NEWTON -- US Representative Barney Frank said today that homeowners facing foreclosure could renegotiate their subprime loans for 87 percent of the value of their property under the bailout bill passed on Friday.

The bailout bill authorized the US Treasury Department to purchase up to $700 billion in subprime mortgages from troubled financial firms in order to inject fresh capital into the economy and calm the US and world markets.

Frank, a Massachusetts Democrat and the chairman of the House Financial Services Committee who pushed through the bailout bill last week, said the government would direct servicing companies that handle mortgage matters on behalf of lenders to renegotiate the loans once they are bought by the government.

The subprime companies whose loans are refinanced would write down the remaining value of the loan.

He said the 87 percent provision was contained in July legislation that tried to help homeowners and the new bill instructs the Treasury to follow similar procedures in renegotiating loans held by the government.

Homeowners would be able to refinance their adjustable-rates subprime loans with fixed-rate mortgages provided by the Federal Housing Administration, said Frank, at a press conference at Newton City Hall. This would be an option only for homeowners who can afford the loans when they are renegotiated, he said. The FHA loans would be made at 90 percent of the home's current value.

Frank also said the bailout would cost the taxpayers "significantly less" than $700 billion, because the government would recoup much of that by reselling mortgages and other assets that it is acquiring in the bailout bill.

He initially said the net cost of the bailout would be around $70 billion and potentially "will cost the taxpayer nothing." But when pressed about that, he backed down and said that any estimate at this early date is a "rough estimate." Analysts said it could take years for the government to work through its portfolio of troubled loans and foreclosed homes.

Frank said the federal government has the capacity to buy up mortage-backed securities from financial companies and hold on to them and possibly sell them for a profit, it would offset the initial outlay.

"We don't have to sell it at once," he said. The cost "is clearly going to be significantly less than $700 billion," he said.

The lawmaker blamed a lack of regulation for the nation's financial crisis and said he would push for tougher regulations next year to prevent another disaster.

Frank noted that heavily regulated institutions, such as commercial banks, were not hit as hard by the subprime crisis as were independent mortgage companies that made subprime loans and Wall Street investment banks that packaged and sold the loans to investors and other lenders.

He also noted that Wall Street firms were free to borrow heavily, adding fuel to the current crisis. He said American International Group, the major insurer put into federal conservatorship, was using profits from its unregulated insurance business to invest in high risky securities, known as credit default swaps, which ultimately caused the insurer's downfall.

"The cause of this problem was a lack of financial regulation in the industry. The regulated industries have done better than the unregulated companies," he said. "If the regulated institutions had made loans, we would not be in the crisis we're in."

The government has seized some regulated institutions, including IndyMac Bank. Citigroup and Wells Fargo & Co. are in a court battle to acquire Wachovia's assets.

Single-family home sales in Las Vegas tripled in September from the same month a year ago and inventory remained stable, but median prices dropped 31.8 percent, the Greater Las Vegas Association of Realtors reported Wednesday.

Home sales have increased in all but one month this year as prices continue to fall, indicating that the housing market is still declining.

"These two statistics are obviously related," association President Patty Kelley said. "As home prices keep getting lower, sales keep going up. This month's statistics show the greatest increase in year-over-year sales that we've seen in many years."

Kelley has been saying for months that the unprecedented number of foreclosures on the market continues to drive down prices. Roughly two out of three home sales in Las Vegas over the past few months have been bank-owned properties, she said.

Realtors sold 2,783 single-family homes in September, compared with 2,545 sales in August and 990 in the same month a year ago. Sales of condos and townhomes increased 81.2 percent from a year ago to 386 in September.

The inventory of homes on the Multiple Listing Service remained steady at 22,784 in September, compared with 22,710 in August. It's down 5.9 percent from 24,218 in September 2007.

The median single-home price slipped 7.1 percent to $195,000 in September. Condos and townhomes were down 2.9 percent to $119,450.

"I didn't think I'd ever see the median price under $200,000," Kelley said. "The bottom must be in sight because I don't see how much further we can go. There's great buys if you can get the funding. I'm trying to get someone closed today, but it's becoming an impossibility. It's getting tougher and tougher to get them closed."

Prices of properties listed for sale fell in 21 of 26 major markets, according to a report published by Mountain View, Calif.-based Altos Research and market analysis firm Real IQ.

