislation.
They said they negotiated the changes in private with David E. Sullivan, lawyer for the state Executive Office of Administration and Finance.
"This is a better bill clearly for the citizens of Springfield," Coakley-Rivera said.
Legislators had originally wanted to give the city 20 years to repay the loan.
The bill needs approval of the state House of Representatives and the Senate to become law, and the governor would also need to sign the legislation.
Because it would further stretch out the period for retiring the loan, the plan could save the city roughly $1 million a year in payments on the loan.
The revision was made in a bill that Gov. Deval L. Patrick submitted last month to improve the operation of city government. Patrick's bill gave Springfield 12 years to pay back the state loan, a period that was upped to 15 years yesterday.
"That extra three years will give us some substantial leeway," said Rep. Sean F. Curran, D-Springfield.
Under a 2004 law that authorized the no-interest state loan and created the Springfield Finance Control Board to oversee city finances, Springfield is required to pay back the money over five years, or $10 million a year. That could mean some cuts in city services unless a bill is passed to extend the payback period.
State Reps. Cheryl A. Coakley-Rivera, Benjamin Swan and Angelo J. Puppolo Jr., all Springfield Democrats, joined Curran yesterday in spelling out some changes to Patrick's legislation.
They said they negotiated the changes in private with David E. Sullivan, lawyer for the state Executive Office of Administration and Finance.
"This is a better bill clearly for the citizens of Springfield," Coakley-Rivera said.
Legislators had originally wanted to give the city 20 years to repay the loan.
Thursday, July 10, 2008
Financial Regulation
Federal officials are converging in support of a sweeping overhaul of financial regulation, making it likely that Wall Street investment banks and other major financial institutions will be subject to a tighter government grip.
Regulators and lawmakers differ on key details about how to move forward, but the impetus for an overhaul appears firmly entrenched, putting it high on the list for action by Congress next year.
At a House Financial Services Committee hearing Thursday, Treasury Secretary Henry Paulson and Federal Reserve Chairman Ben Bernanke agreed that regulators need new tools to deal with financial crises and stronger oversight authority ...
Regulators and lawmakers differ on key details about how to move forward, but the impetus for an overhaul appears firmly entrenched, putting it high on the list for action by Congress next year.
At a House Financial Services Committee hearing Thursday, Treasury Secretary Henry Paulson and Federal Reserve Chairman Ben Bernanke agreed that regulators need new tools to deal with financial crises and stronger oversight authority ...
Senate poised to pass housing bill
NEW YORK (CNNMoney.com) -- The saga still isn't over, but after months of debate on Capitol Hill, the Senate seemed poised Thursday to finally pass a comprehensive housing and foreclosure prevention bill this week.
The measure, which would create a new government-backed foreclosure prevention program and strengthen oversight of Fannie Mae and Freddie Mac, still faces a likely final debate in the House.
The House passed a version of the bill in May and is expected to try to amend some Senate provisions to bring them closer in line with its bill. Any changes will need to be considered by the Senate.
That likely back-and-forth makes it uncertain when lawmakers will be able to send final legislation to President Bush for his consideration. Final passage of a package has been delayed for close to two months due to substantive disagreements as well as countless procedural delays.
On the Senate floor Thursday, one of the lead authors of the bill, Senate Banking Committee Chairman Christopher Dodd, D-Conn., lamented how long it has taken to move the bill through. "Candidly, we can't wait any longer."
Dodd cited the latest foreclosure data, released Thursday, showing 250,000 new foreclosure filings in June, up 53% from a year earlier.
"A lot of us hoped the market would take care of all of this and there would be light at the end of the tunnel," Dodd said. "[But now] the only light at the end of the tunnel is a train coming."
The omnibus housing package attempts to address the housing crisis in several ways. Among them is providing more relief for some borrowers facing foreclosure; increasing access to mortgages in higher-cost areas; modernizing the loan guidelines for the Federal Housing Administration (FHA); and more stringently regulating Fannie and Freddie, the government-sponsored enterprises that have taken a beating this week amidst concern over how well funded they are.
FHA role expansion. Under the Senate bill, the FHA could insure up to $300 billion in new 30-year fixed rate mortgages for at-risk borrowers if their lenders agree to write down their loan balances to 90% of the current appraised value of their homes.
Lenders would also agree to pay upfront fees to the FHA equal to 3% of a home's appraised value. Borrowers must agree to pay an annual premium to the FHA equal to 1.5% of their new loan balance and they must also agree to share with the government any profit they realize from selling or refinancing their home.
The cost of the new FHA program - which will only be in place for a few years - would be funded by fees from Fannie and Freddie. Thereafter those fees would finance an affordable housing trust fund also created by the bill. The House version of the bill calls for those fees to be used solely for affordable housing.
Create a new regulator for Fannie and Freddie. The GSEs, which grease the wheels of the housing market by guaranteeing the purchase and trade of mortgages, will get a new regulator under the bill. That regulator, among other things, will have a greater say over how well funded the agencies are - a major concern in the markets that has sent stocks in both companies plunging.
"We know they play a central role in our housing. We also know that together they owe over $5 trillion in debt, and they're thinly capitalized. The way to keep them [from getting into worse shape] is to create a strong regulator to make sure they're adequately capitalized," Sen. Richard Shelby, R-Ala., another key architect of the bill, said Thursday on the Senate floor.
While the Senate bill calls for the appointment of a new regulator to be made immediately, House Democrats want the appointment to be made 6 months from the date of enactment.
Raise conforming loan limits. The bill would permanently increase the cap on the size of mortgages guaranteed by Fannie and Freddie to $625,000 from $417,000. The FHA maximum loan limits for high-cost areas would also increase to $625,000. The House bill raises the limit at all three agencies to nearly $730,000.
Higher loan limits will make it easier for borrowers to get mortgages, because they're more likely to be traded if they are considered conforming.
Update FHA rules. The bill would update a number of rules for FHA loans. Among them, it would increase to 3.5% from 3% the down payment requirement for borrowers in FHA loans. And it would eliminate a program that has allowed sellers to provide down payment assistance.
The House bill had contained a modified form of the down payment assistance program.
The seller-funded program is largely the reason why the agency's reserve has fallen by $4.6 billion, according to congressional testimony of FHA Commissioner Brian Montgomery. Currently, that reserve is roughly $16.4 billion.
Provide housing-related tax credits. The Senate bill includes more than $14 billion in tax credits. One is an $8,000 tax refund for first-time home buyers. The refund, however, serves more as an interest-free loan, since it would have to be paid back over 15 years by the buyer.
Help states buy foreclosed properties. Despite a White House veto threat, the Senate bill still contains a provision that would provide states with $4 billion to buy and fix up foreclosed properties.
The House is expected to debate whether or not the provision should stay and also whether it should be paid for by raising an equal amount of revenue elsewhere. If not, it could be considered emergency spending, in which case lawmakers would not have to compensate for the cost of the provision.
The measure, which would create a new government-backed foreclosure prevention program and strengthen oversight of Fannie Mae and Freddie Mac, still faces a likely final debate in the House.
The House passed a version of the bill in May and is expected to try to amend some Senate provisions to bring them closer in line with its bill. Any changes will need to be considered by the Senate.
That likely back-and-forth makes it uncertain when lawmakers will be able to send final legislation to President Bush for his consideration. Final passage of a package has been delayed for close to two months due to substantive disagreements as well as countless procedural delays.
On the Senate floor Thursday, one of the lead authors of the bill, Senate Banking Committee Chairman Christopher Dodd, D-Conn., lamented how long it has taken to move the bill through. "Candidly, we can't wait any longer."
Dodd cited the latest foreclosure data, released Thursday, showing 250,000 new foreclosure filings in June, up 53% from a year earlier.
"A lot of us hoped the market would take care of all of this and there would be light at the end of the tunnel," Dodd said. "[But now] the only light at the end of the tunnel is a train coming."
The omnibus housing package attempts to address the housing crisis in several ways. Among them is providing more relief for some borrowers facing foreclosure; increasing access to mortgages in higher-cost areas; modernizing the loan guidelines for the Federal Housing Administration (FHA); and more stringently regulating Fannie and Freddie, the government-sponsored enterprises that have taken a beating this week amidst concern over how well funded they are.
FHA role expansion. Under the Senate bill, the FHA could insure up to $300 billion in new 30-year fixed rate mortgages for at-risk borrowers if their lenders agree to write down their loan balances to 90% of the current appraised value of their homes.
Lenders would also agree to pay upfront fees to the FHA equal to 3% of a home's appraised value. Borrowers must agree to pay an annual premium to the FHA equal to 1.5% of their new loan balance and they must also agree to share with the government any profit they realize from selling or refinancing their home.
The cost of the new FHA program - which will only be in place for a few years - would be funded by fees from Fannie and Freddie. Thereafter those fees would finance an affordable housing trust fund also created by the bill. The House version of the bill calls for those fees to be used solely for affordable housing.
Create a new regulator for Fannie and Freddie. The GSEs, which grease the wheels of the housing market by guaranteeing the purchase and trade of mortgages, will get a new regulator under the bill. That regulator, among other things, will have a greater say over how well funded the agencies are - a major concern in the markets that has sent stocks in both companies plunging.
"We know they play a central role in our housing. We also know that together they owe over $5 trillion in debt, and they're thinly capitalized. The way to keep them [from getting into worse shape] is to create a strong regulator to make sure they're adequately capitalized," Sen. Richard Shelby, R-Ala., another key architect of the bill, said Thursday on the Senate floor.
While the Senate bill calls for the appointment of a new regulator to be made immediately, House Democrats want the appointment to be made 6 months from the date of enactment.
Raise conforming loan limits. The bill would permanently increase the cap on the size of mortgages guaranteed by Fannie and Freddie to $625,000 from $417,000. The FHA maximum loan limits for high-cost areas would also increase to $625,000. The House bill raises the limit at all three agencies to nearly $730,000.
Higher loan limits will make it easier for borrowers to get mortgages, because they're more likely to be traded if they are considered conforming.
Update FHA rules. The bill would update a number of rules for FHA loans. Among them, it would increase to 3.5% from 3% the down payment requirement for borrowers in FHA loans. And it would eliminate a program that has allowed sellers to provide down payment assistance.
The House bill had contained a modified form of the down payment assistance program.
The seller-funded program is largely the reason why the agency's reserve has fallen by $4.6 billion, according to congressional testimony of FHA Commissioner Brian Montgomery. Currently, that reserve is roughly $16.4 billion.
Provide housing-related tax credits. The Senate bill includes more than $14 billion in tax credits. One is an $8,000 tax refund for first-time home buyers. The refund, however, serves more as an interest-free loan, since it would have to be paid back over 15 years by the buyer.
Help states buy foreclosed properties. Despite a White House veto threat, the Senate bill still contains a provision that would provide states with $4 billion to buy and fix up foreclosed properties.
The House is expected to debate whether or not the provision should stay and also whether it should be paid for by raising an equal amount of revenue elsewhere. If not, it could be considered emergency spending, in which case lawmakers would not have to compensate for the cost of the provision.
Wednesday, June 4, 2008
Beverly Hills Home
Ed McMahon, the longtime sidekick to television star Johnny Carson, faces the possible loss of his Beverly Hills home to a foreclosure action initiated by a unit of Countrywide Financial Corp.
Howard Bragman, a spokesman for Mr. McMahon, said late Tuesday that his client is having "very fruitful discussions" with the lender and hopes to find a resolution. It isn't clear whether that would allow the 85-year-old Mr. McMahon and his wife, Pamela, to remain in the six-bedroom home.a Countrywide spokeswoman said the lender couldn't comment in such cases "due to privacy issues."
Mr. McMahon, a jovial fixture of American television for decades, is one of the most prominent people caught up in a wave of mortgage defaults that has devastated low-income areas, suburbia and even a few posh gated communities, such as the one where the McMahons live. U.S. Rep. Laura Richardson, a California Democrat, recently lost a home in Sacramento to a foreclosure. Rep. Richardson didn't respond to requests for comment.
ReconTrust, a unit of mortgage lender Countrywide Financial, on Feb. 28 filed a notice of default on a $4.8 million Countrywide loan backed by Mr. McMahon's home. The notice was filed with the Los Angeles County Recorder's Office but hasn't previously come to light. According to the filing, Mr. McMahon was then about $644,000 in arrears on the loan. It isn't clear whether Countrywide still owns the loan or is acting on behalf of investors who acquired it. Public records also show that Mr. McMahon had a separate home-equity line of credit from Countrywide of up to $300,000 secured by the same house.
Mr. McMahon's home has been on the market for about two years, his real-estate agent Alex Davis said. Mr. Davis said the price had been reduced, but he couldn't immediately provide details. The Christie's Great Estates Web site, which includes homes listed by Mr. Davis, lists the asking price at $5.75 million and says it has a canyon view and a master-bedroom suite with his and her bathrooms.Mr. McMahon broke his neck in a fall about 18 months ago and hasn't been able to work, Mr. Bragman said. That health problem, along with the weak housing market and economy, has forced Mr. McMahon into foreclosure proceedings, Mr. Bragman said.
The McMahons "understand that they are in the same situation as hundreds of thousands of other hard-working Americans, and their hearts go out to them," Mr. Bragman said.
It isn't inevitable that the McMahons will lose their home to foreclosure. Lenders often ease terms on loans or provide more time for borrowers to catch up. Lenders also sometimes agree to accept less than the full amount due on the loan if the borrower can find a buyer for the home.
Howard Bragman, a spokesman for Mr. McMahon, said late Tuesday that his client is having "very fruitful discussions" with the lender and hopes to find a resolution. It isn't clear whether that would allow the 85-year-old Mr. McMahon and his wife, Pamela, to remain in the six-bedroom home.a Countrywide spokeswoman said the lender couldn't comment in such cases "due to privacy issues."
Mr. McMahon, a jovial fixture of American television for decades, is one of the most prominent people caught up in a wave of mortgage defaults that has devastated low-income areas, suburbia and even a few posh gated communities, such as the one where the McMahons live. U.S. Rep. Laura Richardson, a California Democrat, recently lost a home in Sacramento to a foreclosure. Rep. Richardson didn't respond to requests for comment.
ReconTrust, a unit of mortgage lender Countrywide Financial, on Feb. 28 filed a notice of default on a $4.8 million Countrywide loan backed by Mr. McMahon's home. The notice was filed with the Los Angeles County Recorder's Office but hasn't previously come to light. According to the filing, Mr. McMahon was then about $644,000 in arrears on the loan. It isn't clear whether Countrywide still owns the loan or is acting on behalf of investors who acquired it. Public records also show that Mr. McMahon had a separate home-equity line of credit from Countrywide of up to $300,000 secured by the same house.
Mr. McMahon's home has been on the market for about two years, his real-estate agent Alex Davis said. Mr. Davis said the price had been reduced, but he couldn't immediately provide details. The Christie's Great Estates Web site, which includes homes listed by Mr. Davis, lists the asking price at $5.75 million and says it has a canyon view and a master-bedroom suite with his and her bathrooms.Mr. McMahon broke his neck in a fall about 18 months ago and hasn't been able to work, Mr. Bragman said. That health problem, along with the weak housing market and economy, has forced Mr. McMahon into foreclosure proceedings, Mr. Bragman said.
The McMahons "understand that they are in the same situation as hundreds of thousands of other hard-working Americans, and their hearts go out to them," Mr. Bragman said.
It isn't inevitable that the McMahons will lose their home to foreclosure. Lenders often ease terms on loans or provide more time for borrowers to catch up. Lenders also sometimes agree to accept less than the full amount due on the loan if the borrower can find a buyer for the home.
Bunbury home loan
BUNBURY has the 20th worst postcode for missed mortgage payments in Western Australia and sits just below the national average.
Meanwhile, there are about 2,500 homes up for sale with some being sold for about $100,000 less than the price owners paid for them in the past two years.
