Bank gives cities, states first shot at REOs

Bank of America is making it easier for states and cities to buy foreclosures before investors purchase them.

The program is a result of the U.S. Department of Housing and Urban Development’s Neighborhood Stabilization Program, which aims to encourage redevelopment of neighborhoods hit hardest by foreclosure and the resale of properties to homeowners.

Bank of America will notify participating cities that properties are available before they are listed on multiple listing services. The company will set the prices with no haggling allowed.

“We’re balancing our desire to work with communities that are struggling to stabilize with our fiduciary duty to the investors that hold the paper on all these properties,” says Rob Grossman, senior vice president of community affairs for Bank of America. “We will offer them the best price.”

Dilbert

Click comic strip to enlarge

U.S. Home Ownership Over the Years

Click on graph to enlarge.

May New-home sales dip reported

New U.S. home sales dipped slightly last month, in another sign that the housing market recovery is likely to be gradual and prolonged.

The Commerce Department said that sales edged down 0.6% in May to a seasonally adjusted annual rate of 342,000, from a downwardly revised April rate of 344,000.

The results fell far short of economists’ forecast, but many analysts think new home sales hit bottom in January and will rise gradually as the economy gathers steam.

The median sales price last month rose 4.2% from April to $221,600, but that’s still 3.4% below year-ago levels.

Sales of previously occupied homes crept up 2.4% in May, the third monthly gain this year, the National Association of Realtors said Tuesday. There appears to be a strong consensus that existing home sales have hit bottom, but prices will continue to fall because rising unemployment is forcing more homeowners into foreclosure.

Government tax credits and spending have helped bring some homebuyers back into the market, but federal programs to stem foreclosures have yet to make a dent.

“It is difficult to craft a scenario under which (loan) origination volumes would come anywhere close to reaching the numbers originally envisioned for the program,” Jay Brinkmann, chief economist for the Mortgage Bankers Association, said this week as he lowered his 2009 forecast for mortgage volumes by 27 percent.

Still, houses are still sitting on the market unsold for months. There were 292,000 new homes for sale at the end of May, down more than 2% from April. More than half have been on the market for almost a year.

The inventory of homes for sale will remain enormous, particularly with increased competition coming from distressed sales of existing homes.

Echo boomers to the rescue?

Echo boomers, the children of baby boomers, will be the salvation of the housing market, Harvard University’s Joint Center for Housing Studies predicts.

In its annual state of the nation’s housing study, the center says that the 75 million Americans born between 1979 and 1995 will mean plenty of demand for housing units.

"There will be 5 million more echo boomers than there were boomers when they first started swelling housing markets," says Eric Belsky, executive director of the Joint Center.

Belsky predicts that once the job market turns around, the housing market will recovery quickly because inventories are close in balance between supply and demand.

But the study warns that while echo boomers will increase demand significantly, they may not drive up prices much because their real incomes are lower than those earned by people a decade older when they entered the job market.

“While fundamentally we see what could be the foundation for long-term recovery, we still have to get through today’s challenges,” says Nicolas Retsinas, director of the Harvard center.

Lost jobs forcing more out of homes

The foreclosure rates in 40 of the nation's counties that have the most households have already doubled from last year.

Most were in areas far removed from the avalanche of bad mortgages and lost homes that have hammered the U.S. housing market. Among the new areas: Boise and Green Bay, Wis.

Unlike the foreclosure wave that began in 2007 and was driven by risky subprime loans, the latest increases are the result of the recession, which brought a sharp rise in unemployment across the country. The number of default notices, auctions and repossessions was nearly 18% higher last month than in May 2008, though it dropped slightly from April.

New vs Existing Home Sales GAP

Click on graph for larger image in new window.

National Association of Realtors (NAR) reported that distressed properties accounted for one-third of all sales in May. Distressed sales include REO sales (foreclosure resales) and short sales, and based on the 4.77 million existing home sales (SAAR) that puts distressed sales at about a 1.6 million annual rate in April.

All this distressed sales activity has created a gap between new and existing sales.

I believe this gap 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.

REAL Commercial Property Price Indices by Moodys

Click on graph for larger image in new window.

The Moody’s/REAL Commercial Property Price Indices (CPPI) measure the change in actual transaction prices for commercial real estate assets based on the repeat sales of the same assets at different points in time.

The Case-Shiller Composite 20 residential index is added in red (with Dec 2000 set to 100).