Asking prices fell at the fastest rate in Las Vegas, down 3.5 percent during September and 8.1 percent over the most recent three-month period. It is the sixth consecutive month that Las Vegas has posted the fastest rate of declining prices among major markets.

The Altos 10-City Composite Price Index showed a decline in asking prices of 1.4 percent in September and 2.9 percent for the past three months. Denver, San Diego and Houston are the only markets showing three months of sequential price increases.

"The fleeting signs of stability we saw during the summer have largely vanished," said Michael Simonsen, chief executive officer and co-founder of Altos Research. "Job losses and the credit crunch will aggravate typical seasonal weakness during the coming fall and winter months."

Citing Moody's Economy.com, the Wall Street Journal reported that roughly 12 million households, or 16 percent of all U.S. households, owe more than their homes are worth. Steve Hawks of ReMax Platinum said it's more like one in three in Las Vegas.

Local real estate transactions tracked through the MLS totaled nearly $642 million in September, up 1 percent from August and up 84.2 percent from a year ago.

Nearly 68 percent of all single-family homes and 58.3 percent of condos and townhomes sold within 60 days.

As prices continue to plummet, houses are selling more quickly, Frank Nason of Residential Resources said. Homes are on the market for an average of 58 days, he said. Nearly 29 percent of single-family homes and more than one-third of attached units are under contract in 15 days.

Nason said his experience with buyer representation continues to be frustrating in that most bank-owned properties receive multiple offers. Buyers are frequently outbid even when a submitted offer is above list price, he said.

Association statistics are based on data collected through the MLS and do not necessarily account for new homes sold by local builders and other transactions not involving a Realtor.

"The good news in the equation is sales are up and inventory is down," Rick Brenkus of Keller Williams Realty said. "The third leg is prices need to stabilize, and unfortunately we haven't seen that yet. We're still burning through the foreclosures and bank-owned properties."

Beginning today, eligible borrowers can refinance into a new loan that they can afford through FHA’s Hope for Homeowners program. Last July, Congress approved FHA to insure up to $300 billion in new loans through the program targeted to struggling families trapped in mortgages they currently can no longer afford. 
The program offers government insurance to lenders who voluntarily reduce mortgages for at-risk homeowners to at least 90 percent of the property’s current value.  In addition, lenders must waive any penalties or fees, and help pay for the origination and closing costs of the new loans. On the new FHA-insured loan, borrowers will share equity with FHA on a sliding scale, to help the government recoup its expenses.
Who is eligible?
Hope for Homeowners maintains FHA’s long-standing requirement that new loans be based on a family’s long-term ability to repay the mortgage. Borrowers must meet the following eligibility criteria:  

• They must be owner-occupants;
• Their mortgage must have originated on or before January 1, 2008;  
• Their mortgage debt-to-income must be at least 31 percent;
• They cannot afford their current loan;
• They did not intentionally miss mortgage payments;
• They have not been convicted of fraud; and
• They do not own second homes.

What should a homeowner do to get started in the program?
1. Contact a local, HUD-approved housing counseling agency at HUD.gov;
2. Contact the HOPE NOW Alliance at 1-888-995-HOPE; or
3. Contact an FHA-approved lender to get the refinancing process started.

The FHA-approved lender will determine the size of a loan that a borrower can reasonably repay and that meets the requirements of the program.  If the current lender or mortgage holder agrees to write-down the amount of the existing mortgage and make the new loan affordable, the FHA lender will pay off the discounted existing mortgage. 
What kind of loan will homeowners receive?

• 30-year, fixed rate mortgage; 
• Maximum 90 percent loan-to-value ratio;
• No prepayment penalties;
• $550,440 maximum mortgage amount;
• Extinguishment of any subordinate liens; and
• New home appraisals from FHA-approved appraisers.

Borrowers will pay an upfront premium of 3 percent of the original mortgage amount and an annual premium of 1.5 percent of the outstanding mortgage amount.  Any additional costs incurred by FHA will be reimbursed by Fannie Mae and Freddie Mac. 
Is every lender required to participate?
No. The program is completely voluntary for lenders, investors, loan servicers, and borrowers. FHA will be encouraging lenders to write-down the outstanding mortgage principal balances to 90 percent of the new value of the property.  In many cases, reductions in principal will cost lenders less than the losses associated with foreclosure.
FHA estimates that the Hope for Homeowners program will assist 400,000 borrowers through September 30, 2011. 