Of all mortgages that share the postcode of 6230, there are 1.7 per cent who are more than 30 days in arrears wiht lenders.
WA remains the best performing state for making repayments on time.
But it experienced the most rapid decline in the past six months.
The Fitch Report said mortgage stress has become too high in a State where property prices have fallen.Its authors said borrowers are trapped and unable to sell their property to repay loans.The Real Estate Institute of Western Australia has predicted failed mortgages would only increase in Bunbury, most likely in middle income households, but the worst impact was not being felt.
“What we’re seeing is less forced mortgage sales than what we’d expect because people are getting them on the market and selling them beforehand,” REIWA Bunbury chairwoman Roslyn Ierace said.
Ms Ierace said she saw a house sold for almost $90,000 less than the price the owners had bought it for and valued another for close to $100,000 below what it cost to build.She said the Bunbury property market had an almost record number of listings but it was beginning to strengthen after months of falling prices.
“The biggest thing is that we’ve hit rock bottom with our prices. Bunbury’s sales in the past few months have been the best in the past two years,” she said.
A survey of almost one million Australian mortgages by Fitch Ratings found 1.88 per cent were at least 30 days in arrears, up from 1.56 per cent six months earlier.
Only postcodes which have more that $100 million worth of mortgages were included in the report.
Meanwhile, there are about 2,500 homes up for sale with some being sold for about $100,000 less than the price owners paid for them in the past two years.
Of all mortgages that share the postcode of 6230, there are 1.7 per cent who are more than 30 days in arrears wiht lenders.
WA remains the best performing state for making repayments on time.
But it experienced the most rapid decline in the past six months.
The Fitch Report said mortgage stress has become too high in a State where property prices have fallen.Its authors said borrowers are trapped and unable to sell their property to repay loans.The Real Estate Institute of Western Australia has predicted failed mortgages would only increase in Bunbury, most likely in middle income households, but the worst impact was not being felt.
“What we’re seeing is less forced mortgage sales than what we’d expect because people are getting them on the market and selling them beforehand,” REIWA Bunbury chairwoman Roslyn Ierace said.
Ms Ierace said she saw a house sold for almost $90,000 less than the price the owners had bought it for and valued another for close to $100,000 below what it cost to build.She said the Bunbury property market had an almost record number of listings but it was beginning to strengthen after months of falling prices.
“The biggest thing is that we’ve hit rock bottom with our prices. Bunbury’s sales in the past few months have been the best in the past two years,” she said.
A survey of almost one million Australian mortgages by Fitch Ratings found 1.88 per cent were at least 30 days in arrears, up from 1.56 per cent six months earlier.
Only postcodes which have more that $100 million worth of mortgages were included in the report.
Ed McMahon's home faces foreclosure
The foreclosure problems sweeping the United States apparently have ensnared Ed McMahon, who is best known as Johnny Carson's sidekick on "The Tonight Show."
The Wall Street Journal reported Tuesday that McMahon was $644,000 in arrears on a $4.8 million loan for a home in Beverly Hills, California.
McMahon's spokesman, Howard Bragman, confirmed to CNN late Tuesday that McMahon is in discussions with his lender and hopes to find a resolution.
The newspaper reported that ReconTrust, a division of Countrywide Financial, filed a notice of default related to a loan for McMahon's house in Los Angeles County Recorder's Court on Feb. 28. It said his house has been on the market for about two years.
Nationally, one of every 194 U.S. households received a foreclosure filing in the first three months of 2008, according to recent figures from RealtyTrac.
There were nearly 650,000 foreclosure filings -- which include notices of default, auction sales and bank repossessions -- issued during the first quarter of 2008. That's up 23 percent from the last quarter of 2007, and up a staggering 112 percent from the same period a year ago.
Foreclosures increased in 46 states and in 90 of the nation's 100 largest metro areas.
More than 156,000 families have lost their homes to bank repossessions this year.
The Wall Street Journal reported Tuesday that McMahon was $644,000 in arrears on a $4.8 million loan for a home in Beverly Hills, California.
McMahon's spokesman, Howard Bragman, confirmed to CNN late Tuesday that McMahon is in discussions with his lender and hopes to find a resolution.
The newspaper reported that ReconTrust, a division of Countrywide Financial, filed a notice of default related to a loan for McMahon's house in Los Angeles County Recorder's Court on Feb. 28. It said his house has been on the market for about two years.
Nationally, one of every 194 U.S. households received a foreclosure filing in the first three months of 2008, according to recent figures from RealtyTrac.
There were nearly 650,000 foreclosure filings -- which include notices of default, auction sales and bank repossessions -- issued during the first quarter of 2008. That's up 23 percent from the last quarter of 2007, and up a staggering 112 percent from the same period a year ago.
Foreclosures increased in 46 states and in 90 of the nation's 100 largest metro areas.
More than 156,000 families have lost their homes to bank repossessions this year.
Saturday, May 17, 2008
House of Taylor
According to a U.S. Securities and Exchange Commission filing, House of Taylor Jewelry has received a notice of default on a $3.95 million loan from its senior lender, New Stream Secured Capital.
According to reported excerpts from a letter written by New Stream Capital, which entered a loan agreement with House of Taylor in October 2007, the jewelry manufacturer failed to meet its minimum financial obligations for the periods ending on Dec. 31, 2007, and March 31, 2008.National Jeweler reports that the letter stated: "While we have previously supported and continued to support the borrower's attempts to liquidate its inventory in order to repay the lender, the sending of this letter should not be construed to limit the right of lender to act without further notice to borrower in accordance with the terms of the loan agreement and the other financing agreements and applicable law." House of Taylor's common stock was delisted from the Nasdaq Stock Market Inc. from April 24 due to its failure to pay the listing fees and its delayed filing of its annual report.
According to reported excerpts from a letter written by New Stream Capital, which entered a loan agreement with House of Taylor in October 2007, the jewelry manufacturer failed to meet its minimum financial obligations for the periods ending on Dec. 31, 2007, and March 31, 2008.National Jeweler reports that the letter stated: "While we have previously supported and continued to support the borrower's attempts to liquidate its inventory in order to repay the lender, the sending of this letter should not be construed to limit the right of lender to act without further notice to borrower in accordance with the terms of the loan agreement and the other financing agreements and applicable law." House of Taylor's common stock was delisted from the Nasdaq Stock Market Inc. from April 24 due to its failure to pay the listing fees and its delayed filing of its annual report.
Benefits for N.J.
WASHINGTON — Two House-passed measures aimed at defusing the nation's real-estate crisis would help New Jersey homeowners and the state's housing market stabilize, supporters say.
But they have powerful opponents including President Bush, who has threatened to veto one of the measures. Both pieces of legislation, which passed Thursday, await consideration in the Senate.
Both are intended to help homeowners facing foreclosure and communities dotted with abandoned foreclosed homes.
The package contains a provision sponsored by Rep. Rush Holt, D-N.J., creating a new property tax deduction of $350 to $700 for those who don't itemize on their federal tax returns — a potential boost for New Jerseyans, who pay the highest property taxes in the country.
Jarrod Grasso, executive vice president of the New Jersey Association of Realtors, said in a telephone interview from his Edison office Friday that the Northeast has been spared the brunt of the real-estate woes other states like Florida, California and Nevada are facing.
But New Jerseyans looking to buy homes are finding that the days of no-money-down loans and easy credit are long gone.
Grasso said the House-passed measures — which he lobbied the New Jersey congressional delegation to support during a visit to Capitol Hill last month — would help homeowners facing foreclosure and simultaneously reduce the inventory of unsold homes.
He singled out one House-approved bill that would give first-time homebuyers a $7,500 tax credit to deplete existing inventories.
"This is going to help people get into the market. If there's one message I'd like to pass on to our U.S. senators, it's this: We need . . . this legislation," said Grasso, whose industry would profit if there's a sudden surge in buyers.
Both measures passed the House on mostly party-line votes with Democrats arguing that the mortgage crisis warranted federal assistance. Republican opponents called the legislation a bailout for lenders who made risky loans and said helping some homeowners was unfair to the majority who pay their mortgages on time.
One measure, which passed 239-188, authorizes $15 billion in loans and grants to states to buy up and redevelop foreclosed homes that have been abandoned. Eleven Republicans voted yes and one Democrat voted against it. New Jersey's seven Democrats votes yes and six Republicans voted no.
The other would provide $300 billion in loan guarantees through the Federal Housing Administration so families at risk of foreclosure could refinance their mortgages. It passed 266-154, with 39 Republicans voting for the bill, including Rep. Chris Smith, R-Hamilton. New Jersey Democrats voted yes and the other five Republicans voted no.
Grasso said increasing FHA's loan limits would help New Jersey homeowners to get fixed-rate, low-interest loans with a down payment of 3 percent. These loans are aimed at homeowners who plan to buy houses to live in, not speculators.
This is the bill Bush threatened to veto.
"We are committed to a good housing bill that will help folks stay in their house, as opposed to a housing bill that will reward speculators and lenders," Bush said in announcing his veto and urging Congress to support a Republican alternative co-sponsored by Rep. Rodney Frelinghuysen, R-N.J., among others.
Rep. Rob Andrews, D-N.J., who called Bush's veto threat "dumbfounding," said in an interview the House-passed measures are a good first step. What Congress should do next is spur private companies' confidence in the real estate market.
He said that could be achieved by lifting limits on how much money government-sponsored Fannie Mae and rival Freddie Mac provide to mortgage companies.
New Jerseyans "are seeking some help," said Andrews, who sponsored a different housing bill Bush recently signed into law. "There is a town in Burlington County where I am told nearly a fifth of the properties are in foreclosure. People are seeking some commonsense relief."
But they have powerful opponents including President Bush, who has threatened to veto one of the measures. Both pieces of legislation, which passed Thursday, await consideration in the Senate.
Both are intended to help homeowners facing foreclosure and communities dotted with abandoned foreclosed homes.
The package contains a provision sponsored by Rep. Rush Holt, D-N.J., creating a new property tax deduction of $350 to $700 for those who don't itemize on their federal tax returns — a potential boost for New Jerseyans, who pay the highest property taxes in the country.
Jarrod Grasso, executive vice president of the New Jersey Association of Realtors, said in a telephone interview from his Edison office Friday that the Northeast has been spared the brunt of the real-estate woes other states like Florida, California and Nevada are facing.
But New Jerseyans looking to buy homes are finding that the days of no-money-down loans and easy credit are long gone.
Grasso said the House-passed measures — which he lobbied the New Jersey congressional delegation to support during a visit to Capitol Hill last month — would help homeowners facing foreclosure and simultaneously reduce the inventory of unsold homes.
He singled out one House-approved bill that would give first-time homebuyers a $7,500 tax credit to deplete existing inventories.
"This is going to help people get into the market. If there's one message I'd like to pass on to our U.S. senators, it's this: We need . . . this legislation," said Grasso, whose industry would profit if there's a sudden surge in buyers.
Both measures passed the House on mostly party-line votes with Democrats arguing that the mortgage crisis warranted federal assistance. Republican opponents called the legislation a bailout for lenders who made risky loans and said helping some homeowners was unfair to the majority who pay their mortgages on time.
One measure, which passed 239-188, authorizes $15 billion in loans and grants to states to buy up and redevelop foreclosed homes that have been abandoned. Eleven Republicans voted yes and one Democrat voted against it. New Jersey's seven Democrats votes yes and six Republicans voted no.
The other would provide $300 billion in loan guarantees through the Federal Housing Administration so families at risk of foreclosure could refinance their mortgages. It passed 266-154, with 39 Republicans voting for the bill, including Rep. Chris Smith, R-Hamilton. New Jersey Democrats voted yes and the other five Republicans voted no.
Grasso said increasing FHA's loan limits would help New Jersey homeowners to get fixed-rate, low-interest loans with a down payment of 3 percent. These loans are aimed at homeowners who plan to buy houses to live in, not speculators.
This is the bill Bush threatened to veto.
"We are committed to a good housing bill that will help folks stay in their house, as opposed to a housing bill that will reward speculators and lenders," Bush said in announcing his veto and urging Congress to support a Republican alternative co-sponsored by Rep. Rodney Frelinghuysen, R-N.J., among others.
Rep. Rob Andrews, D-N.J., who called Bush's veto threat "dumbfounding," said in an interview the House-passed measures are a good first step. What Congress should do next is spur private companies' confidence in the real estate market.
He said that could be achieved by lifting limits on how much money government-sponsored Fannie Mae and rival Freddie Mac provide to mortgage companies.
New Jerseyans "are seeking some help," said Andrews, who sponsored a different housing bill Bush recently signed into law. "There is a town in Burlington County where I am told nearly a fifth of the properties are in foreclosure. People are seeking some commonsense relief."
Realty investments
Did you put money in real estate during the past year or so with the express objective of gaining through capital appreciation? If yes, depending on a number of factors, you might have a bit of a problem on your hands. For, over the past year, the gains have tapered off.
The decision
The extent of the problem depends partly on your investing horizon. If you had taken a long view and plan to hold it for a decade or so, there is nothing to worry about. While there may be a few ups and downs, returns from real estate have been next only to stocks in the long term.
If, however, you were looking to sell off your property within a year or two and earn some capital gains, that plan may need some tweaking. As mortgages and prices continued their upward journey, since around the middle of last year, end-use buyers started staying away in larger numbers. Merrill Lynch, for instance, estimates that sales volumes in the NCR are down 50-70 per cent from last year.
Whither prices? Prices, too, have softened in areas of high speculative interest as property got priced out of the market. Smart investors like Delhi NCR lawyer Dheeraj Seth, 31, sold his Gurgaon house when real estate was still hot and parked the proceeds in another property that is under development.
In January 2008, the stockmarket tanked, pulling down sentiments, and real estate in its wake. Experts say prices will climb 20-30 per cent off their peaks. Those who have held on to their investments, have clearly missed the top this time around.
Over the hill? "Short-term investors in markets where the values have peaked could explore exiting," says Sanjay Dutt, joint managing director, Cushman & Wakefield, a real estate consultancy firm.
Has the price of your property passed the summit? The following three checks will tell you. First, if prices in the area have gained 100-200 per cent in the past year, says Dutt, they are unlikely to rise substantially soon. Second, if the area has lots of speculators, then supply will continue coming into the market and keep price rise in check. Third, if a property with better location or amenities are coming up nearby, that will keep yours off the coveted list. If any of these is true, sell.
Once you take the sell decision, you have to find the best deal.
The process
The channels. Once you decide to sell, cast the net wide to reach as many prospective buyers as possible. For that, tap both conventional as well as online channels. Contact real estate agents and tell them your asking price and by when you would like to sell. If a project is not sold out, you can also approach the developer's office.
Insertions in newspaper property classifieds also help and can cost up to Rs 1,500. "If it's a ready project where people are living, promote the property within the building complex," says Dutt. There would be people who could pass the word to other interested parties. The same holds true for friends and relatives.
The decision
The extent of the problem depends partly on your investing horizon. If you had taken a long view and plan to hold it for a decade or so, there is nothing to worry about. While there may be a few ups and downs, returns from real estate have been next only to stocks in the long term.
If, however, you were looking to sell off your property within a year or two and earn some capital gains, that plan may need some tweaking. As mortgages and prices continued their upward journey, since around the middle of last year, end-use buyers started staying away in larger numbers. Merrill Lynch, for instance, estimates that sales volumes in the NCR are down 50-70 per cent from last year.
Whither prices? Prices, too, have softened in areas of high speculative interest as property got priced out of the market. Smart investors like Delhi NCR lawyer Dheeraj Seth, 31, sold his Gurgaon house when real estate was still hot and parked the proceeds in another property that is under development.