This shows the residential drop-off leading commercia, but also shows that prices tend to fall faster for commercial than for residential.

Unemployment insurance claims picture

Click on graph for larger image in new window.

This graph shows weekly claims and continued claims since 1971.

Note: continued claims peaked at 5.4% of covered employment in 1982 and 7.0% in 1975.
The four-week average of weekly unemployment claims increased this week by 500, and is now 41,500 below the peak of 10 weeks ago. There is a reasonable chance that claims have peaked for this cycle.

However the level of initial claims (over 627 thousand) is still very high, indicating significant weakness in the job market.

My view is the most useful number in the weekly claims report is the number of seasonally adjusted initial claims (with a 4-week moving average because it is so noisy). This has declined from the peak of 10 weeks ago, but is still very high. This suggests that the peak of job losses might be behind us, but also that there are still significant job losses occurring. We will probably see monthly job losses reported by the BLS until the weekly initial claims numbers declines close to 400 thousand.

"Short Vacation? Hey I'm retired!" says Editor

John (Martha's website editor) is heading to New Hampshire for the oldest of the Big 3 National Motorcycle Events.

The Gypsy Tour also known as "Laconia Bike Week"

Crisis robbing seniors of golden years

Howard Weiss is 77 and scared.

This year, the semiretired distributor from Phoenix ran into financial problems and stopped making his mortgage payments. He was told his home was scheduled for a foreclosure auction in May.

So Weiss scraped together more than $2,000 to stave off the foreclosure. He's still trying to figure out if he can get a mortgage modification so he can afford his home.

"This is the biggest mess I've had in my life," Weiss says. "I could break down and cry. I was about to lose everything. I've been through (the Korean War), through a lot of crises. Now I've turned everything over to the Lord. ... I'm so stressed this is going to kill me."

The worst economic crisis since the Great Depression has slashed home values and triggered an unprecedented surge in foreclosures across the nation. It's also taking an especially harsh toll on an often overlooked demographic: seniors who are retired or nearly so.

Conventional wisdom holds that most seniors have paid off their mortgages or have significant equity in their homes, but in reality hundreds of thousands are suffering in the housing crisis.

This population is being hit on all fronts. More than 600,000 seniors are delinquent or in foreclosure, according to AARP. A separate report by AARP found that 25.5 million seniors ages 50 and older have a mortgage. Unlike younger people, many are on fixed incomes and lack the money or job opportunities to catch up on payments when they fall behind.

Some seniors have been victimized by predatory lenders or made bad financial decisions, taking on adjustable-rate mortgages that reset to payment levels they couldn't afford. For others, their mortgage problems grew out of other financial pressures, such as staggering medical bills or helping adult children through financial difficulties.

Even those who own their homes free and clear are finding they can't rely on equity as a retirement nest egg because home values have dropped severely, especially in retirement-rich areas such as Florida, Nevada and California.

Some seniors who had planned to sell their homes and move into retirement communities have had to postpone their plans because they can't afford to take a loss on the sale of their current homes. Some older homeowners had been so confident that rising home values would provide retirement wealth that they neglected to save.

Now they face their final years with a dearth of financial resources to draw on. Thirty-six percent of workers ages 55 and older say the total value of their household's savings and investments — excluding the value of their primary home and any defined benefit plans — is less than $25,000, according to the Employee Benefit Research Institute.

Reversal of fortune

"It's terrible," says Dean Wegner, a certified credit counselor and mortgage specialist in Phoenix who has worked on Weiss' case. "I've got a lot of seniors who have just been nailed. They don't have retirement savings, and they've exhausted their equity. They're upside down (owing more on their mortgage than their homes are worth), they can't refinance and they're on a fixed income. They're scared to death. You can hear it in their voices. It's a sad situation."

Weiss' case reflects what many seniors are going through.

He was paying about $1,700 a month on his mortgage when he began having problems making payments because he was helping his son, who was unemployed. Because his home had lost so much value — from $290,000 to about $120,000 today — he couldn't refinance and lock in a lower rate.

Instead, he contacted an organization in Florida that he says offered to help him get a loan modification from his lender before Wegner got involved in the case.

Weiss says a counselor there advised him not to make payments on his home loan so he would be in a better position to negotiate a modification with his bank. He says he sent the organization $2,400 upfront to get the modification started.

So far, Weiss hasn't gotten any modification of his mortgage.