June 3, 2008

For the real estate industry, it's been comparable to getting rained on day after day with no end in sight. When it finally stops and the skies are sunny, there is a sense of relief and appreciation.

A pickup in home sales is behind the optimism: four straight months of higher sales than the month before, according to the Greater Las Vegas Association of Realtors. In April the 1,794 home sales on the Multiple Listing Service were 30 percent higher than April 2007, the first meaningful month-over-monthgain amid the housing slowdown.

No one is expecting a boom, but there is a sense of hope in the real estate community that the bottom has been reached and the market is inching back up. In the first quarter, transactions handled by Coldwell Banker Premier Realty were up 70 percent over the previous quarter and 20 percent above 2007's first quarter, said Bob Hamrick, president and chief executive of the Las Vegas brokerage. April transactions rose substantially over last year, and Hamrick said he expects an increase in the second quarter compared with 2007's quarter.

"There have been reports that the bottom has been hit," Hamrick said. "I can't guarantee this, but we can certainly see it from here. It's not with great velocity, but we are bouncing off it." So far, May hasn't been as good as April, and Hamrick said the market may be at a "sloppy bottom,"where there are monthly variations.

Properties owned by banks and other lenders continue to account for more than half of the homes being sold every month, and foreclosures and short sales have contributed to declining prices. But many foreclosures were sold after numerous offers were received. "A property's true market value is $400,000, and it's listed for $375, 000," Hamrick said. "There might be 10 to 15 offers on the property and it sells for $400,000 or $410,000.

In some ways, it is back to a crazy market." The $235,875 median price in April was 23 percent below the price in April 2007. Demand has been pent up, with many buyers on the sidelines because of the credit crunch that hit in August and worries about buying into a market with falling prices.

Some buyers are worried about missing out on an opportunity and are stepping in, brokers say. "I don't think this is temporary," said Rick Shelton, the broker-owner of RE/MAX Associates. "It is definitely a warming trend. I won't call it a recovery yet, but people are getting a sense of the bargains on the market because of the vast amount of properties and decline in prices."

Most activity has been high end - exceeding $1.5 million - and homes for $250,000 or less, said Mark Stark, chief executive of Prudential Americana Group. He said his office's transactions were down during the first quarter, but April picked up 12 percent compared with April 2007.

Don't break out the champagne glasses quite yet, but there are more economic signs this week that the worst is over for the three year real estate correction cycle.

One of the country's most prestigious groups of market forecasters, the National Association of Business Economists, says housing and consumer credit conditions will stabilize and begin improving as the year moves on. Equally important, said Ellen Hughes-Cromwick, chief economist at Ford Motor and president of the association: The entire U.S. economy will "slowly return to health" this year.

The housing market offered some immediate hints of that recovery with new home starts up by 8.2 percent last month and building permits up by 5 percent. Even in hard-hit southern California, home sales in April were up 22 percent compared to March, according to DataQuick Information Systems.

The mortgage sector continued to cooperate: Rates fell again for the third straight week. Thirty year fixed rate conventional mortgages averaged 5.8 percent, down from 5.8 percent the week before, according to the Mortgage Bankers Association of America. Fifteen year rates also dropped, averaging 5.5 percent.

Any time we're quoting mortgage rates in the fives, that's GOT to be positive news for home buyers with reasonably good credit.

Why the continuing decline in rates? One reason is that inflation is not a major worry for capital markets investors at the moment -- even if gas and food prices are over the top for most of us. The latest Consumer Price Index report -- that's the federal government's measure of inflation -- came in at just zero point two percent (0.2%) for April, which is very low. Year over year, inflation is still only around 2.3 percent.

Despite these positive signs, the fact is that consumers are still worried about the overall direction of the U.S. economy. The University of Michigan's bellwether Consumer Sentiment Index registered a 3.1 percent decline last month, continuing a steady downward trend.

That's not helpful for home sales for sure -- and that negative mindset will certainly keep some buyers on the sidelines in the months ahead.

Which is a shame if you look at conditions in most markets objectively. Most of the current numbers add up to an excellent buying opportunity.

Prices are more affordable they've been in several years. There's a bumper crop of houses to choose from. And mortgage money is cheap and getting cheaper.

Maybe the message is just taking a little time to get out there.

Published: May 22, 2008