In January 2008, the stockmarket tanked, pulling down sentiments, and real estate in its wake. Experts say prices will climb 20-30 per cent off their peaks. Those who have held on to their investments, have clearly missed the top this time around.
Over the hill? "Short-term investors in markets where the values have peaked could explore exiting," says Sanjay Dutt, joint managing director, Cushman & Wakefield, a real estate consultancy firm.
Has the price of your property passed the summit? The following three checks will tell you. First, if prices in the area have gained 100-200 per cent in the past year, says Dutt, they are unlikely to rise substantially soon. Second, if the area has lots of speculators, then supply will continue coming into the market and keep price rise in check. Third, if a property with better location or amenities are coming up nearby, that will keep yours off the coveted list. If any of these is true, sell.
Once you take the sell decision, you have to find the best deal.
The process
The channels. Once you decide to sell, cast the net wide to reach as many prospective buyers as possible. For that, tap both conventional as well as online channels. Contact real estate agents and tell them your asking price and by when you would like to sell. If a project is not sold out, you can also approach the developer's office.
Insertions in newspaper property classifieds also help and can cost up to Rs 1,500. "If it's a ready project where people are living, promote the property within the building complex," says Dutt. There would be people who could pass the word to other interested parties. The same holds true for friends and relatives.
Payday Loan Bill Passes
CONCORD, N.H. -- The New Hampshire House voted in favor this week of a bill that limits the interest rate payday loan companies can charge customers.
The bill now heads to the desk of Gov. John Lynch.
The bill would set a 36 percent interest cap on all small loans, a move the industry says will put them out of business.
But opponents herald the bill, and say it's time to limit the predatory lending practices. Right now a customer can end up paying several hundred percent interest on a small short-term loan.
The governor has said he will sign the bill into law, which would then take effect Jan. 1.
The bill now heads to the desk of Gov. John Lynch.
The bill would set a 36 percent interest cap on all small loans, a move the industry says will put them out of business.
But opponents herald the bill, and say it's time to limit the predatory lending practices. Right now a customer can end up paying several hundred percent interest on a small short-term loan.
The governor has said he will sign the bill into law, which would then take effect Jan. 1.
Invest in property
Inflation is at high levels. Hence, returns on fixed income instruments like bonds and fixed deposits have lost their glitter. So, where does the salaried class invest the surplus it saves? Investments in real estate are considered safe and rewarding. It is seen as an effective hedge against inflation . With inflation uncertainties looming large and house rents crawling upwards, it is time you owned a roof over your head. For the past few years, home loan rates were constantly inching northwards. Adding to the woes were the increase in steel and cement prices, increasing the construction costs. But indicators are rife that things are set to change for the good. Some banks have already cut their rates and other have introduced lower rates for new borrowers. Coming back to the initial query, is it time to invest in property? Banks vie with each other to lure in maximum customers . This is home loan borrowers seldom default on their monthly commitments. Flexible repayment options, and lucrative loan packages, make the loans appear affordable. With cost of renting a house going up in the cities, it makes more sense to invest in a property and pay EMIs towards it. If you've a stable regular income and a good credit history, securing a home loan might not be a difficult task. Perhaps the one big reason for the salaried class to apply for a home loan is the attractive tax sops. Let's understand the tax benefits associated with home loans. The amount of EMI outflow is directly dependent on principal amount, rate of interest and loan tenure. The greater the loan amount, the greater the EMI towards the loan. EMI can be broken into two components - the principal component and the interest component. During the initial years of the loan tenure, the equated monthly installments would have a higher share of interest component . However, towards the end of the tenure the principal component will be high. The principal repayment that borrowers make on their home loan is eligible for income deduction under Section 80C of the income tax act. The limit under Sectio n 80C is Rs 1 lakh. U n d e r Section 24 of the Income Tax Act, the maximum amount of interest that can be deducted from your taxable income is Rs 1.5 lakhs. As a result, your taxable income decreases by that amount. This limit is for self-occupied property only. Homeowners who invest in a second house can claim benefits for interest repayment of the home loan. There is no limit on the interest repaid unlike the Rs 1.5 lakhs limit under Section 24 for self-occupied property.
HSBC to shed US loan arm
HSBC'S rebel shareholder Knight Vinke has renewed calls for the banking giant to sell its US consumer finance business, which specialises in sub-prime lending, after it incurred another $3.2bn (£1.7bn) of bad debts in the first three months of the year.
Although the additional charge takes its total provision for US sub-prime loans to $15.4bn since the beginning of 2007, HSBC shares climbed 16 to 882p as surging growth in its emerging market operations more than offset the American trouble;
Knight Vinke claimed HSBC will have to take a further $30bn of impairments on its US loans to get them back to "fair value" and argued the bank will have to write off $10bn of goodwill associated with the $14bn 2003 acquisition, which would lead "US regulators [to] require a substantial capital injection".HSBC declined to respond to Knight Vinke's demand that "independent financial advisers be appointed to consider the options for [the US business] HSBC Finance Corporation". However, chief executive Michael Geoghegan had earlier recommitted the bank to the business, saying: "Consumer finance remains a major part of the US economy and we'll be part of that."Chairman Stephen Green said it was "increasingly likely that the US will enter a recession in 2008, the length and depth of which is uncertain", and that it comes as "the major economic risks facing the global economy now include inflation, particularly from rises in food and energy prices".
Mr Geoghegan added: "It's 2009 that we're looking at as when the US housing market bottoms out." In the UK specifically, he cautioned: "Inflation will have a big impact. There is a limit to the amount of rate cuts the Bank of England can make."
HSBC's bleak outlook came despite declaring in a trading update that group profits in the first three months of the year beat those in 2007 - driven by growth in Asia, the Middle East and Latin America.
HSBC views a recovery in US house prices as central to restoring confidence globally. Bankers believe demand will only recover once US house prices stop falling.
HSBC even tempered the success of its lower-than-expected US bad debt charge, which compared with a $4.6bn charge the previous quarter, by warning that impairment levels could pick up again. Brendan McDonagh, head of HSBC North America, said: "Given the risk of recession, it's too early to say whether the rest of the year will see a gradual reduction."
Mr Geoghegan stressed he is grappling with the US, having reduced the problematic mortgage servicing portfolio from $49bn to $32bn in the past year. A further 2,000 jobs have been axed, largely in the US, on top of the 6,000 last year.
HSBC's investment banking arm took a separate $2.6bn writedown due to the credit market turmoil, but still saw profits beat both the third and fourth quarters of 2007 "on the back of strong emerging markets performance". But it warned "volumes will be lower in subsequent quarters" after a one-off surge in activity "designed to reduce institutions' risk positions".
HSBC's UK retail arm, which has started growing its share of the mortgage market after pulling back 18 months ago, saw profits rise. On Britain's economic outlook, Mr Geoghegan said: "We're not seeing a deterioration in credit quality but I suspect there will be later on as growth slows. We're being cautious."
Although the additional charge takes its total provision for US sub-prime loans to $15.4bn since the beginning of 2007, HSBC shares climbed 16 to 882p as surging growth in its emerging market operations more than offset the American trouble;
Knight Vinke claimed HSBC will have to take a further $30bn of impairments on its US loans to get them back to "fair value" and argued the bank will have to write off $10bn of goodwill associated with the $14bn 2003 acquisition, which would lead "US regulators [to] require a substantial capital injection".HSBC declined to respond to Knight Vinke's demand that "independent financial advisers be appointed to consider the options for [the US business] HSBC Finance Corporation". However, chief executive Michael Geoghegan had earlier recommitted the bank to the business, saying: "Consumer finance remains a major part of the US economy and we'll be part of that."Chairman Stephen Green said it was "increasingly likely that the US will enter a recession in 2008, the length and depth of which is uncertain", and that it comes as "the major economic risks facing the global economy now include inflation, particularly from rises in food and energy prices".
Mr Geoghegan added: "It's 2009 that we're looking at as when the US housing market bottoms out." In the UK specifically, he cautioned: "Inflation will have a big impact. There is a limit to the amount of rate cuts the Bank of England can make."
HSBC's bleak outlook came despite declaring in a trading update that group profits in the first three months of the year beat those in 2007 - driven by growth in Asia, the Middle East and Latin America.
HSBC views a recovery in US house prices as central to restoring confidence globally. Bankers believe demand will only recover once US house prices stop falling.
HSBC even tempered the success of its lower-than-expected US bad debt charge, which compared with a $4.6bn charge the previous quarter, by warning that impairment levels could pick up again. Brendan McDonagh, head of HSBC North America, said: "Given the risk of recession, it's too early to say whether the rest of the year will see a gradual reduction."
Mr Geoghegan stressed he is grappling with the US, having reduced the problematic mortgage servicing portfolio from $49bn to $32bn in the past year. A further 2,000 jobs have been axed, largely in the US, on top of the 6,000 last year.
HSBC's investment banking arm took a separate $2.6bn writedown due to the credit market turmoil, but still saw profits beat both the third and fourth quarters of 2007 "on the back of strong emerging markets performance". But it warned "volumes will be lower in subsequent quarters" after a one-off surge in activity "designed to reduce institutions' risk positions".
HSBC's UK retail arm, which has started growing its share of the mortgage market after pulling back 18 months ago, saw profits rise. On Britain's economic outlook, Mr Geoghegan said: "We're not seeing a deterioration in credit quality but I suspect there will be later on as growth slows. We're being cautious."
Housing Losers
You may not know it, dear reader, but Congress is playing you for a sap. During the housing mania, you didn't lend money at teaser rates to borrowers who couldn't pay, or buy a bigger house than you could afford. You paid your bills on time. As a reward for that good judgment and restraint, Barney Frank is now going to let you bail out the least responsible bankers and borrowers.
The Massachusetts Democrat's housing bill passed the House Thursday, and it makes us wish we had splurged like so many others. In the name of helping strapped home buyers, Mr. Frank is giving lenders a chance to pass their worst paper onto Uncle Sugar. If both borrower and lender agree to participate, lenders can accept 85% of the current appraised mortgage value and in return get to dump up to $300 billion of those loans on the Federal Housing Administration (FHA). Guess which loans they are likely to dump?
Looking at the details in Mr. Frank's 45-page first draft of this bill, FIS Applied Analytics estimated that taxpayer losses could reach as high as $27 billion, more than four times Mr. Frank's estimate. The next draft, clocking in at 72 pages when it passed Mr. Frank's committee, was miraculously scored by the Congressional Budget Office at "only" a $2.7 billion cost to taxpayers.
CBO lowballed it in part because it assumed that most people eligible for this assistance will not apply for it. It is true that some lenders may be wary of taking a 15% haircut off the top, but watch out if bankers and borrowers do take the taxpayers up on Mr. Frank's offer. This is especially likely because at the same time that Mr. Frank touts the lowball estimate, he is also making mortgage servicers an offer they can't refuse.
"I want to put the servicers on notice," the celebrated liberal declared at a recent hearing. "If we see a widespread refusal on the part of servicers to cooperate voluntarily in what we see as an important economic problem . . . they can expect much tougher regulation in the future." And they called Tom DeLay "the Hammer"?
The plan seems to get more generous by the week, at least if you're an ally of Mr. Frank. The monster he brought to the floor Thursday runs to hundreds of pages. State governments receive authority to issue $10 billion in tax-exempt bonds to subsidize home purchases and to help subprime borrowers refinance.
In a sop to builders, Mr. Frank also expands the low-income housing tax credit, and he creates a new refundable credit for certain home buyers. To help defray the cost to the Treasury, Mr. Frank raises taxes on multinational companies by delaying a scheduled reform. A law set to take effect this year would expand firms' ability to claim foreign tax credits and thereby avoid double taxation. Mr. Frank would put it off for another year.
Then there is the $230 million for housing counseling to be distributed by the Neighborhood Reinvestment Corporation. You might think that all of this money will simply be disbursed to left-wing activists in the nonprofit world. But at least $35 million is specifically earmarked for lawyers, who can then pursue foreclosure-related litigation. Now there's a way to help housing markets clear.
Also included is this addition to the Home Owners' Loan Act: "A Federal savings association may make investments, directly or indirectly, each of which is designed primarily to promote the public welfare . . . through the provision of housing, services, and jobs." Mr. Frank has got to be kidding. Federal savings associations are lenders regulated by the Office of Thrift Supervision, which was created in the wake of the 1980s savings and loan debacle. Despite the sorry state of bank balance sheets, the Congressman is now telling federal thrifts to make investments on criteria other than risk and return.
We can only imagine what else is buried in this tome, which deserves a Presidential veto. But the worst problem remains its invitation for bankers to dump their biggest losers on taxpayers. The Frank plan appears to take care of everyone in the housing market, except the renters and homeowners who lived within their means.
The Massachusetts Democrat's housing bill passed the House Thursday, and it makes us wish we had splurged like so many others. In the name of helping strapped home buyers, Mr. Frank is giving lenders a chance to pass their worst paper onto Uncle Sugar. If both borrower and lender agree to participate, lenders can accept 85% of the current appraised mortgage value and in return get to dump up to $300 billion of those loans on the Federal Housing Administration (FHA). Guess which loans they are likely to dump?
Looking at the details in Mr. Frank's 45-page first draft of this bill, FIS Applied Analytics estimated that taxpayer losses could reach as high as $27 billion, more than four times Mr. Frank's estimate. The next draft, clocking in at 72 pages when it passed Mr. Frank's committee, was miraculously scored by the Congressional Budget Office at "only" a $2.7 billion cost to taxpayers.
CBO lowballed it in part because it assumed that most people eligible for this assistance will not apply for it. It is true that some lenders may be wary of taking a 15% haircut off the top, but watch out if bankers and borrowers do take the taxpayers up on Mr. Frank's offer. This is especially likely because at the same time that Mr. Frank touts the lowball estimate, he is also making mortgage servicers an offer they can't refuse.
"I want to put the servicers on notice," the celebrated liberal declared at a recent hearing. "If we see a widespread refusal on the part of servicers to cooperate voluntarily in what we see as an important economic problem . . . they can expect much tougher regulation in the future." And they called Tom DeLay "the Hammer"?
The plan seems to get more generous by the week, at least if you're an ally of Mr. Frank. The monster he brought to the floor Thursday runs to hundreds of pages. State governments receive authority to issue $10 billion in tax-exempt bonds to subsidize home purchases and to help subprime borrowers refinance.
In a sop to builders, Mr. Frank also expands the low-income housing tax credit, and he creates a new refundable credit for certain home buyers. To help defray the cost to the Treasury, Mr. Frank raises taxes on multinational companies by delaying a scheduled reform. A law set to take effect this year would expand firms' ability to claim foreign tax credits and thereby avoid double taxation. Mr. Frank would put it off for another year.
Then there is the $230 million for housing counseling to be distributed by the Neighborhood Reinvestment Corporation. You might think that all of this money will simply be disbursed to left-wing activists in the nonprofit world. But at least $35 million is specifically earmarked for lawyers, who can then pursue foreclosure-related litigation. Now there's a way to help housing markets clear.
Also included is this addition to the Home Owners' Loan Act: "A Federal savings association may make investments, directly or indirectly, each of which is designed primarily to promote the public welfare . . . through the provision of housing, services, and jobs." Mr. Frank has got to be kidding. Federal savings associations are lenders regulated by the Office of Thrift Supervision, which was created in the wake of the 1980s savings and loan debacle. Despite the sorry state of bank balance sheets, the Congressman is now telling federal thrifts to make investments on criteria other than risk and return.
We can only imagine what else is buried in this tome, which deserves a Presidential veto. But the worst problem remains its invitation for bankers to dump their biggest losers on taxpayers. The Frank plan appears to take care of everyone in the housing market, except the renters and homeowners who lived within their means.
Rescue Backlash
Democrats may be risking a backlash at the polls in November by pushing hard to use taxpayer money to rescue homeowners who can no longer afford their mortgages in the face of stiff resistance from President Bush and many other Republicans.