And because he got behind in payments, Weiss' lender began foreclosure proceedings on his home. According to Wegner, Weiss' bank also tacked the three months of back payments he hadn't made onto his loan balance.

That has left Weiss, who lives on a fixed income, scrambling to come up with money to save his home and pay $2,400 a month to catch up. That includes interest on the payments he didn't make.

His monthly income is about $4,000, which includes veteran disabilitychecks, money from his wife's retirement fund, his income and Social Security. His wife, who lives at home with him, has Alzheimer's disease and is unaware of the situation, leaving Weiss to carry much of the financial worry.

Many others share his plight. Americans 50 and older represent nearly 30% of all delinquencies and foreclosures, according to an AARP analysis released in September.

The analysis found that more than 684,000 seniors 50 and older were delinquent on their mortgages or in foreclosure. Among those, nearly 50,000 were in foreclosure or had lost their homes.

The impact of subprime lending also has fallen disproportionately on those 50 and older.
Older Americans with subprime first mortgages — those given to borrowers with less-than-perfect credit — are nearly 17 times more likely to be in foreclosure than Americans of the same age with prime loans, according to AARP. For those under 50, the comparable multiple is about 13.

Such seniors "have saved up very little outside of their home and banked on home prices rising. No one talked about them falling, so they were heavily leveraged," says Dean Baker, an economist at the Center for Economic Policy and Research.

"This whole group is going to be hugely dependent on Social Security, and people don't fully appreciate the magnitude of the problem."

Some are simply planning to walk away from homes they no longer can afford. Shawn Lee, 56, a retiree who owns a home in Seattle, had planned to sell it and retire to his other property in Mesa, Ariz. He bought the Arizona home for $400,000 a few years ago; it's now worth about $200,000. With his retirement savings hit hard by stock market declines, he doesn't want to spend what savings he has making payments on the second home.

"I would have to spend my little bit of savings. It's a very tough situation," says Lee, who retired from the import and export business. "I decided I have to walk away. I won't have any money for retirement if I keep up with the payments."

Carrying mortgages at 60

Many seniors still owe on their homes.

In the fourth quarter of 2008, about 46% of older Americans around 60 who researched reverse mortgages had an existing traditional mortgage with an average debt of $149,683, according to Golden Gateway Financial. A reverse mortgage is one that makes payments to the homeowner from a home's equity.

There are few special programs among lenders or government agencies geared to help seniors with mortgage problems.

Mortgage giants Freddie Mac and Fannie Mae have none, and neither do some of the nation's largest lenders, such as JPMorgan Chase and Bank of America. The Department of Housing and Urban Development does offer a reverse-mortgage program for seniors.

Much of the help comes from non-profits and other services aimed at helping seniors. Legal Services, which provides counseling for low-income clients, reports that seniors with fixed incomes are especially vulnerable to being displaced by foreclosure.

The mortgage woes facing seniors also are creating challenges for retirement communities and assisted-living centers, which are finding that new members can't move in because they are saddled with homes they can't sell.

"We have found that the retirement communities, in particular, are struggling, since people usually sell their homes to finance the entry fees," Lauren Shaham, spokeswoman for American Association of Homes and Services for the Aging, said in an e-mail.

Two years ago, Fred Schoch, 75, a retired butcher in Hartwell, Ga., got on a waiting list for a retirement community. But now he can't sell his lakefront, 1-acre property because the market is so sluggish. A neighbor has had his home on the market for more than a year.
So Schoch and his wife, Joyce, have had to delay their retirement plans and are struggling to maintain the land. "Sooner or later, it'll be too much to take care of," Schoch says. "To buy into another place, we need money from this place. If we could sell, we'd move now."

Housing bubble's legacy

A substantial proportion — perhaps one-third — of older householders ages 55 to 64 will be less secure in retirement because of the housing bubble and its aftermath, according to a September analysis by the Center for Retirement Research at Boston College.

Vanished equity may be most threatening to seniors who own homes in markets that have seen the steepest price drops, such as Arizona, Southern California and South Florida.

"Their home is their largest asset, and that's taken a substantial hit. It's really impacting retirees right now," says Pete Flint, CEO of Trulia.com, a real estate search service. "It's sad to see them go into foreclosure in their twilight years. It's very tragic," says Flint.

Macon McDavid and her husband, Jim, aren't facing foreclosure, but the vision they once had of their golden years is no more.

