Weds News Snippets

Existing home sales vs new home sales through Feb 09.

For a number of years the ratio between new and existing home sales was pretty steady. After activity in the housing market peaked in 2005, the ratio changed. This change was caused by distressed sales - in many areas home builders cannot compete with REO sales, and this has pushed down new home sales while keeping existing home sales activity elevated.

For a healthy market, the distressing gap between new and existing home sales will probably close.

Good chance new home sales will bottom in 2009?

Because the data is heavily revised, we won't know until many months after the bottom occurs. Also, we need to distinguish between growth rates and levels. Any bottom would be at a very grim level, and any recovery would probably be very sluggish because of the huge overhang of existing homes (especially distressed homes).
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HOPE for Homeowners, The foreclosure-prevention plan passed last summer.

In the five months since it's been in effect, has helped exactly one homeowner to avoid foreclosure. This despite Congress having made $300 billion available to back these loans and estimating that the program would benefit as many as 400,000 families.

"As it stands now, we've only gotten 752 applications," said Federal Housing Authority spokesman Brian Sullivan. "And only insured one loan. Needless to say, the program isn't working terribly well."

Nonetheless, the House of Representatives recently approved an updated version of HOPE as part of the bankruptcy-reform bill that is a keystone to President Obama's Homeowner Affordability and Stabilization Plan. But it was no overhaul to the program; the changes are very subtle.

Dashed expectations

The original program called for lenders to voluntarily refinance delinquent mortgages by reducing the principal balance on loans to 90% of a home's current market value. The new 30-year, fixed-rate loans would then be backed by the FHA.

Under the new plan, lenders would only have to write it down to 93%.

Borrowers who owed $220,000 on a house valued at $200,000, for example, would need their mortgage balances reduced to $180,000 to qualify for an original HOPE for Homeowners refi. That's a $40,000 write-off. Under the new plan, lenders would have to forgive $34,000.

Lenders simply won't do that very often.

They prefer to use term extensions or interest rate reductions to help make mortgage payments affordable for at-risk homeowners. As a result, most of the big lenders refused to participate in the program, which was strictly voluntary though heavily encouraged by the Bush and Obama administrations.

"Writing down principal is the last thing you want to do because you have to realize the loss immediately," said Paul Leonard, a spokesman for the Housing Policy Council, a coalition of mortgage lenders.

No volunteers.

The program has also failed, Leonard added, because of the conditions and limits the program imposed. Borrowers, for example, had to agree to pay the government 50% of any future profits they made from selling the property.
Under the new version of HOPE, borrowers would no longer have to split any earnings with Uncle Sam.

Other changes include incentive payments to servicers of $1,000 to induce them to participate.

The Congressional Budget Office now projects that HOPE for Homeowners could help just 25,000 mortgage borrowers over the next 10 years at a cost of $675 million.

Despite those modest numbers, Leonard said that the members of Housing Policy Council want to keep HOPE for Homeowners on the table even though the administration's Homeowner Affordability and Stabilization Plan does much more than HOPE.

Besides reducing mortgage payments through interest rate reductions or term extensions, HASP provides for lowering mortgage principals - the only thing that HOPE offers.
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GOP Housing Plan Would Tackle Mortgage Fraud.

House Republican leaders plan to unveil a housing package that would increase the tax credits available for home buyers and would direct law enforcement to crack down on mortgage fraud.

(Note: What a surprise the GOP's answer to the housing crisis is tax credits and to activate the police)

Under the proposal, borrowers refinancing their mortgage would be eligible for $5,000 to help cover closing costs or to reduce their principal balance. The plan also revives a $15,000 home buyer tax credit proposal that Republicans pushed last year. This time, the proposal would require the borrower to have at least a 5 percent down payment.

Both programs would expire in July 2010.
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Banks’ Hidden Junk Menaces $1 Trillion Purge.

The U.S. government wants to clear as much as $1 trillion in soured loans and securities from bank balance sheets with its latest bailout plan.

That might prove a short-term respite. No sooner might the Treasury Department mop up those assets than $1 trillion or more in new ones spring up to take their place.

That is due to the potential return of assets held in so- called off-balance-sheet vehicles that banks may soon have to put back onto their books. The end result may be that banks are in no better shape to increase lending even after the government bailout.

At the end of 2008, for example, off-balance-sheet assets at just the four biggest U.S. banks -- Bank of America Corp., Citigroup Inc., JPMorgan Chase & Co. and Wells Fargo & Co. -- were about $5.2 trillion, according to their 2008 annual filings.

The hidden assets that may return to banks consist of mortgages, credit-card debts and auto loans, among others. Over the years, banks bundled them together and sold them to investors as securities.

Whether these assets are “troubled” or “toxic,” their return to bank balance sheets could slow efforts to get credit flowing again. After all, banks shed the loans to make their balance sheets look smaller, allowing them to hold less capital to act as a buffer against losses. Until a couple of years ago, that boosted profits
It also helped inflate the credit bubble, even as these accounting maneuvers made it harder for investors and regulators to see how much risk banks actually faced.

The tangled web that banks wove over the years will take a long time to undo.
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Analysis from the International Monetary Fund.

Expects world output to shrink by between 0.5 per cent and 1 per cent this year and the economies of the advanced countries to shrink by between 3 and 3.5 per cent. This is unquestionably the worst global economic crisis since the 1930s.
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California home prices drop nearly 41% from year ago.

The median price of existing single-family homes in California dropped 40.8% in February from the same month in 2008, according to statistics released today by the California Assn. of Realtors.
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Home prices nationally continue to fall, and are no longer confined to just the ‘sand’ states.

As of January 2009, more than 700, or nearly three-quarters, of all metropolitan markets were experiencing home price depreciation, up significantly from 254 markets experiencing depreciation in December 2007 and 394 in June 2008.
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These guys have a clue this time?

UCLA economists are coming out with a new forecast today that offers a grim picture of the year ahead. Nationwide, the unemployment rate will worsen -- peaking late next year at 10.5%.

UCLA says the economy will begin to grow slowly by the fourth quarter of this year.
That's when residential construction should also begin to turn around.

Consumer prices should snap out of a downward trend the second half of this year, but disposable income rates will not match the high levels of 2004 until 2011.