The Democrats in Congress and the party's presidential candidates frame the issue as doing at least as much for beleaguered homeowners as the government is doing for Wall Street. The White house and most House Republicans counter this amounts to using taxpayer money to reward bad behavior.
The Democrats in Congress and the party's presidential candidates frame the issue as doing at least as much for beleaguered homeowners as the government is doing for Wall Street. The White house and most House Republicans counter this amounts to using taxpayer money to reward bad behavior.
Foreclosures
Three times, Thomas and Tracy Barboza found a path out of foreclosure. Three times, their lender failed to help them.Unable to afford their mortgage, the Barbozas are trying to sell their home. They have received three offers since last summer. But because the offers - between $220,000 and $225,000 - are less than their $320,000 mortgage, their loan company, Countrywide Home Loans, would have to sign off on the deal and accept a loss. Countrywide has either rejected or ignored the offers and foreclosure seems imminent.
"It's like they want things to go sour," Tracy Barboza said, sitting at the kitchen table of their home, stripped bare of other furniture after they moved into an apartment in anticipation of a sale.
The Barbozas are among the hundreds of thousands of homeowners seeking help from mortgage companies to withdraw from loans they cannot afford. Some want lower loan rates to reduce their monthly payments. Others simply want to cut their losses and sell.
But the loan companies are proving ill-equipped to handle record foreclosures, particularly requests involving sales that would require lenders to accept losses on the loans, so-called short sales. The mortgage companies turn down offers - even though it may be more costly to seize the house in foreclosure - or they take so long to respond that the buyers move on, or don't respond at all.
Homeowners, real estate brokers, and others who have tried to crack the system describe it as akin to a black hole. Automated phone systems are impossible to penetrate, and people describe waiting on hold for an hour or more. Messages go unanswered. Paperwork is lost or gathers dust in piles. Those inside the loan companies with authority to make decisions are not consulted.
Andrew Kaplan, whose firm Agencybid.com auctions distressed properties, has devised tactics to get a loan company employee on the phone. "I say, 'Look, these people are in trouble. They need help.' They just say, 'I can't do anything about it,' " he said.
The companies say they are trying. The American Securitization Forum, whose members include mortgage holders and loan-servicing companies, said in a statement they "are working diligently to address all these requests but each loan needs to be evaluated on a case-by-case basis."
Vicki Vidal, senior director of government affairs for the Mortgage Bankers Association, said some lenders have set up online applications so borrowers can work out their problems. She said short sales are particularly difficult. If Countrywide approved the Barbozas' sale, it would mean forgiving the amount the couple owes in excess of the sale price, about $100,000. Also, many short sales involve a primary and a second mortgage, further complicating matters.
"It's like they want things to go sour," Tracy Barboza said, sitting at the kitchen table of their home, stripped bare of other furniture after they moved into an apartment in anticipation of a sale.
The Barbozas are among the hundreds of thousands of homeowners seeking help from mortgage companies to withdraw from loans they cannot afford. Some want lower loan rates to reduce their monthly payments. Others simply want to cut their losses and sell.
But the loan companies are proving ill-equipped to handle record foreclosures, particularly requests involving sales that would require lenders to accept losses on the loans, so-called short sales. The mortgage companies turn down offers - even though it may be more costly to seize the house in foreclosure - or they take so long to respond that the buyers move on, or don't respond at all.
Homeowners, real estate brokers, and others who have tried to crack the system describe it as akin to a black hole. Automated phone systems are impossible to penetrate, and people describe waiting on hold for an hour or more. Messages go unanswered. Paperwork is lost or gathers dust in piles. Those inside the loan companies with authority to make decisions are not consulted.
Andrew Kaplan, whose firm Agencybid.com auctions distressed properties, has devised tactics to get a loan company employee on the phone. "I say, 'Look, these people are in trouble. They need help.' They just say, 'I can't do anything about it,' " he said.
The companies say they are trying. The American Securitization Forum, whose members include mortgage holders and loan-servicing companies, said in a statement they "are working diligently to address all these requests but each loan needs to be evaluated on a case-by-case basis."
Vicki Vidal, senior director of government affairs for the Mortgage Bankers Association, said some lenders have set up online applications so borrowers can work out their problems. She said short sales are particularly difficult. If Countrywide approved the Barbozas' sale, it would mean forgiving the amount the couple owes in excess of the sale price, about $100,000. Also, many short sales involve a primary and a second mortgage, further complicating matters.
Housing bailout
A congressional proposal to have the government help homeowners refinance mortgages they can no longer afford will only help a small fraction of those who are at risk of losing their homes.
But because so few at-risk homeowners will be able to get help, the cost to taxpayers may also be less than $2 billion, lower than originally feared, according to an analysis of the plan by the non-partisan Congressional Budget Office.
The proposal, authored by House Financial Services Chairman Barney Frank, D-Mass., passed the House Thursday by a 266-154 margin, with 39 Republicans joining virtually all Democratic House members to support the measure.
But the bill has drawn opposition from the Bush Administration and many members of Republican leadership, making its chance for passage somewhat questionable.
Senate Banking Committee Chairman Chris Dodd, D-Conn., is working on a similar proposal that may go to a vote before that committee as soon as this week.
Under the plan, the Federal Housing Administration would guarantee a new loan if a mortgage holder accepts a substantial write-down - payment in full no more than 85% of the property's current appraised value.
This would benefit lenders, which would collect more than they might through the foreclosure process. And it would benefit borrowers because they could refinance into a more affordable fixed-rate loan.
The CBO report estimates that there are about 2.8 million homeowners with subprime or other risky non-traditional loans who are likely to fall into foreclosure in the next four years without help.
The legislation would set aside $300 billion for the FHA to refinance loans.
But the CBO said it expects only 28% of the $300 billion in loans will be tapped by the at-risk homeowners.
That's because, for a variety of reasons, the CBO estimates only about 325,000 homeowners will actually avoid foreclosure thanks to the bill.
Nearly a million will be blocked from help because they have second mortgages and those lenders may not agree to the refinancing.
Roughly a half-million may have problems such as job loss, illness or divorce that make it impossible to afford even lower payments of a refinanced loan.
Nearly a million could choose not to use the program because of the costs involved to get the government guarantees, including a promise to share any future gains in the home's value with the FHA.
Finally the CBO estimates that 35% of those who get help under the program will still fall into foreclosure.
So the taxpayer cost of the mortgage refinancing should be limited to about $1.7 billion, the CBO said.
To put that into context, it is roughly 1% of the cost of this year's economic stimulus package, which included tax rebates for more than 130 million U.S. taxpayers.
Steve Adamske, press secretary for for the House Financial Services Committee, said the CBO report is only one estimate and that many more borrowers may keep their homes if the bill becomes a law.
He added that even if the CBO estimate is correct it is "an economically significant number."
"The goal of this is to slow the decline in home prices and to limit the number of foreclosures over a period of time," he said. "When you have a steep drop in home prices, steep increases in foreclosure, you jolt the market to the point where it takes even longer to recover."
The broad outlines of the plan have been endorsed by Federal Reserve Chairman Ben Bernanke. Some elements of the Frank bill are included in an alternative proposal by Sen. John McCain, the presumptive Republican presidential nominee.
But because so few at-risk homeowners will be able to get help, the cost to taxpayers may also be less than $2 billion, lower than originally feared, according to an analysis of the plan by the non-partisan Congressional Budget Office.
The proposal, authored by House Financial Services Chairman Barney Frank, D-Mass., passed the House Thursday by a 266-154 margin, with 39 Republicans joining virtually all Democratic House members to support the measure.
But the bill has drawn opposition from the Bush Administration and many members of Republican leadership, making its chance for passage somewhat questionable.
Senate Banking Committee Chairman Chris Dodd, D-Conn., is working on a similar proposal that may go to a vote before that committee as soon as this week.
Under the plan, the Federal Housing Administration would guarantee a new loan if a mortgage holder accepts a substantial write-down - payment in full no more than 85% of the property's current appraised value.
This would benefit lenders, which would collect more than they might through the foreclosure process. And it would benefit borrowers because they could refinance into a more affordable fixed-rate loan.
The CBO report estimates that there are about 2.8 million homeowners with subprime or other risky non-traditional loans who are likely to fall into foreclosure in the next four years without help.
The legislation would set aside $300 billion for the FHA to refinance loans.
But the CBO said it expects only 28% of the $300 billion in loans will be tapped by the at-risk homeowners.
That's because, for a variety of reasons, the CBO estimates only about 325,000 homeowners will actually avoid foreclosure thanks to the bill.
Nearly a million will be blocked from help because they have second mortgages and those lenders may not agree to the refinancing.
Roughly a half-million may have problems such as job loss, illness or divorce that make it impossible to afford even lower payments of a refinanced loan.
Nearly a million could choose not to use the program because of the costs involved to get the government guarantees, including a promise to share any future gains in the home's value with the FHA.
Finally the CBO estimates that 35% of those who get help under the program will still fall into foreclosure.
So the taxpayer cost of the mortgage refinancing should be limited to about $1.7 billion, the CBO said.
To put that into context, it is roughly 1% of the cost of this year's economic stimulus package, which included tax rebates for more than 130 million U.S. taxpayers.
Steve Adamske, press secretary for for the House Financial Services Committee, said the CBO report is only one estimate and that many more borrowers may keep their homes if the bill becomes a law.
He added that even if the CBO estimate is correct it is "an economically significant number."
"The goal of this is to slow the decline in home prices and to limit the number of foreclosures over a period of time," he said. "When you have a steep drop in home prices, steep increases in foreclosure, you jolt the market to the point where it takes even longer to recover."
The broad outlines of the plan have been endorsed by Federal Reserve Chairman Ben Bernanke. Some elements of the Frank bill are included in an alternative proposal by Sen. John McCain, the presumptive Republican presidential nominee.
Friday, May 9, 2008
Jump in U.S. Home Foreclosures
May 6 (Bloomberg) -- Federal Reserve Chairman Ben S. Bernanke, seeking to end the worst housing slump in a quarter century, urged the government and mortgage lenders to intensify their efforts to avoid home foreclosures.
Bernanke, in a speech in New York yesterday, also reiterated his call for lenders to forgive portions of mortgages for some struggling homeowners. He said proposals should be ``tightly targeted'' at borrowers at greatest risk of losing their properties, and avoid providing an incentive for defaults.
The Fed chief also backed the idea of having the Federal Housing Administration refinance troubled mortgages, a concept included in Democratic legislation in Congress, without explicitly endorsing the bill. His remarks indicate a gap with the Bush administration, which has preferred to rely on industry-led efforts.
``Realistic public- and private-sector policies must take into account the fact that traditional foreclosure-avoidance strategies may not always work well in the current environment,'' Bernanke said in remarks to a Columbia Business School dinner.
House Financial Services Committee Chairman Barney Frank, a Massachusetts Democrat, has sponsored legislation that would have the FHA insure as much as $300 billion in mortgages after loan-holders agree to reduce principal. The bill may come up for deliberation in the House this week after Frank's committee approved it May 1.
`Very Concerned'
Bernanke's comments seem to ``fit hand-in-glove with the legislation that Congress is going to bring out later this week,'' said Christopher Rupkey, chief financial economist at Bank of Tokyo-Mitsubishi UFJ Ltd. in New York, in an interview with Bloomberg Television. ``He's very concerned about housing, the subprime crisis spreading to the rest of the country.''
As the housing recession deepened, officials in Washington have offered a number of different proposals. Foreclosure filings rose 57 percent in March from a year earlier, according to Irvine, California-based RealtyTrac Inc.
``Conditions in mortgage markets remain quite difficult, and mortgage delinquencies have climbed steeply,'' Bernanke said.
Treasury Secretary Henry Paulson met with some of the largest mortgage servicers, including JPMorgan Chase & Co. and Citigroup Inc., on April 23 to consider ways to expand the scope of the Hope Now Alliance, a voluntary industry-led initiative he helped set up to reach more struggling borrowers and help modify their mortgages.
Bernanke, in a speech in New York yesterday, also reiterated his call for lenders to forgive portions of mortgages for some struggling homeowners. He said proposals should be ``tightly targeted'' at borrowers at greatest risk of losing their properties, and avoid providing an incentive for defaults.
The Fed chief also backed the idea of having the Federal Housing Administration refinance troubled mortgages, a concept included in Democratic legislation in Congress, without explicitly endorsing the bill. His remarks indicate a gap with the Bush administration, which has preferred to rely on industry-led efforts.
``Realistic public- and private-sector policies must take into account the fact that traditional foreclosure-avoidance strategies may not always work well in the current environment,'' Bernanke said in remarks to a Columbia Business School dinner.
House Financial Services Committee Chairman Barney Frank, a Massachusetts Democrat, has sponsored legislation that would have the FHA insure as much as $300 billion in mortgages after loan-holders agree to reduce principal. The bill may come up for deliberation in the House this week after Frank's committee approved it May 1.
`Very Concerned'
Bernanke's comments seem to ``fit hand-in-glove with the legislation that Congress is going to bring out later this week,'' said Christopher Rupkey, chief financial economist at Bank of Tokyo-Mitsubishi UFJ Ltd. in New York, in an interview with Bloomberg Television. ``He's very concerned about housing, the subprime crisis spreading to the rest of the country.''
As the housing recession deepened, officials in Washington have offered a number of different proposals. Foreclosure filings rose 57 percent in March from a year earlier, according to Irvine, California-based RealtyTrac Inc.
``Conditions in mortgage markets remain quite difficult, and mortgage delinquencies have climbed steeply,'' Bernanke said.
Treasury Secretary Henry Paulson met with some of the largest mortgage servicers, including JPMorgan Chase & Co. and Citigroup Inc., on April 23 to consider ways to expand the scope of the Hope Now Alliance, a voluntary industry-led initiative he helped set up to reach more struggling borrowers and help modify their mortgages.
GSE loan boost
WASHINGTON (Reuters) - Two California lawmakers on Monday introduced legislation that would permanently raise the limit on the size of loans that may be financed by Fannie Mae (FNM.N: Quote, Profile, Research) and Freddie Mac (FRE.N: Quote, Profile, Research).
The bill introduced by Rep. Gary Miller, a Republican, and Rep. Jerry McNerney, a Democrat, would freeze the maximum loan size at $729,750, which is the level recently set under an economic stimulus bill passed early this year.
In a separate move last week, 44 members of Congress from California wrote their Democrat and Republican leadership also asking that Fannie Mae and Freddie Mac, the government-sponsored enterprises, be permitted to hold loans at the higher level and help relieve that state's housing market crisis.
"Californians continue to face home prices substantially higher than the national average," reads the letter to U.S. House of Representatives Speaker Nancy Pelosi and Rep. John Boehner, the minority leader.
All but 11 House members signed the letter that also asks for a permanent lift in the size of loans that may be financed by the Federal Housing Administration.
The House is due to vote later this week on a number of housing aid proposals meant to fortify the ailing homes sector and prevent foreclosures.
The bill introduced by Rep. Gary Miller, a Republican, and Rep. Jerry McNerney, a Democrat, would freeze the maximum loan size at $729,750, which is the level recently set under an economic stimulus bill passed early this year.
In a separate move last week, 44 members of Congress from California wrote their Democrat and Republican leadership also asking that Fannie Mae and Freddie Mac, the government-sponsored enterprises, be permitted to hold loans at the higher level and help relieve that state's housing market crisis.
"Californians continue to face home prices substantially higher than the national average," reads the letter to U.S. House of Representatives Speaker Nancy Pelosi and Rep. John Boehner, the minority leader.
All but 11 House members signed the letter that also asks for a permanent lift in the size of loans that may be financed by the Federal Housing Administration.
The House is due to vote later this week on a number of housing aid proposals meant to fortify the ailing homes sector and prevent foreclosures.