Instead of retiring, McDavid, 72, is sending out résumés in hopes of getting a job to help make ends meet. She and Jim own a home in Raleigh, N.C., and a vacation cottage in Sunset Beach, N.C. When their son became ill, they spent about $70,000 on his medical care before he died. They were forced to take out a second mortgage. Meanwhile, the retirement savings they'd invested in the stock market lost about half its value. Macon McDavid says they now have no choice but to sell one of the properties. The problem: There are no buyers, and the couple can't afford to take the loss they'd incur at current market prices.

"Our concern is about making payments. We have to decide which house to sell, but just because you put it on the market doesn't mean it will sell," McDavid says.

"All our life we worked to be where we are, and we're not there anymore."

Mortgage rates rise (6-month high above 5%)

Mortgage rates have risen to their highest levels in six months, threatening to delay a housing turnaround by discouraging potential home buyers.

The average rate on a 30-year, fixed-rate home loan climbed to 5.29% for the week ended Thursday, Freddie Mac reported. That's the highest since December and up from 4.91% a week earlier.

In early and late April, the rate was at a record low: 4.78%.

"There's a real risk interest rates could climb up beyond 6% or 6.5%, which can immediately shut down the housing recovery and undermine the national economy," says Bernard Baumohl, chief global economist at the Economic Outlook Group. "That's the big battle to watch in the next couple of months."

Higher mortgage rates are already having an impact. Applications to buy a home or refinance a mortgage tumbled 16% in the week ended May 29 compared with a week earlier, the Mortgage Bankers Association reported this week. Refinancing activity fell 24%. The MBA's purchase index rose 4.3%. Refinancings' share of mortgage activity dropped to 62.4% of total applications from 69.3% the previous week.

While the Federal Reserve is trying to hold down mortgage rates by buying mortgage-backed securities and Treasury securities, other factors are driving up rates.

Mortgage rates have been pushed up by recent increases in yields on long-term Treasury securities, a benchmark for mortgage rates.

If interest rates rise more, that could make a purchase too expensive for some buyers. Weakened demand would delay the reduction of a high inventory of unsold homes, which is considered essential for the market's recovery.

Some economists say the fundamental building blocks of a housing recovery are already in place and that rising interest rates will not derail the process.

"(Higher interest rates) could slow down refinancing, but the housing recovery is going to be one that takes time, and we'll see setbacks on the way," says Michael Darda, chief economist at MKM Partners. "I don't think the housing market recovery is going to be derailed."

Lawrence Yun, chief economist at the National Association of Realtors, say rising interest rates often have a short-term effect of driving more buyers into the market. Those buyers rush to buy so they can lock in rates before they go still higher.

But that impact is short lived.

"Further rises will impact buyers. That's a risk," Yun says. "Mortgage rates have been the lifeblood of the market."

Cartoonist Eric G. Lewis

Cartoonist take on recent Fitch report (click to enlarge)

Fitch Expects continued Home Prices Fall

Home Value History Graph (click to enlarge)

Fitch says "home prices will fall an additional 12.5% nationally and 36% in California" from Q1 2009.

And, oh, you remember subprime?

Fitch Ratings today made massive downgrades on various vintage ‘05 through ‘08 subprime residential mortgage-backed securities (RMBS), indicating the extent of the fallout related to subprime defaults has yet to subside.

The rating agency slashed hundreds of RMBS ratings further into junk territory.

Here is the Fitch statement: Fitch Takes Various Actions on 543 2005-2008 U.S. Subprime RMBS Deals

On home prices: The projected losses also reflect an assumption that from the first quarter of 2009, home prices will fall an additional 12.5% nationally and 36% in California, with home prices not exhibiting stability until the second half
of 2010.

To date, national home prices have declined by 27%. Fitch Rating's revised peak-to-trough expectation is for prices to decline by 36% from the peak price achieved in mid-2006. The additional 9% decline represents a 12.5% decline from today's levels.

In explaining the downgrades, Fitch said the actions reflect updated loss expectations and further economic deterioration: “The home price declines to date have resulted in negative equity for approximately 50% of the remaining performing borrowers in the 2005-2007 vintages. In addition to continued home price deterioration, unemployment has risen significantly since the third quarter of last year, particularly in California where the unemployment rate has
jumped from 7.8% to 11%.”