FHA-rescue bill
NEW YORK (CNNMoney.com) -- The House on Wednesday began debate on a housing package that would let the government back loans for homeowners at risk of foreclosure - a move many Republicans have opposed and which the White House has threatened to veto.
The centerpiece of the package is a proposal to let the Federal Housing Administration (FHA) insure up to $300 billion in new loans over four years if lenders agree to reduce the mortgage principal.
To qualify, the lender would have to cut the debt to no more than 85% of a home's appraised value. If the FHA-refinanced loans went into default, the FHA would pay the lender the remaining principal owed.
The bill is sponsored by House Financial Services Chairman Barney Frank, D-Mass.
While 1.4 million loans are likely to be eligible for such a program, the Congressional Budget Office estimates such a measure would end up insuring 500,000 borrowers and estimates doing so could cost $2.7 billion over 5 years, of which $1.7 billion could be a cost to taxpayers.
The package is expected to pass the Democrat-led House - with some help from Republican congressmen representing states hard hit by the housing crisis.
But the bill also includes elements intended to attract the support of Senate Republicans and the White House, both of whom have expressed concerns that Frank's FHA rescue plan could amount to bailing out lenders, borrowers and investors.
Nevertheless, late Tuesday, the White House issued a statement threatening to veto the bill in its current form.
The elements in the bill intended to draw Republican support are "modernizing" the FHA - for which both the House and Senate have already passed their own bills - and more stringent oversight of Fannie Mae and Freddie Mac, the two government-sponsored enterprises (GSEs) that guarantee the purchase and sale of home mortgages in the secondary market.
But the administration statement called the inclusion of FHA modernization and GSE reform "largely symbolic" and said Frank's FHA rescue plan "would force FHA and taxpayers to take on excessive risk, and jeopardize FHA's financial solvency."
Despite the veto threat, "the House will proceed today. It is too bad President Bush ignored the advice of [Federal Reserve] Chairman Bernanke and decided on right wing ideology over needed compassion and good economics," a spokesman for Frank said.
In a speech about the housing crisis on Monday evening, Bernanke did not explicitly endorse Frank's FHA proposal. But he said that for borrowers who meet certain debt-to-income ratios and own homes worth less than the mortgage debt owed on them, "the best solution may be a write-down of principal or other permanent modification of the loan by the servicer, perhaps combined with a refinancing by the Federal Housing Administration or another lender."
Meanwhile in the Senate, Banking Committee Chairman Chris Dodd, D-Conn. has been busy negotiating with Republicans about the parameters of an FHA refinancing plan and GSE reform.
The committee's ranking member, Sen. Richard Shelby, R-Ala., has repeatedly expressed resistance on both counts. Regarding the FHA backing high-risk loans, he has questioned the fairness of laying the risk of potential foreclosures at taxpayers' feet. The FHA is not supported by taxpayer money, but it could be if its revenue from borrower-paid premiums and fees is overwhelmed by a substantial number of defaults in the new FHA-backed refinanced loans.
Dodd said on Wednesday he is continuing to try to broker a bipartisan agreement and, according to Congress Daily, wants the Banking Committee to mark up legislation for an FHA rescue proposal and GSE reform next week.
Shelby's office, meanwhile, told CNN producer Lesa Jansen that discussions are ongoing but it remains to be seen if an agreement can be reached.
It's not clear yet what the administration's veto threat will ultimately mean for the prospects of lawmakers in the House and Senate finalizing a housing rescue package and sending it to the president's desk.
"We see this more as an effort to gain leverage over the final shape of the bill and less about an actual veto. The politics of killing this bill are negative for the Republicans, who very much need to win either Ohio or Florida if they hope to keep the White House in November. Both of those states are suffering severely during the housing mess," said Jaret Seiberg, senior vice president at the Stanford Group, a Washington policy research firm.
In an interview with the Associated Press, Treasury Secretary Henry Paulson said the administration would continue negotiating with Congress. "I view my job as to work to get something that is acceptable and that the president can sign. That is what we always should be doing. We are working to get a housing bill that the president can sign, and I'm going to work to that end."
The centerpiece of the package is a proposal to let the Federal Housing Administration (FHA) insure up to $300 billion in new loans over four years if lenders agree to reduce the mortgage principal.
To qualify, the lender would have to cut the debt to no more than 85% of a home's appraised value. If the FHA-refinanced loans went into default, the FHA would pay the lender the remaining principal owed.
The bill is sponsored by House Financial Services Chairman Barney Frank, D-Mass.
While 1.4 million loans are likely to be eligible for such a program, the Congressional Budget Office estimates such a measure would end up insuring 500,000 borrowers and estimates doing so could cost $2.7 billion over 5 years, of which $1.7 billion could be a cost to taxpayers.
The package is expected to pass the Democrat-led House - with some help from Republican congressmen representing states hard hit by the housing crisis.
But the bill also includes elements intended to attract the support of Senate Republicans and the White House, both of whom have expressed concerns that Frank's FHA rescue plan could amount to bailing out lenders, borrowers and investors.
Nevertheless, late Tuesday, the White House issued a statement threatening to veto the bill in its current form.
The elements in the bill intended to draw Republican support are "modernizing" the FHA - for which both the House and Senate have already passed their own bills - and more stringent oversight of Fannie Mae and Freddie Mac, the two government-sponsored enterprises (GSEs) that guarantee the purchase and sale of home mortgages in the secondary market.
But the administration statement called the inclusion of FHA modernization and GSE reform "largely symbolic" and said Frank's FHA rescue plan "would force FHA and taxpayers to take on excessive risk, and jeopardize FHA's financial solvency."
Despite the veto threat, "the House will proceed today. It is too bad President Bush ignored the advice of [Federal Reserve] Chairman Bernanke and decided on right wing ideology over needed compassion and good economics," a spokesman for Frank said.
In a speech about the housing crisis on Monday evening, Bernanke did not explicitly endorse Frank's FHA proposal. But he said that for borrowers who meet certain debt-to-income ratios and own homes worth less than the mortgage debt owed on them, "the best solution may be a write-down of principal or other permanent modification of the loan by the servicer, perhaps combined with a refinancing by the Federal Housing Administration or another lender."
Meanwhile in the Senate, Banking Committee Chairman Chris Dodd, D-Conn. has been busy negotiating with Republicans about the parameters of an FHA refinancing plan and GSE reform.
The committee's ranking member, Sen. Richard Shelby, R-Ala., has repeatedly expressed resistance on both counts. Regarding the FHA backing high-risk loans, he has questioned the fairness of laying the risk of potential foreclosures at taxpayers' feet. The FHA is not supported by taxpayer money, but it could be if its revenue from borrower-paid premiums and fees is overwhelmed by a substantial number of defaults in the new FHA-backed refinanced loans.
Dodd said on Wednesday he is continuing to try to broker a bipartisan agreement and, according to Congress Daily, wants the Banking Committee to mark up legislation for an FHA rescue proposal and GSE reform next week.
Shelby's office, meanwhile, told CNN producer Lesa Jansen that discussions are ongoing but it remains to be seen if an agreement can be reached.
It's not clear yet what the administration's veto threat will ultimately mean for the prospects of lawmakers in the House and Senate finalizing a housing rescue package and sending it to the president's desk.
"We see this more as an effort to gain leverage over the final shape of the bill and less about an actual veto. The politics of killing this bill are negative for the Republicans, who very much need to win either Ohio or Florida if they hope to keep the White House in November. Both of those states are suffering severely during the housing mess," said Jaret Seiberg, senior vice president at the Stanford Group, a Washington policy research firm.
In an interview with the Associated Press, Treasury Secretary Henry Paulson said the administration would continue negotiating with Congress. "I view my job as to work to get something that is acceptable and that the president can sign. That is what we always should be doing. We are working to get a housing bill that the president can sign, and I'm going to work to that end."
Payday loan interest
New Hampshire is poised to cap payday lending, a move the industry says will put it out of business in the state.
more stories like this
The House voted Wednesday to send a bill to Gov. John Lynch that sets a 36 percent interest rate cap on all small loans. It is aimed primarily at loans backed by an anticipated paycheck or by car titles. Lynch has said he'll sign it. The cap would take effect Jan. 1.
Supporters said they wanted to prevent people from being victimized by extremely high interest rates.
Opponents, including Advance America, Cash Advance Centers Inc. which writes payday loans around the country, said the cap will put the industry out of business in New Hampshire. It operates 24 stores, with 50 employees, in the state.
Reacting to the vote, the company said the legislation will cause problems for those who borrow the money and those who lend it.
"It will eliminate a sensible financial choice, thousands who take out a state regulated payday loan each year will be left without a viable alternative and hundreds of employees will be put out of work," said the company's director of public affairs, Jamie Fulmer.
New Hampshire and Rhode Island are the only New England states whose laws make payday loans profitable.
New Hampshire has no limit on payday interest rates. Rhode Island caps the finance charge at $15 per $100 two-week loan. That works out to a 391 percent annual interest rate.
New Hampshire's banking commissioner and payday lenders had told lawmakers that the companies would close if interest rates were capped.
The cap would translate into $2.96 in interest per $100 borrowed on a 30 day title loan and $1.38 per $100 -- about 10 cents a day -- on a $100 payday loan for 14 days. Advance America has said $1.38 per $100 borrowed wouldn't be enough to cover staffing, rent, electricity and other basic business expenses.
Advance America charges consumers $20 per $100 in cash advanced, up to a maximum $500 loan in New Hampshire.
Critics complain that a $100, two-week loan plus the $20 charge works out to a 521 percent annual interest rate.
Cap supporters -- including New Hampshire Legal Assistance and the state's welfare administrators -- said consumers get caught in a "debt trap" when they can't repay the loans and must roll them over. They said consumers could instead turn to banks, credit unions, churches, friends and town welfare officers for help.
Payday lenders offer quick cash advances for a fee, often secured by a postdated personal check from the borrower. Title lenders offer cash loans based on the value of the borrower's car. Customers are drawn to the lenders because, unlike banks, they don't run credit checks.
Borrowers who don't repay title loans lose their cars. Payday lenders may work out a longer payment plan to attempt to get their money back. Critics say some people borrow increasing amounts, winding up deeper in debt.
New Hampshire repealed an interest cap on small loans in 1999 after lenders complained to lawmakers that the credit card industry had moved into the market. Sen. Lou D'Allesandro, the repeal bill's sponsor, said the law was changed to ensure people who had problems getting credit could get a loan.
more stories like this
The House voted Wednesday to send a bill to Gov. John Lynch that sets a 36 percent interest rate cap on all small loans. It is aimed primarily at loans backed by an anticipated paycheck or by car titles. Lynch has said he'll sign it. The cap would take effect Jan. 1.
Supporters said they wanted to prevent people from being victimized by extremely high interest rates.
Opponents, including Advance America, Cash Advance Centers Inc. which writes payday loans around the country, said the cap will put the industry out of business in New Hampshire. It operates 24 stores, with 50 employees, in the state.
Reacting to the vote, the company said the legislation will cause problems for those who borrow the money and those who lend it.
"It will eliminate a sensible financial choice, thousands who take out a state regulated payday loan each year will be left without a viable alternative and hundreds of employees will be put out of work," said the company's director of public affairs, Jamie Fulmer.
New Hampshire and Rhode Island are the only New England states whose laws make payday loans profitable.
New Hampshire has no limit on payday interest rates. Rhode Island caps the finance charge at $15 per $100 two-week loan. That works out to a 391 percent annual interest rate.
New Hampshire's banking commissioner and payday lenders had told lawmakers that the companies would close if interest rates were capped.
The cap would translate into $2.96 in interest per $100 borrowed on a 30 day title loan and $1.38 per $100 -- about 10 cents a day -- on a $100 payday loan for 14 days. Advance America has said $1.38 per $100 borrowed wouldn't be enough to cover staffing, rent, electricity and other basic business expenses.
Advance America charges consumers $20 per $100 in cash advanced, up to a maximum $500 loan in New Hampshire.
Critics complain that a $100, two-week loan plus the $20 charge works out to a 521 percent annual interest rate.
Cap supporters -- including New Hampshire Legal Assistance and the state's welfare administrators -- said consumers get caught in a "debt trap" when they can't repay the loans and must roll them over. They said consumers could instead turn to banks, credit unions, churches, friends and town welfare officers for help.
Payday lenders offer quick cash advances for a fee, often secured by a postdated personal check from the borrower. Title lenders offer cash loans based on the value of the borrower's car. Customers are drawn to the lenders because, unlike banks, they don't run credit checks.
Borrowers who don't repay title loans lose their cars. Payday lenders may work out a longer payment plan to attempt to get their money back. Critics say some people borrow increasing amounts, winding up deeper in debt.
New Hampshire repealed an interest cap on small loans in 1999 after lenders complained to lawmakers that the credit card industry had moved into the market. Sen. Lou D'Allesandro, the repeal bill's sponsor, said the law was changed to ensure people who had problems getting credit could get a loan.
Saturday, May 3, 2008
Reverse mortgage
The Reserve Bank of India (RBI) proposes to come out with prudential norms for reverse mortgage loans to safeguard banks in a falling real estate market. The prudential norms are likely to be announced in the Reverse mortgage allows senior citizens with inadequate income sources to mortgage their own homes for a monthly stream of income for up to 15 years.
It involves a senior citizen borrower mortgaging the house to a lender, who then makes periodic payments to the borrower during the latter’s lifetime. It is a way of monetising the owner’s equity in the house.
The senior citizen borrower is not required to service the loan during his lifetime and on the borrower’s death or on the borrower leaving the house permanently, the loan is repaid along with accumulated interest, through sale of the house.
Sources close to the development said the prudential norms for banks were required as the property mortgaged with banks would erode in value if the real estate prices continued to fall. This may result in non-performing assets in the books of banks. Currently, such lonas are treated at par with commercial real estate by banks as far as prudential norms are concerned.
To begin with, norms will involve capital adequacy and asset classification for such loans.
This means a bank will have to provide a certain portion of the loan as capital for provisioning if such loans go bad. There will be norms specified to classify such loans as standard or non-performing assets.
Certain risk weights may also be attached to such loans depending on the risk potential of the loan scheme. Currently, the reverse mortgage loan carries the same risk weight as that of real estate loans, which are already very high at 150 per cent. Sources clarified that such loans were non-commercial in nature and thus a lower risk weight akin to residential real estate would be appropriate.
Banking sources said such prudential norms would protect banks from having such loans as NPAs. Further, RBI will also spell out valuation norms for pricing such schemes.
Currently, National Housing Bank has come out with comprehensive norms for the reverse mortgage scheme and based on this, several banks have introduced such products.
However, banks have not been aggressive since the guidelines from RBI are not clear. In the last Budget, the government had exempted senior citizens from paying tax on the income earned by mortgaging their property to banks. forthcoming annual monetary policy of RBI on April 29.
It involves a senior citizen borrower mortgaging the house to a lender, who then makes periodic payments to the borrower during the latter’s lifetime. It is a way of monetising the owner’s equity in the house.
The senior citizen borrower is not required to service the loan during his lifetime and on the borrower’s death or on the borrower leaving the house permanently, the loan is repaid along with accumulated interest, through sale of the house.
Sources close to the development said the prudential norms for banks were required as the property mortgaged with banks would erode in value if the real estate prices continued to fall. This may result in non-performing assets in the books of banks. Currently, such lonas are treated at par with commercial real estate by banks as far as prudential norms are concerned.
To begin with, norms will involve capital adequacy and asset classification for such loans.
This means a bank will have to provide a certain portion of the loan as capital for provisioning if such loans go bad. There will be norms specified to classify such loans as standard or non-performing assets.
Certain risk weights may also be attached to such loans depending on the risk potential of the loan scheme. Currently, the reverse mortgage loan carries the same risk weight as that of real estate loans, which are already very high at 150 per cent. Sources clarified that such loans were non-commercial in nature and thus a lower risk weight akin to residential real estate would be appropriate.