Latest Mortgage Recast chart from Credit Suisse

Click on chart to enlarge

Credit Suisse is using recast dates for Option ARMs and reset dates for all other loans.

"Reset" refers to a rate change. "Recast" refers to a payment change.Resets are not a huge problem as long as interest rates stay low, but recasts could be significant. There are some questions about how the Wells Fargo pick-a-pay portfolio fits into this chart, since Wells Fargo doesn't expect significant recasts until 2012

Foreclosures down slightly, but no signs of stabilization yet

Anyone hoping for a housing bottom will likely be discouraged by the RealtyTrac's foreclosure report this morning.

U.S. foreclosure filings topped 300,000 for the third straight month in May and are expected to hit a record 1.8 million by the end of the first half of the year. The number of filings fell 6 percent from last month, but as foreclosures continue to mount there are clear signs that the banks aren't buying into President Obama's mortgage rescue plan.

When President Obama announced the program earlier this year with great fanfare, he promised to save the homes of 9 million people, but based on the steady flow of new foreclosure filings, the banks are not cooperating. Once the cramdown provision -- which would have given bankruptcy courts the ability to reduce the principal of mortgages underwater -- was killed by the Senate, there were no teeth in the Obama plan.

Living at ground zero of the toxic assets (my area, Orlando/Kissimmee, was eighth on the metropolitan area foreclosure list this month), the evidence is in front of me that foreclosures continue to mount. Real estate sales people tell how foreclosed homes that sold for $200,000 or more just a couple of years ago are now being sold for less than $80,000 by the banks.

If banks are willing to take that much of a loss after the expense of foreclosure, wouldn't some adjustment in the value of the home to avoid foreclosure be more cost effective? But so far banks have resisted any type of loan program that requires them to adjust the principal amount of the mortgage.

Job losses and falling property values continue to delay the housing recovery as more homeowners are unable to pay their mortgages or sell their homes. Unemployment is now up to 9.4 percent and many expect it could still climb higher.

The mortgage crisis, which at first impacted primarily subprime loans, is now hitting prime borrowers. About 29 percent of loans that entered the foreclosure process were prime, fixed-rate mortgages, according to the Mortgage Bankers Association. Homes in some stage of foreclosure totaled 3.85 percent of all loans in the first quarter, up from 2.47 percent a year earlier.

"The numbers are getting bigger and that's what is bothering me," Patrick Newport, an economist at IHS Global Insight told Bloomberg. "You have banks holding these toxic loans, which means bank balance sheets are in even worse shape with the increase in delinquencies."
Nevada, California and Florida continued to outpace the rest of the country in foreclosure filings. Nevada had the highest foreclosure rate, one in every 64 households, which is more than six times the national average. California was second at one in 144 households followed by Florida at one in 148 households. Arizona was fourth with one in 158 households and Utah was fifth with one filing per 316 households. The areas with the biggest jump in number of foreclosure filings were Michigan, Washington and New York.

The city with the highest foreclosure rate was Las Vegas, with one in every 54 households getting a notice, which is up 78 percent from a year ago. California has six cities among the top 10, and Florida has three.

4 Bad Bear Markets - including this one

Click image to enlarge.

To compare severity of the past recessions / crises to the Great Depression.

Note: The Dression line follows the Dow while the others follow the S & P.

Modus operandi (often used in the abbreviated forms M.O. or simply Method) is a Latin phrase, approximately translated as "mode of operation".[1] The plural is modi operandi ("modes of operation"). The term is used in English to describe someone's habits or manner of working, the method of operating or functioning. It is often used in a criminal sense, to profile the methods employed by individuals during the execution of a crime, and may also be used in offender profiling,[2] where it can also be used to find clues to the perpetrator's psychology.[3] It largely consists of the methods used to execute the crime, prevent detection, and facilitate escape.[1]

So they'll pay me $4500 for my 97 Blazer?

Little Video Gonna Shut Em Down

The Future is Now!

Foreclosure Alternatives Program (FAP)

Obama announces incentives and uniform procedures for short sales.

For borrowers who are unable to retain their home under the Making Home Affordable Loan Modification Program, the servicer may consider a short sale or, if that is not successful, a deed-in-lieu of foreclosure. Participating servicers must comply with program requirements so long as they do not conflict with contractual agreements with investors.

June is the target for issuing guidelines and forms necessary to start the program.