Banking sources said such prudential norms would protect banks from having such loans as NPAs. Further, RBI will also spell out valuation norms for pricing such schemes.
Currently, National Housing Bank has come out with comprehensive norms for the reverse mortgage scheme and based on this, several banks have introduced such products.
However, banks have not been aggressive since the guidelines from RBI are not clear. In the last Budget, the government had exempted senior citizens from paying tax on the income earned by mortgaging their property to banks. forthcoming annual monetary policy of RBI on April 29.
Student loan plan
With concerns rising that the pool of college loans available for next fall will be smaller and more expensive, the Bush administration is backing a measure aimed at bolstering student lenders' finances.
The administration's support, expressed Wednesday in a letter to Sen. Christopher Dodd, D-Conn., came after a bipartisan House vote last week backing the bill to give the Education Department authority to buy up loans from student lenders to ensure they have access to capital and can keep issuing loans.
The nation's largest student lender, Sallie Mae, formerly SLM Corp., had aggressively pushed for federal aid. Its chief executive, Albert Lord, warned last week that the company could not lose money on federally backed student loans indefinitely.
Shares of Sallie Mae fell 54 cents, or 3 percent, to $17.10 in midday trading. Wall Street analysts had hoped the Treasury Department would be able to act -- without legislation -- to shore up student loan funding
But Bush administration officials concluded that that a Treasury financing agency doesn't have the authority to buy such loans.
Dozens of lenders recently stopped making loans under the federal student loan program, in which the government subsidizes and backs low-interest loans.
Larry Warder, the Education Department's acting chief operating officer for federal student aid, said in a briefing with reporters that Congress needs to pass the bill "in a reasonable time frame."
Demand for securities backed by student loans has plummeted as investors have grown nervous about securities backed by mortgages, student loans and other debt. Meanwhile, a new law passed last year reduced government subsidies for federally backed student loans, whose interest rates are capped at 6.8 percent.
The House bill is similar to legislation introduced in the Senate by Sen. Edward Kennedy, D-Mass., chairman of the Senate Education Committee.
Students are just starting to line up financial aid packages for college this fall. Experts say the impact of the credit crunch on the student lending market probably won't be entirely clear until this summer.
The administration's support, expressed Wednesday in a letter to Sen. Christopher Dodd, D-Conn., came after a bipartisan House vote last week backing the bill to give the Education Department authority to buy up loans from student lenders to ensure they have access to capital and can keep issuing loans.
The nation's largest student lender, Sallie Mae, formerly SLM Corp., had aggressively pushed for federal aid. Its chief executive, Albert Lord, warned last week that the company could not lose money on federally backed student loans indefinitely.
Shares of Sallie Mae fell 54 cents, or 3 percent, to $17.10 in midday trading. Wall Street analysts had hoped the Treasury Department would be able to act -- without legislation -- to shore up student loan funding
But Bush administration officials concluded that that a Treasury financing agency doesn't have the authority to buy such loans.
Dozens of lenders recently stopped making loans under the federal student loan program, in which the government subsidizes and backs low-interest loans.
Larry Warder, the Education Department's acting chief operating officer for federal student aid, said in a briefing with reporters that Congress needs to pass the bill "in a reasonable time frame."
Demand for securities backed by student loans has plummeted as investors have grown nervous about securities backed by mortgages, student loans and other debt. Meanwhile, a new law passed last year reduced government subsidies for federally backed student loans, whose interest rates are capped at 6.8 percent.
The House bill is similar to legislation introduced in the Senate by Sen. Edward Kennedy, D-Mass., chairman of the Senate Education Committee.
Students are just starting to line up financial aid packages for college this fall. Experts say the impact of the credit crunch on the student lending market probably won't be entirely clear until this summer.
Lessen Pain in Student Loan
The U.S. House of Representatives, acting with uncharacteristic haste, passed legislation intended as a safety net for the bank-based student loan system. The global credit crunch has resulted in significantly increased costs for loan companies that, unlike traditional banks, rely on capital markets for funding their loan portfolios.
A taxpayer-funded intervention is necessary, the bill's advocates say, because several lenders have dropped out or scaled back participation in the federally guaranteed lending program. While no student has yet been denied a loan, lenders and their allies have insisted that federal intervention would shore up markets badly in need of liquidity. Some critics, including AACRAO, have questioned the timing and the configuration of loan industry's preferred solutions, and have been concerned that lenders may be attempting to use Wall Street's credit woes as an excuse to discard bad loans and reverse the effects of subsidy cuts enacted just last year.
The House bill attempts to avert a possible disruption through several policy tools. It would:
Allow the Secretary to declare borrowers at an entire college in need of a “lender of last resort” should private financing become scarce;
Authorize the Secretary to purchase bank-based loans to provide liquidity for loan originators.
Incrase federal loan limits by $1,000 for dependent undergraduate borrowers and $2,000 for independent undergraduate borrowers. A similar provision for graduate students was scrapped in order to reduce costs and comply with the Democrats' “pay-as-you-go” principle.
Require the Government Accountability Office to study whether raising federal loan limits causes increased tuition;
Similar legislation has been introduced in the Senate, although it has yet to be taken up for consideration.
A taxpayer-funded intervention is necessary, the bill's advocates say, because several lenders have dropped out or scaled back participation in the federally guaranteed lending program. While no student has yet been denied a loan, lenders and their allies have insisted that federal intervention would shore up markets badly in need of liquidity. Some critics, including AACRAO, have questioned the timing and the configuration of loan industry's preferred solutions, and have been concerned that lenders may be attempting to use Wall Street's credit woes as an excuse to discard bad loans and reverse the effects of subsidy cuts enacted just last year.
The House bill attempts to avert a possible disruption through several policy tools. It would:
Allow the Secretary to declare borrowers at an entire college in need of a “lender of last resort” should private financing become scarce;
Authorize the Secretary to purchase bank-based loans to provide liquidity for loan originators.
Incrase federal loan limits by $1,000 for dependent undergraduate borrowers and $2,000 for independent undergraduate borrowers. A similar provision for graduate students was scrapped in order to reduce costs and comply with the Democrats' “pay-as-you-go” principle.
Require the Government Accountability Office to study whether raising federal loan limits causes increased tuition;
Similar legislation has been introduced in the Senate, although it has yet to be taken up for consideration.
Mortgage-refinance wave
WASHINGTON -- An expected wave of refinancings failed to materialize earlier this year. But in anticipation of further rate cuts by the Federal Reserve Board, lenders are girding for a mini-boom in the coming weeks. Are you ready? Qualifying for a mortgage won't be as easy as it was just a year or two ago. Now, lenders are being far more picky.Keeping in mind that you may need to move quickly, now is the time to obtain copies of your credit report from the three major credit repositories -- TransUnion, Equifax and Experian. You are entitled to a free credit report once a year from each agency. Go to www.annualcreditreport.com or call (877) 322-8228.Don't worry that the three reports don't match. The repositories take information from different trade lines. It's more important to scour the reports for errors or damaging information and get them corrected or removed. Doing so "will have an immediate and positive effect" on your credit score, said Bruce Brown, president of First Security Mortgage Co. in Kansas City, Mo., and a certified mortgage-planning specialist. You'll need documentation of wages, savings and other assets. To prove earnings, you'll need your last three pay stubs. If you are self-employed, the lender will want to see signed copies of your last two tax returns and a current profit-and-loss statement. Also have at the ready the last two years' tax returns for your business.You'll need some cash too. You'll probably be paying discount points, origination fees and other costs.Some charges may be lower than the last time around. Title-insurance policies, for example, are often priced up to 70% lower when the same company that wrote the original policy reissues them.You should receive an estimate of your closing costs when you apply for your new loan. But remember, these figures are subject to change, so be prepared to pay more. If you are short on funds, though, you may be able to roll the charges into the loan.Determine whether your old loan has a prepayment penalty. If it does, you can pay it from the equity you have in the house. But if it's been only a year or two since you took out the current loan, you may not have enough equity to cover the penalty. In that case, you either have to pay the fee or add it to the new loan's balance.You'll also need to show that you have enough money in your savings account to cover at least two monthly payments.The lender will want a list of current debts, including mortgages on your other real property, car loans and credit-card accounts, with account numbers, plus a list of your checking and savings accounts with the account numbers.Lenders have become very concerned about fraud, so you'll have to prove you are who you say you are. To do that, you'll need a photo ID and a copy of your Social Security card. If you are a foreign national, you'll have to prove you are in the United States legally.Another issue for lenders is proof positive that the house is worth what you say it is. You can help yourself by finding properties like yours that have sold within the last six months. The properties must be comparable -- in the same or a nearby neighborhood, the same number of bedrooms and bathrooms, and so on.You might come up with the same properties as the lender's appraiser. But you might find different ones, and you need to be armed and ready if the value of properties the appraiser uses are not as great as the ones you have uncovered. Once you have your package together, get it to a mortgage broker who can send it to a lender at a moment's notice."The market is so volatile today that we've seen rate swings of three-eighths to a half a point in a single day," said Brown of First Security Mortgage. "We've had instances where we called a client at 9 a.m. with a favorable rate that was gone when he called back two hours later."Your best bet, of course, is to start with your current lender. Often, your lender will offer a discount if you stay.
Students Feel Squeeze
Students in the United States have lost access to more than $6.7 billion a year in education loans since private lenders fled the market, spurring schools including Pennsylvania State University and Northeastern University to turn to the Education Department's Direct Loan Program.
Dozens of lenders, led by College Loan Corp. and CIT Group, stopped making federally guaranteed loans because the government cut subsidies and investors hurt by the subprime-mortgage crisis shunned bonds backed by student loans. At least 178 schools have applied since Feb. 28 to let students borrow from the direct program, compared with 80 that applied last year.
Colleges' shift to direct loans means that students won't get discounts that banks and other lenders offered until recently. Those incentives included waivers of fees, which amounted to 2.5 to 4 percent of the borrowed amount, or a one-percentage-point reduction in the interest rate after three years of on-time payments, said Mark Kantrowitz, the publisher of FinAid.org, a scholarship and loan information Web site. Lenders that remain in the market have reduced or eliminated those discounts, he said.
Students took out about $68.2 billion in U.S.-backed loans this academic year, Kantrowitz said. The borrowing is projected to rise by almost $4 billion for the next school year as both the student population and costs increase, he said. More schools say they are seeking access to U.S. direct loans as private lenders drop out.
"Certainly, having students have secure access to funds is of the utmost importance," said Anthony Irwin, director of financial-aid services at Northeastern, in Boston. The school will switch to the U.S. program after two private lenders that served its students stopped making federally backed loans.
The Education Department is backing legislation that would allow the federal government to buy student loans from banks and other companies to ensure funds are available for further lending, said Lawrence Warder, the acting chief operating officer of the department's Federal Student Aid program. The legislation, passed by the House on April 17, needs to be on the president's desk by June 1 to help students in the next school year, he said.
The Federal Family Education Loan Program, or FFELP, requires lenders to cap annual interest rates at 6.8 percent for the most common type of loan and guarantees that the government will reimburse them for defaults. The exodus from the program so far is equivalent to 13.6 percent of FFELP loans in the fiscal year ended September 2006, Kantrowitz said.
The effects on the $400 billion loan market will start to appear in coming weeks, as families start seeking loans for the next academic year. Loan originations typically peak between July and September. No qualified applicants have failed to find loans, according to schools and government officials.
Direct lending, now with about 1,000 participating schools, grew rapidly after going into full operation in 1993, capturing about a third of the federal-loan market from private lenders by 1997. Its share decreased to 19 percent in 2007 and the number of schools dropped 18 percent, as private lenders offered borrowers incentives, such as waiving fees or giving lower interest rates.
"The plain and simple fact is, for the borrower and the schools, the private program has worked better," said Joe Belew, president of the Consumer Bankers Association, a trade group in Arlington. "You had universities and colleges vote with their feet by trying the direct program, and they left it in droves."
Lenders said Congress cut the default guarantee, the interest rates that private FFELP lenders will be able to charge in the future, and subsidies, making the loans less profitable. Meanwhile, the meltdown in the credit markets cut off capital used for lending.
Dozens of lenders, led by College Loan Corp. and CIT Group, stopped making federally guaranteed loans because the government cut subsidies and investors hurt by the subprime-mortgage crisis shunned bonds backed by student loans. At least 178 schools have applied since Feb. 28 to let students borrow from the direct program, compared with 80 that applied last year.
Colleges' shift to direct loans means that students won't get discounts that banks and other lenders offered until recently. Those incentives included waivers of fees, which amounted to 2.5 to 4 percent of the borrowed amount, or a one-percentage-point reduction in the interest rate after three years of on-time payments, said Mark Kantrowitz, the publisher of FinAid.org, a scholarship and loan information Web site. Lenders that remain in the market have reduced or eliminated those discounts, he said.
Students took out about $68.2 billion in U.S.-backed loans this academic year, Kantrowitz said. The borrowing is projected to rise by almost $4 billion for the next school year as both the student population and costs increase, he said. More schools say they are seeking access to U.S. direct loans as private lenders drop out.
"Certainly, having students have secure access to funds is of the utmost importance," said Anthony Irwin, director of financial-aid services at Northeastern, in Boston. The school will switch to the U.S. program after two private lenders that served its students stopped making federally backed loans.
The Education Department is backing legislation that would allow the federal government to buy student loans from banks and other companies to ensure funds are available for further lending, said Lawrence Warder, the acting chief operating officer of the department's Federal Student Aid program. The legislation, passed by the House on April 17, needs to be on the president's desk by June 1 to help students in the next school year, he said.
The Federal Family Education Loan Program, or FFELP, requires lenders to cap annual interest rates at 6.8 percent for the most common type of loan and guarantees that the government will reimburse them for defaults. The exodus from the program so far is equivalent to 13.6 percent of FFELP loans in the fiscal year ended September 2006, Kantrowitz said.
The effects on the $400 billion loan market will start to appear in coming weeks, as families start seeking loans for the next academic year. Loan originations typically peak between July and September. No qualified applicants have failed to find loans, according to schools and government officials.
Direct lending, now with about 1,000 participating schools, grew rapidly after going into full operation in 1993, capturing about a third of the federal-loan market from private lenders by 1997. Its share decreased to 19 percent in 2007 and the number of schools dropped 18 percent, as private lenders offered borrowers incentives, such as waiving fees or giving lower interest rates.
"The plain and simple fact is, for the borrower and the schools, the private program has worked better," said Joe Belew, president of the Consumer Bankers Association, a trade group in Arlington. "You had universities and colleges vote with their feet by trying the direct program, and they left it in droves."
Lenders said Congress cut the default guarantee, the interest rates that private FFELP lenders will be able to charge in the future, and subsidies, making the loans less profitable. Meanwhile, the meltdown in the credit markets cut off capital used for lending.
Interest-free loans to farmers
Farmers who have cleared their debts within the period covered by the Rs 60,000-crore loan waiver scheme should be provided interest-free loans for three years, suggested a Parliamentary committee.
"Prompt repayers of loans during the period covered by the debt waiver scheme should be allowed full interest subvention in immediate future agricultural loans for the next three years so as not to send wrong signals to debtors prompting them to default in payment and disincentivise prompt repayers," the Standing Committee on Agriculture said in its report.
In addition to interest subvention, the panel has recommended agricultural loans at interest rate of 4 per cent if indebtedness of farmers to moneylenders cannot be covered by the debt waiver scheme.
"Banks may give loans at 4 per cent per annum to the farmers to redeem their debts to moneylenders and the government may give interest submission (subvention) to compensate the banks," the committee, headed by Ram Gopal Yadav, stated.