Borrowers/homeowners qualify under the FAP if they meet minimum eligibility requirements for the Home Affordable Modification program but don’t qualify for a modification or do not successfully complete the three month trial period. Before proceeding with a foreclosure, servicers must determine if a short sale is appropriate.

Incentives include: (1) $1,000 for servicers for successful completion of a short sale or deed-in-lieu of foreclosure; (2) $1,500 for borrowers/homeowners to help with relocation expenses; and (3) up to $1,000 toward the cost of paying junior lien holders to release their liens (one dollar from the government for every $2 paid by the investors to the second lien holders).

Standardized Documents. The program will include streamlined and standardized documents, including a Short Sale Agreement and an Offer Acceptance Letter. The goal is to minimize complexity and increase use of the short sale option.

Property Valuation by Appraisal or BPO. Servicers will independently establish both property value and minimum acceptable net return, in accordance with investor requirements. The price may be determined based on an appraisal or one or more broker price opinions (BPOs), issued no more than 120 days before the date of the short sale agreement.

Timeline. In the Short Sale Agreement, servicers must give borrowers/homeowners at least 90 days to market and sell the property, or up to one year, depending on market conditions. The Property must be listed with a licensed real estate professional with experience in the neighborhood. No foreclosure may take place during the marketing period (at least 90 days) specified in the Short Sale Agreement.

Commissions. The Short Sale Agreement must specify the reasonable and customary real estate commissions and costs that may be deducted from the sales price. The servicer must agree not to negotiate a lower commission after an offer has been received.

No Borrower Fees. Servicers may not charge fees to borrowers/homeowners for participating in the FAP.

Program Expiration. The program is in effect through 2012.

Deed-in-Lieu of Foreclosure Option. Servicers have the option to require the borrower/homeowner to agree to deed the property to the servicer in exchange for a release from the debt if the property does not sell within the time allowed in the Short Sale Agreement (plus any extensions).

Price Cut on 23.6% of Listed Homes

Nearly one in four US homes for sale today have had at least one price reduction, as sellers come to grips with the reality of a weakening economy and a housing market still groping along toward bottom.

Total reductions currently mount $27bn dollars, said Truila.com today.

Major metropolitan areas are feeling much of the pain. Of the top 50 most populated cities, 33 have seen 25% or more of listed homes reduced from their original asking price, higher than the 23.6% national average. Some cities have seen over 30% of homes reduced, including Jacksonville, Fla., Tucson, Ariz., Boston and Los Angeles, among others.

And of those homes reduced, the average reduction sits at 10.6% of original asking price — an encouraging sign for buyers, nonetheless.

Luxury buyers might snag some of the best deals, as an average of 14.3% of the original asking price is being slashed off the listing price of homes valued over $2m, compared to only 9.7% being knocked off homes under the $2m price tag.

Foreclosure-stricken neighborhoods, however, are seeing home listing prices drop most drastically, Trulia.com said. Detroit homeowners on average reduce their homes by 23%, while Las Vegas sellers reduce their homes by 16% and Miami cuts prices by 15%.

345,000 Jobs Lost in May

Click on graph for larger image.

This graph shows the unemployment rate and the year over year change in employment vs. recessions.

The unemployment rate rose to 9.4 percent; the highest level since 1983.

Year over year employment is strongly negative (there were 5.4 million fewer Americans employed in May 2009 than in May 2008).

Keys property values down by $3 billion

Monroe County property values in the past year have dropped anywhere from 9 percent to nearly 24 percent, depending on location, according to the Property Appraiser's Office estimates released Tuesday.

Appraisers this week released their estimated property tax assessments so municipalities, county governments, school districts and other taxing agencies can begin working on their 2009-10 fiscal year budgets, which start in October.The $3 billion drop to $22.94 billion reflects the drop in value between Jan. 1, 2008, and Jan. 1, 2009, according to Karl Borglum, a senior Monroe County government property appraiser.The assessment won't be finalized until later this month, but assuming it remains unchanged, the tax roll decrease means the county government will be forced to either sharply raise the tax rate or otherwise live with declining revenue -- a move that would force tough decisions on which services to cut.

Of the larger Florida Keys cities, property values in the city of Marathon dropped the most, going from $2.8 billion in 2008 to $2.3 billion in 2009, an 18.6 percent drop. Among the smaller Keys cities, the smallest, Layton, dropped 23.8 percent, going from $77.8 million to $59.3 million. Likewise, Layton's neighbor, Key Colony Beach, also saw a reduction. Key Colony Beach dropped 20 percent, going from almost $797 million to $637 million, according to the Property Appraiser's Office.