The committee has further said that the debt waiver scheme should invariably be accompanied by appropriate efforts that enable farmers consolidate the gains from the relief.
The report said farmers benefited from the scheme should be given subsidised and good quality seed and fertiliser to produce enough marketable surplus to sustain themselves from next season onwards.
"Prompt repayers of loans during the period covered by the debt waiver scheme should be allowed full interest subvention in immediate future agricultural loans for the next three years so as not to send wrong signals to debtors prompting them to default in payment and disincentivise prompt repayers," the Standing Committee on Agriculture said in its report.
In addition to interest subvention, the panel has recommended agricultural loans at interest rate of 4 per cent if indebtedness of farmers to moneylenders cannot be covered by the debt waiver scheme.
"Banks may give loans at 4 per cent per annum to the farmers to redeem their debts to moneylenders and the government may give interest submission (subvention) to compensate the banks," the committee, headed by Ram Gopal Yadav, stated.
The committee has further said that the debt waiver scheme should invariably be accompanied by appropriate efforts that enable farmers consolidate the gains from the relief.
The report said farmers benefited from the scheme should be given subsidised and good quality seed and fertiliser to produce enough marketable surplus to sustain themselves from next season onwards.
Land Registry
House prices fell for the second consecutive month in March, according to official figures released today.
The Land Registry figures, which show that the average cost of a home in England and Wales dropped by 0.4 per cent in March to stand at £184,798, will add to growing fears that the UK is about to suffer a significant slump in the housing market.
Six regions of England and Wales saw price falls during March, with Wales seeing the steepest drop of 2.2 per cent, followed by the East Midlands at 2.1 per cent and the South East at 1.6 per cent. Homes in Wales now cost an average of 1.3 per cent less than they did 12 months earlier, while the value of property in the East Midlands is now 0.7 per cent lower.
At the other end of the scale, prices jumped by 2.4 per cent in the North East in March, with gains of 0.8 per cent in the North West, and 0.6 per cent in London. The Land Registry also revealed that housing market transactions averaged 81,926 a month between October 2007 and January 2008, which was down 25.5 per cent year-on-year. Sales volumes were also weakening more markedly at the end of this period, as they were down 39.2 per cent year-on-year in January at 53,221.
Howard Archer, chief UK economist at Global Insight said: "We now expect house prices to fall by 7 per cent in 2008 and 9 per cent in 2009. Furthermore, the longer the credit crunch goes on and the deeper and longer the UK economic slowdown is, the greater the danger will be that an even sharper housing market correction will occur.
"Current rapidly deteriorating sentiment over the housing market also heightens the risk that house prices could fall more sharply over the next couple of years. Consequently, it is very possible that a drop of more than 20 per cent in house prices could occur over the next couple of years.
The official figures came as a leading estate agent suggested that house prices could fall by as much as 25 per cent if the credit crunch persists, with the market declining by 10 per cent this year and by a further 15 percentage points in 2009.
The pain will be felt in all but the most exclusive postcodes, according to Savills, the estate agent.
However, action by lenders could limit the credit crunch impact to a slide of 6 per cent.
Savills’ revised forecasts coincide with figures from Hometrack, the property data business, showing that house prices have dropped a further 0.6 per cent in the past month, the seventh consecutive fall.
Estate agents polled by Hometrack said that prices are 0.9 per cent lower than a year ago.
The Land Registry figures, which show that the average cost of a home in England and Wales dropped by 0.4 per cent in March to stand at £184,798, will add to growing fears that the UK is about to suffer a significant slump in the housing market.
Six regions of England and Wales saw price falls during March, with Wales seeing the steepest drop of 2.2 per cent, followed by the East Midlands at 2.1 per cent and the South East at 1.6 per cent. Homes in Wales now cost an average of 1.3 per cent less than they did 12 months earlier, while the value of property in the East Midlands is now 0.7 per cent lower.
At the other end of the scale, prices jumped by 2.4 per cent in the North East in March, with gains of 0.8 per cent in the North West, and 0.6 per cent in London. The Land Registry also revealed that housing market transactions averaged 81,926 a month between October 2007 and January 2008, which was down 25.5 per cent year-on-year. Sales volumes were also weakening more markedly at the end of this period, as they were down 39.2 per cent year-on-year in January at 53,221.
Howard Archer, chief UK economist at Global Insight said: "We now expect house prices to fall by 7 per cent in 2008 and 9 per cent in 2009. Furthermore, the longer the credit crunch goes on and the deeper and longer the UK economic slowdown is, the greater the danger will be that an even sharper housing market correction will occur.
"Current rapidly deteriorating sentiment over the housing market also heightens the risk that house prices could fall more sharply over the next couple of years. Consequently, it is very possible that a drop of more than 20 per cent in house prices could occur over the next couple of years.
The official figures came as a leading estate agent suggested that house prices could fall by as much as 25 per cent if the credit crunch persists, with the market declining by 10 per cent this year and by a further 15 percentage points in 2009.
The pain will be felt in all but the most exclusive postcodes, according to Savills, the estate agent.
However, action by lenders could limit the credit crunch impact to a slide of 6 per cent.
Savills’ revised forecasts coincide with figures from Hometrack, the property data business, showing that house prices have dropped a further 0.6 per cent in the past month, the seventh consecutive fall.
Estate agents polled by Hometrack said that prices are 0.9 per cent lower than a year ago.
House prices
In a targeted appeal to London's poorer voters, mayoral candidate Boris Johnson recently boasted that his Islington home is worth "shedloads". Or rather it was. The above figures show just how hard a job Boris would have if he tried to shift his house this week. Sales in Islington in the first three months of this year have collapsed to a quarter of what they were a year earlier.
There are, however, few signs of distress sales in Islington's smart Georgian villas. The turnover of property is low, which means that few buyers will have bought at the top of the market. Tony Blair's old street, Richmond Crescent, for example, hasn't seen a single sale in 2008 and saw only two sales in 2007. The much longer adjoining Richmond Avenue has not seen a single sale in 2008 either, having seen 10 in 2007. In a market with this kind of turnover it is academic whether prices are falling or not: there are simply too few sales to judge. What can be said is that prices have risen enormously in the 11 years since the Blairs sold up. They sold for £615,000. In 2004 the house went back on the market at £1.69 million and sold for £1.3million. Last September a similar semi-detached villa down the road sold for £2.25million, but there is no one selling at the moment to test the credit crunch market.
There are, however, few signs of distress sales in Islington's smart Georgian villas. The turnover of property is low, which means that few buyers will have bought at the top of the market. Tony Blair's old street, Richmond Crescent, for example, hasn't seen a single sale in 2008 and saw only two sales in 2007. The much longer adjoining Richmond Avenue has not seen a single sale in 2008 either, having seen 10 in 2007. In a market with this kind of turnover it is academic whether prices are falling or not: there are simply too few sales to judge. What can be said is that prices have risen enormously in the 11 years since the Blairs sold up. They sold for £615,000. In 2004 the house went back on the market at £1.69 million and sold for £1.3million. Last September a similar semi-detached villa down the road sold for £2.25million, but there is no one selling at the moment to test the credit crunch market.
Ease Student Loan Crunch
April 29 (Bloomberg) -- President George W. Bush said Congress should back legislation that would give the federal government more authority to buy student loans from banks and other private companies.
``The recent credit crunch makes it uncertain that some students will be able to get the loans they need,'' Bush said at a White House press conference. ``Congress needs to pass a bill that would temporarily give the government greater authority to buy federal student loans.''
More than 50 lenders, accounting for 14 percent of the private student loan volume, have withdrawn from the guaranteed student-loan program. The companies cite increased borrowing costs, cuts in government subsidies for education loans and a lack of investor interest in securities backed by loans.
About 7 million borrowers will need more than $68 billion in federal loans this academic year, according to Education Department estimates.
Bush has said he supports a bill that has passed the House of Representatives that would safeguard student loans without permanently expanding the government's role in their financing. The authority granted by the bill is temporary, and would be used only because of a shortage of loans for students, he said.
The Senate version of the bill has yet to come under consideration.
``The recent credit crunch makes it uncertain that some students will be able to get the loans they need,'' Bush said at a White House press conference. ``Congress needs to pass a bill that would temporarily give the government greater authority to buy federal student loans.''
More than 50 lenders, accounting for 14 percent of the private student loan volume, have withdrawn from the guaranteed student-loan program. The companies cite increased borrowing costs, cuts in government subsidies for education loans and a lack of investor interest in securities backed by loans.
About 7 million borrowers will need more than $68 billion in federal loans this academic year, according to Education Department estimates.
Bush has said he supports a bill that has passed the House of Representatives that would safeguard student loans without permanently expanding the government's role in their financing. The authority granted by the bill is temporary, and would be used only because of a shortage of loans for students, he said.
The Senate version of the bill has yet to come under consideration.
Friday, May 2, 2008
U.K. Loan
April 29 (Bloomberg) -- U.K. mortgage approvals fell in March to the lowest level in at least nine years as banks shrank their lending businesses to cope with the credit-market freeze.
Banks granted 64,000 loans for house purchase, compared with 72,000 in February, the Bank of England said in London today. The result was the lowest since the series began in 1999. Economists predicted a drop to 66,000, according to the median of 30 forecasts in a Bloomberg News survey.
The Bank of England has offered to swap government bonds for mortgage securities in a bid to restore confidence in the financial system, which may kick-start the market for home loans. U.K. house prices fell the most in more than three years this month, Hometrack Ltd. said yesterday.
``The mortgage approval figures really emphasize that we are in the throes of a very pronounced slowdown in the housing market,'' Erik Britton, an economist at Fathom Financial Consulting in London who used to work at the Bank of England, said in a Bloomberg Television interview.
The pound was little changed after the report and traded at $1.9832 at 9.44 a.m. in London. Against the euro, it traded at 78.54 pence, around the same level as before the mortgage figures.
Net lending on homes fell to 6.9 billion pounds ($14 billion) in March, the lowest in three years, from 7.3 billion pounds the previous month, the Bank of England said. The value of mortgages granted by customer-owned lenders fell to 2.9 billion pounds, the least since September 2004.
Capital Boost
HBOS Plc, the U.K.'s biggest mortgage lender, today announced plans to sell 4 billion pounds of shares to investors to bolster capital depleted by writedowns and the deteriorating housing market. Bradford & Bingley Plc, the U.K.'s biggest lender to landlords, said April 22 it took more credit writedowns in the first quarter and cut lending.
House prices declined 2.5 percent last month, the most since 1992, according to HBOS. The average cost of a home in England and Wales dropped 0.6 percent in April, the most since December 2004, to 173,100 pounds, Hometrack said.
The British economy grew 0.4 percent in the first quarter, the slowest pace since 2005, the Office for National Statistics said on April 25. The International Monetary Fund forecasts U.K. growth of 1.6 percent in 2008, the least since the end of the last recession 16 years ago.
Consumers have still kept spending, adding to record debts of 1.4 trillion pounds. Retail sales rose 2 percent in the first quarter, the strongest pace for the first three months of the year since 2004.
Today's data show Britons were more reluctant to borrow on unsecured debt to fund their spending. Net consumer credit fell to 1.2 billion pounds in March from 2.3 billion pounds in February, as the value of personal loans and overdrafts dropped by more than half.
Bank of England policy makers this month reduced the benchmark interest rate for the third time since December to 5 percent to stave off a recession. The bank will keep its benchmark rate unchanged on May 8, according to the median forecast of 30 economists surveyed by Bloomberg News.
Banks granted 64,000 loans for house purchase, compared with 72,000 in February, the Bank of England said in London today. The result was the lowest since the series began in 1999. Economists predicted a drop to 66,000, according to the median of 30 forecasts in a Bloomberg News survey.
The Bank of England has offered to swap government bonds for mortgage securities in a bid to restore confidence in the financial system, which may kick-start the market for home loans. U.K. house prices fell the most in more than three years this month, Hometrack Ltd. said yesterday.
``The mortgage approval figures really emphasize that we are in the throes of a very pronounced slowdown in the housing market,'' Erik Britton, an economist at Fathom Financial Consulting in London who used to work at the Bank of England, said in a Bloomberg Television interview.
The pound was little changed after the report and traded at $1.9832 at 9.44 a.m. in London. Against the euro, it traded at 78.54 pence, around the same level as before the mortgage figures.
Net lending on homes fell to 6.9 billion pounds ($14 billion) in March, the lowest in three years, from 7.3 billion pounds the previous month, the Bank of England said. The value of mortgages granted by customer-owned lenders fell to 2.9 billion pounds, the least since September 2004.
Capital Boost
HBOS Plc, the U.K.'s biggest mortgage lender, today announced plans to sell 4 billion pounds of shares to investors to bolster capital depleted by writedowns and the deteriorating housing market. Bradford & Bingley Plc, the U.K.'s biggest lender to landlords, said April 22 it took more credit writedowns in the first quarter and cut lending.
House prices declined 2.5 percent last month, the most since 1992, according to HBOS. The average cost of a home in England and Wales dropped 0.6 percent in April, the most since December 2004, to 173,100 pounds, Hometrack said.
The British economy grew 0.4 percent in the first quarter, the slowest pace since 2005, the Office for National Statistics said on April 25. The International Monetary Fund forecasts U.K. growth of 1.6 percent in 2008, the least since the end of the last recession 16 years ago.
Consumers have still kept spending, adding to record debts of 1.4 trillion pounds. Retail sales rose 2 percent in the first quarter, the strongest pace for the first three months of the year since 2004.
Today's data show Britons were more reluctant to borrow on unsecured debt to fund their spending. Net consumer credit fell to 1.2 billion pounds in March from 2.3 billion pounds in February, as the value of personal loans and overdrafts dropped by more than half.
Bank of England policy makers this month reduced the benchmark interest rate for the third time since December to 5 percent to stave off a recession. The bank will keep its benchmark rate unchanged on May 8, according to the median forecast of 30 economists surveyed by Bloomberg News.
Funding for student loans
Financing college is likely to get easier, thanks to a bill sailing through Congress.The Ensuring Continued Access to Student Loans Act of 2008, passed by the Senate on Wednesday, would let parents and students borrow more from the government. It could also boost grants for some needy high achievers.The House has passed its own version of the bill. Here's a rundown on the proposal and how it could affect you.The continuing credit crunch has caused about 65 lenders to back out of the student loan market in the last three months. Currently, students borrow about $85 billion a year to finance higher education. With college costs rising and the economy slowing, legislators say student loans are more important than ever. House and Senate leaders agreed to provide more government backing for so-called unsubsidized Stafford loans -- the most common type of federally guaranteed loan. This is likely to save students millions of dollars by letting them forgo costly private loans.The bill is projected to make money for the government -- $450 million over five years. Lawmakers agreed to use those funds toThere are three common types of student loans: subsidized Staffords, unsubsidized Staffords and private loans. Both types of Stafford loans have fixed interest rates and terms set by the government. Any Stafford loan taken out after July 1 will have a fixed rate of 6% for the life of the loan. The difference between subsidized and unsubsidized Stafford loans is that the federal government pays the interest on the subsidized loan while the student is in school; the interest accrues on an unsubsidized Stafford loan while the student is in school and must be repaid when the student graduates.The government would boost the maximum amount that students can borrow under the unsubsidized Stafford program with this legislation. This bill does not affect subsidized Stafford loans. Maximum loan limits vary, but for typical freshmen the amount they can borrow under the unsubsidized Stafford program will rise to $5,500 from $3,500. Sophomores will be able to borrow $6,500, up from $4,500. Juniors and seniors will be able to borrow $7,500, compared with $5,500 currently.These hikes are likely to reduce student reliance on private loans, which now account for roughly one-quarter of all funds borrowed for college. These loans' interest rates and terms aParents now can borrow under the Parents Loans for Students program, known as PLUS. The catch with a PLUS loan is that borrowers must start repaying within 60 days of disbursement. This legislation would let parents defer repayment while their child is in school. Interest on the loan would accrue while the repayment is deferred, which can prove costly, but it provides an option for parents who can't afford to repay the loans while their children are in college.re set by the lender; some have rates as high as 20%. boost grants for needy students.
Student Loan Bill
WASHINGTON -(Dow Jones)- Legislation aimed at preventing the credit crisis from extending to the student loan market passed through the House Thursday and will now make its way to the White House for the president's signature.
The bill sailed through the Senate Wednesday and was adopted by the House Thursday with a strong majority.
There have been no reports of eligible students unable to secure loans to pay for college, but there are a growing number of private lenders who have withdrawn from both a government-backed program and lending directly to students.
"Today's vote will help ensure that students' dreams of going to college aren't sidelined by the turmoil in the credit markets," said Rep. George Miller, D-Calif., the chairman of the House Education and Labor Committee, and one of the bill's authors.
The bill recognizes the authority granted previously to the Department of Education but never invoked, to pour liquidity into the student loan marketplace if there are signs it is seizing up.
The education secretary would be able to designate firms as lenders of last resort and provide them with capital to ensure there is sufficient liquidity in the marketplace.
As a further measure to ensure liquidity, the secretary would be able to purchase loans from lenders unable to securitize them and sell them on.
The bill moved through Congress swiftly, a sign of the degree of seriousness with which lawmakers view the possibility of students being unable to get funding for education in the fall.
The White House has indicated its support for measures to bolster the student loan industry. Last week it sent a letter to Sen. Christopher Dodd, D-Conn., underlining the need to move quickly.
"Implementing this authority will take time, so it is imperative to move this legislation without delay if this authority is to be used in the upcoming school year," the letter from the administration said.
The bill would also provide direct support for families who are struggling due to the weakening economy.
It would increase the amount that students whose parents are acting as a guarantor can borrow over the course of their post-secondary education to $31, 000 in federal loans, from the current $23,000.
Students who are independent would be allowed to borrow $57,500, up from the current ceiling of $46,000.
Parents would be given six months from the time their children graduate before they have to begin paying off their student loan without incurring interest on it.
And families that would otherwise be eligible for the federal funding program but have become delinquent in their mortgage payments or medical bills would still be able to qualify for loans.
A spokeswoman for the House Education panel said that over the course of five years, the bill would generate $455 million in savings for the Treasury Department. That money would be automatically poured into a grant program for low-income students majoring in areas deemed to be in high demand in the workforce like math, science, engineering and languages.
The bill sailed through the Senate Wednesday and was adopted by the House Thursday with a strong majority.
There have been no reports of eligible students unable to secure loans to pay for college, but there are a growing number of private lenders who have withdrawn from both a government-backed program and lending directly to students.
"Today's vote will help ensure that students' dreams of going to college aren't sidelined by the turmoil in the credit markets," said Rep. George Miller, D-Calif., the chairman of the House Education and Labor Committee, and one of the bill's authors.
The bill recognizes the authority granted previously to the Department of Education but never invoked, to pour liquidity into the student loan marketplace if there are signs it is seizing up.
The education secretary would be able to designate firms as lenders of last resort and provide them with capital to ensure there is sufficient liquidity in the marketplace.
As a further measure to ensure liquidity, the secretary would be able to purchase loans from lenders unable to securitize them and sell them on.
The bill moved through Congress swiftly, a sign of the degree of seriousness with which lawmakers view the possibility of students being unable to get funding for education in the fall.
The White House has indicated its support for measures to bolster the student loan industry. Last week it sent a letter to Sen. Christopher Dodd, D-Conn., underlining the need to move quickly.
"Implementing this authority will take time, so it is imperative to move this legislation without delay if this authority is to be used in the upcoming school year," the letter from the administration said.
The bill would also provide direct support for families who are struggling due to the weakening economy.
It would increase the amount that students whose parents are acting as a guarantor can borrow over the course of their post-secondary education to $31, 000 in federal loans, from the current $23,000.
Students who are independent would be allowed to borrow $57,500, up from the current ceiling of $46,000.
Parents would be given six months from the time their children graduate before they have to begin paying off their student loan without incurring interest on it.
And families that would otherwise be eligible for the federal funding program but have become delinquent in their mortgage payments or medical bills would still be able to qualify for loans.
A spokeswoman for the House Education panel said that over the course of five years, the bill would generate $455 million in savings for the Treasury Department. That money would be automatically poured into a grant program for low-income students majoring in areas deemed to be in high demand in the workforce like math, science, engineering and languages.
Friday, February 1, 2008
Fannie and Freddie
Congress is breaking out its blunt instruments. A stimulus package just passed by the House of Representatives would allow Fannie Mae and Freddie Mac, the government-sponsored re-packagers of mortgages, to buy jumbo mortgage loans valued at up to $729,750 – well above the current $417,000 limit. Such a move would unduly expand the mortgage giants’ reach in exchange for potentially meagre short-term benefits to the housing market. On the face of it, the government’s efforts to boost jumbo loan liquidity are understandable. The spread between interest rates on jumbo loans and smaller loans that conform to Fannie and Freddie’s standards has quadrupled to a full percentage point. Investors’ limited appetite for jumbo loans has dulled the effects of the Federal Reserve’s interest rate cuts. If Fannie and Freddie could buy and securitise those loans, it could stimulate lending in regions where homes are particularly costly. Jan-14 |
Monday, January 21, 2008
Santa Clara County prices rise
With nearly 40 percent fewer Bay Area homes selling last month than in December 2006 - reaching a record low - the reality of the Bay Area housing market shifted subtly.
In San Francisco and San Mateo counties, where housing values have been relatively resilient compared with outlying areas, median prices dropped last month. Santa Clara County's median house price rose slightly, but only because cheaper homes are still selling much more rarely than the expensive ones.
December is often a slow month, but what's to blame for the super-freeze last year? Consumer confidence has been hammered by crisis in the credit markets and stock market volatility. Many loans are harder to get. So buyers are waiting.
Just 5,065 new and resale houses and condos changed hands in the nine-county area in December, about 40 percent fewer than a year earlier, according to DataQuick Information Systems. It was a new low for the month in the company's records, which go back to 1988. The previous trough was in December 1990, when 5,458 homes sold.
Prices of single-family homes fell last month in every Bay Area county except in Santa Clara, where the median price rose 4.6 percent from December 2006 to $739,000. The county's recent peak for house prices was in July, at $805,500.
But for most of 2007, median prices in Santa Clara County were inflated by the fact that home sales in the county's least expensive
neighborhoods have been depressed by the subprime mortgage market collapse.
In San Mateo County, the median house price declined 2.7 percent last month from a year earlier, to $765,000, and Alameda County house prices dropped 10.9 percent, to $552,500.
"What this shows is continued weakness throughout the Bay Area," said Ken Rosen, chair of the Fisher Center for Real Estate at University of California-Berkeley. He noted the exception of the median house price in Santa Clara County, but said that figure masked "pockets of real strength and pockets of real weakness" in the county.
Santa Clara County's high-end housing market has remained relatively healthy "partly because of the technology and venture capital businesses that have been so strong," Rosen said. "The recent declines in Nasdaq, and other announcements, indicate that maybe even Santa Clara will go into a house price decline."
DataQuick's newest figures are based on sales that became final in December, meaning most deals began in October or November - just when more effects of the unraveling credit markets were coming to light. In early October, the Dow Jones industrial average was soaring beyond 14,000; by the day after Thanksgiving, it had dropped to just under 13,000.
Many consumers lack confidence in the economy, including Cambrian homeowners Jill Simpson and her husband.
"We'd love to upgrade to a bigger house," she said. "With the recession looming, we're thinking maybe we shouldn't risk it." Maybe in a few more months, she said, if prices come down a bit in Almaden Valley, where she hopes to move. And if they don't fall too much in Cambrian, which would erode her buying power. And if she could find a house that wasn't a major fixer-upper or on a busy street. And if the semiconductor industry, where her husband works, seems stable.
Even for those eager to buy, obtaining a Bay Area-size mortgage can be tougher than it was just six months ago, when the credit markets began to stumble after a few years of don't-ask-don't-tell lending standards.
Now, not only must applicants verify their incomes and have sizable down payments at the ready, but rates for loans of more than $417,000 - so-called "jumbo loans" - can run to 7 percent or more. Lenders change their guidelines and rates constantly, loan brokers say.
Meanwhile, rates for "conforming" loans up to $417,000 - which are typically backed by mortgage financing companies Fannie Mae and Freddie Mac - have been falling. The national average rate for a conforming 30-year mortgage this week was 5.69 percent, according to Freddie Mac, compared with 6.23 percent a year ago.
In San Francisco and San Mateo counties, where housing values have been relatively resilient compared with outlying areas, median prices dropped last month. Santa Clara County's median house price rose slightly, but only because cheaper homes are still selling much more rarely than the expensive ones.
December is often a slow month, but what's to blame for the super-freeze last year? Consumer confidence has been hammered by crisis in the credit markets and stock market volatility. Many loans are harder to get. So buyers are waiting.
Just 5,065 new and resale houses and condos changed hands in the nine-county area in December, about 40 percent fewer than a year earlier, according to DataQuick Information Systems. It was a new low for the month in the company's records, which go back to 1988. The previous trough was in December 1990, when 5,458 homes sold.
Prices of single-family homes fell last month in every Bay Area county except in Santa Clara, where the median price rose 4.6 percent from December 2006 to $739,000. The county's recent peak for house prices was in July, at $805,500.
But for most of 2007, median prices in Santa Clara County were inflated by the fact that home sales in the county's least expensive
neighborhoods have been depressed by the subprime mortgage market collapse.
In San Mateo County, the median house price declined 2.7 percent last month from a year earlier, to $765,000, and Alameda County house prices dropped 10.9 percent, to $552,500.
"What this shows is continued weakness throughout the Bay Area," said Ken Rosen, chair of the Fisher Center for Real Estate at University of California-Berkeley. He noted the exception of the median house price in Santa Clara County, but said that figure masked "pockets of real strength and pockets of real weakness" in the county.
Santa Clara County's high-end housing market has remained relatively healthy "partly because of the technology and venture capital businesses that have been so strong," Rosen said. "The recent declines in Nasdaq, and other announcements, indicate that maybe even Santa Clara will go into a house price decline."
DataQuick's newest figures are based on sales that became final in December, meaning most deals began in October or November - just when more effects of the unraveling credit markets were coming to light. In early October, the Dow Jones industrial average was soaring beyond 14,000; by the day after Thanksgiving, it had dropped to just under 13,000.
Many consumers lack confidence in the economy, including Cambrian homeowners Jill Simpson and her husband.
"We'd love to upgrade to a bigger house," she said. "With the recession looming, we're thinking maybe we shouldn't risk it." Maybe in a few more months, she said, if prices come down a bit in Almaden Valley, where she hopes to move. And if they don't fall too much in Cambrian, which would erode her buying power. And if she could find a house that wasn't a major fixer-upper or on a busy street. And if the semiconductor industry, where her husband works, seems stable.
Even for those eager to buy, obtaining a Bay Area-size mortgage can be tougher than it was just six months ago, when the credit markets began to stumble after a few years of don't-ask-don't-tell lending standards.
Now, not only must applicants verify their incomes and have sizable down payments at the ready, but rates for loans of more than $417,000 - so-called "jumbo loans" - can run to 7 percent or more. Lenders change their guidelines and rates constantly, loan brokers say.
Meanwhile, rates for "conforming" loans up to $417,000 - which are typically backed by mortgage financing companies Fannie Mae and Freddie Mac - have been falling. The national average rate for a conforming 30-year mortgage this week was 5.69 percent, according to Freddie Mac, compared with 6.23 percent a year ago.
Global house prices
US and British house prices are falling. Australian house prices are still rising. Housing here is protected in the short term by strong Australian growth, but that will not last forever.
The US housing market is in turmoil. US sub-prime lending allowed many poor households to purchase a home. Booming demand saw US house prices double in 10 years. In the last year US house prices fell 5 per cent as demand fell and repossessions forced sales. Britain is following. A recent Financial Times poll of British economists showed many expected British house prices to fall 10 per cent to 30 per cent from the peak. British house prices tripled in 10 years and have only fallen recently. The catalyst was the collapse of Northern Rock, a deposit-taking home-loan lender. The global house price boom has ended. The freezing of the interbank money market has hobbled credit markets. The pain is spreading from housing to commercial property and equity prices are now falling.
The IMF has warned that house prices could fall in Europe. The European central bank is resisting rate cuts and the euro locks nations into a monetary straightjacket.
Professor William Buiter of the London School of Economics has welcomed the end of the asset bubble and sees a US recession as desirable given the distortions created by financial excesses.
The US might cut rates aggressively to try to keep the party going, but that might be difficult with credit markets imploding.
Do Australian house prices necessarily follow? Australian house prices rose 160 per cent in 10 years and are still rising at the upper end.
Australian share prices will follow global share prices, but our housing seems unlikely to falter unless the economy slows rapidly.
The US sub-prime market sector is much larger than here and non-recourse borrowing in the US means borrowers often walk out when house prices fall below the value of the loan. This creates more volatile house prices.
Australia has had limited use of low interest rate introductory loans and mortgage insurance protects lenders. While RAMS failed we have not had a run on a deposit-taking institution as in the UK.
Even so, the OECD suggested in 2005 that Australian house prices were the most overvalued of any developed country relative to income or rents. Our household debt and servicing costs relative to income are high. Households are exposed if rates rise sharply.
In the US and Britain financial problems mean housing might cause recessions. Barring tax changes, or a financial collapse, that seems unlikely in Australia.
It needs rising interest rates and a world slowdown with rising unemployment to prick Australia's housing bubble. Some say that's unlikely, but overpriced assets do fall. Do not assume Australian house prices will rise forever.
The US housing market is in turmoil. US sub-prime lending allowed many poor households to purchase a home. Booming demand saw US house prices double in 10 years. In the last year US house prices fell 5 per cent as demand fell and repossessions forced sales. Britain is following. A recent Financial Times poll of British economists showed many expected British house prices to fall 10 per cent to 30 per cent from the peak. British house prices tripled in 10 years and have only fallen recently. The catalyst was the collapse of Northern Rock, a deposit-taking home-loan lender. The global house price boom has ended. The freezing of the interbank money market has hobbled credit markets. The pain is spreading from housing to commercial property and equity prices are now falling.
The IMF has warned that house prices could fall in Europe. The European central bank is resisting rate cuts and the euro locks nations into a monetary straightjacket.
Professor William Buiter of the London School of Economics has welcomed the end of the asset bubble and sees a US recession as desirable given the distortions created by financial excesses.
The US might cut rates aggressively to try to keep the party going, but that might be difficult with credit markets imploding.
Do Australian house prices necessarily follow? Australian house prices rose 160 per cent in 10 years and are still rising at the upper end.
Australian share prices will follow global share prices, but our housing seems unlikely to falter unless the economy slows rapidly.
The US sub-prime market sector is much larger than here and non-recourse borrowing in the US means borrowers often walk out when house prices fall below the value of the loan. This creates more volatile house prices.
Australia has had limited use of low interest rate introductory loans and mortgage insurance protects lenders. While RAMS failed we have not had a run on a deposit-taking institution as in the UK.
Even so, the OECD suggested in 2005 that Australian house prices were the most overvalued of any developed country relative to income or rents. Our household debt and servicing costs relative to income are high. Households are exposed if rates rise sharply.
In the US and Britain financial problems mean housing might cause recessions. Barring tax changes, or a financial collapse, that seems unlikely in Australia.
It needs rising interest rates and a world slowdown with rising unemployment to prick Australia's housing bubble. Some say that's unlikely, but overpriced assets do fall. Do not assume Australian house prices will rise forever.
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