Key West saw the least drop in value, with a $6.6 billion assessment in 2008 to a $6 billion assessment in 2009, records show. The drop is an 8.9 percent reduction, according to the Property Appraiser's Office.

Assessed value of property in unincorporated Monroe County fell from $26.2 billion to $22.9 billion, a 12.6 percent drop, according to the Property Appraiser's Office. Homes and commercial property in the school district taxing domain dropped 12.5 percent, going from $26.7 billion to $23.3 billion. Property values in Islamorada also dropped 12.5 percent, from $3.5 billion in 2008 to $3 billion in 2009.

The reduction is "comparable to what other counties in the state are experiencing," Borglum said. "For the most part, it is due to a declining market." The Appraiser's Office has sent each of the taxing agencies the estimates. The office will continue working on the estimates before having them certified this fall so agencies can set their property taxes and send out notices to property owners, Borglum said.

This would be the second year the June estimates fell below the previous year's assessed value. Monroe County's 2008 tax base declined by $1.2 billion from 2007, according to last year's June 1 estimate by the Property Appraiser's Office.

By TIMOTHY O'HARA The Citizen

GM Files Bankruptcy

General Motors, the century-old automaker battered by the economic downturn, mounting debt and management problems, files for Chapter 11 bankruptcy protection. The move, will also result in more plant closures, and give the U.S. a majority ownership stake in the company.

1st-Time Home Buyers Can Use the $8,000 Tax Credit Now

The economic stimulus bill passed in February allows first-time homebuyers a tax credit equal to 10 percent of the home's purchase price or $8,000, whichever is less, when they file their federal income taxes.

The Federal Housing Administration announced that first-time home buyers can use the $8,000 tax credit sooner rather than later, as long as they’re using an FHA-insured mortgage and can come up with a down payment of 3.5% (before help from the tax credit). Home buyers can use the credit to either plump up their down payment, or for closing costs, instead of waiting to see the money until after they do their taxes next year.

Lenders who are offering tax-credit can not charge excessive fees (more than 2.5 percent) for the service.

The tax credit applies to home purchases that close before Dec. 1.

F'n A & C messed up! WTF?

Florida, Nevada, Arizona and California account for 46 percent of the foreclosure starts in the country, and represented 56 percent of the increase in foreclosure starts.

10.6 percent of the mortgages in Florida are now somewhere in the process of foreclosure. In Nevada it is 7.8 percent, Arizona 5.6 percent and California 5.2 percent.

Looking forward, it does not appear the level of mortgage defaults will begin to fall until after the employment situation begins to improve. The unemployment rate will not hit its peak until mid-2010. It is unlikely we will see much of an improvement in mortgage performance until after that.

It gets worse from here and here is already really bad...

Arm Reset Graph (Click to enlarge)

Aside from the damage already done, rapidly rising mortgage rates and more folks losing their jobs, we have a wave of resets coming that dwarfs the first one that pushed housing off the cliff. Now, there is no way to know what percentage of those in 2010-11 set to reset have either a) already lost their job and will default before then, b) have already defaulted or c) have already converted into conforming loans.

But, we do know this, no matter how large the percentage of those set to reset that fit into a, b or c above, there is another serious body blow to the housing market waiting around the corner.

Mortgage Bankers Association "level of foreclosures started record high."

The pace of foreclosures has stepped up considerably.

Nearly 1 in 8 of the nation's home mortgage holders were behind in their payments in the first quarter according to the Mortgage Bankers Association. It said more than 12% of residential mortgage loans were delinquent or in some stage of foreclosure.

What has changed is the shifting of the problem somewhat away from the subprime and option ARM/Alt-A loans to prime fixed-rate loans. The foreclosure rate on prime fixed-rate loans has doubled in the last year, and, for the first time since the rapid growth of subprime lending, prime fixed-rate loans now represent the largest share of new foreclosures. This points to the impact of the recession and drops in employment on mortgage defaults.

The housing bust has cycled from a sub-prime to Alt-A to now an employment issue. Since we were already in the midst of the drop when the layoffs began, those losing jobs had no way to sell their homes. Now even good borrowers with conforming loans are defaulting at a record rate.