Article in August 31, 2007 WSJ

Bush Moves to Aid Homeowners

By DEBORAH SOLOMON
August 31, 2007

WASHINGTON -- President Bush, looking for ways to respond to the subprime-mortgage crisis, will outline a series of policy changes and recommendations today to help borrowers avoid default, senior administration officials said.

Among the moves will be an administrative change to allow the Federal Housing Administration, which insures mortgages for low- and middle-income borrowers, to guarantee loans for delinquent borrowers. The change is intended to help borrowers who are at least 90 days behind in payments but still living in their homes avoid foreclosure; the guarantees help homeowners by allowing them to refinance at more favorable rates.

Mr. Bush also will ask Congress to suspend, for a limited period, an Internal Revenue Service provision that penalizes borrowers who refinance the terms of their mortgage to reduce the size of the loan or who lose their homes to foreclosure. And he will announce an initiative, to be led jointly by the Treasury and Housing and Urban Development departments, to identify people who are in danger of defaulting over the next two years and work with lenders, insurers and others to develop more favorable loan products for those borrowers.

The moves are the first visible steps the Bush administration has taken to help stem the fallout from the subprime crisis, which has roiled financial markets and threatened to contaminate the housing sector. Defaults and foreclosures are increasing as borrowers -- many of whom got interest-only or no-money-down loans -- begin having trouble making their mortgage payments as higher rates kick in. Many homeowners believed they could refinance their loans, but that has become much harder as lenders tighten their standards in the face of defaults and foreclosures.

With more than two million loans expected to adjust to higher rates over the next two years, possibly triggering many more defaults, the Bush administration is looking for ways to stem the damage.

"The president wants to see as many homeowners who can stay in their homes with a little help be able to stay in their homes," a senior administration official said. "We're not looking for an industry bailout or a Wall Street bailout. The focus here is on the homeowner."

Mr. Bush is instructing Treasury Secretary Henry Paulson to look into the subprime problem, figure out what happened and determine whether any regulatory or policy changes are needed to prevent a recurrence.

For now, the administration's primary vehicle to help homeowners will be the FHA, which doesn't originate loans but helps riskier borrowers qualify by guaranteeing their loans against default. By allowing the agency to back loans for delinquent borrowers, the FHA estimates it can help an additional 80,000 homeowners qualify for refinancing in 2008, bringing its total of refinancing guarantees to about 240,000, senior administration officials said. Mr. Bush also plans to announce that the FHA will begin charging "risk-based" premiums, a move that will enable the agency to help riskier borrowers since they can charge those individuals higher insurance rates. Right now, FHA premiums are a flat 1.5% of the loan, and the change would give the FHA flexibility to charge some borrowers as much as 2.2%.

Still, the move will help only a small portion of homeowners -- and few in high-cost states such as California or New York -- because the FHA faces constraints on the size of the loans it can back and strict rules that borrowers must meet. The Bush administration has been pushing Congress to enact overhauls that would eliminate the required 3% down payment and raise the size of the loans the FHA can insure to as much as $417,000 from $362,790. Senate Banking Committee Chairman Christopher Dodd (D., Conn.) said recently that FHA reform will be among his priorities when Congress returns from its August recess, and a bill is expected to head to the full House this fall.

In another move, Mr. Paulson and HUD Secretary Alphonso Jackson have instructed their staffs to begin working with mortgage lenders and others to identify borrowers who are in danger of defaulting. They also are trying to work with private lenders and mortgage giants Fannie Mae and Freddie Mac to develop loans for borrowers who will likely face default if they can't get more flexible terms.

Article in August 30, 2007 WSJ

Home Prices Rose 3.2% in 2nd Period,
But Quarterly Increase Was Flat

Second-Quarter GDP Revised Up

By DAMIAN PALETTA and JEFF BATER
August 30, 2007

WASHINGTON -- U.S. house prices appreciated 3.2% in the second quarter of 2007 from a year before, the Office of Federal Housing Enterprise Oversight reported Thursday.

Meanwhile, the U.S. economy was stronger during the spring than earlier estimated, the government said Thursday, revising the growth rate higher because business spending and exports were better than first thought.

Ofheo said prices rose only 0.1% in the second quarter from the first quarter, the lowest quarterly increase since 1994.

"House prices were basically flat in the second quarter despite tightening credit policies, rising foreclosure rates, and weakening buyer sentiment," Ofheo director James Lockhart said. "Significant price declines appear localized in areas with weak economies or where price increases were particularly dramatic during the housing boom."

Ofheo reported that housing markets were the strongest in western states. From the second quarter of 2006 to the second quarter of 2007, house prices rose on average 15.3% in Utah, 12.8% in Wyoming, 9.1% in Washington, and 9.1% in Montana.

But some other western states performed poorly.

On average, prices fell 1.5% in Nevada over 12 months, 1.4% in Michigan, 1.4% in California, and 1.0% in Massachusetts.

Ofheo's data are collected from mortgage purchases by Fannie Mae and Freddie Mac and therefore does not include jumbo loans, which are products those companies are not allowed to buy.

Ofheo said that of the 20 poorest performing markets, 18 were in Florida and California.

In total, 14 states saw price declines in the second quarter from the first quarter. The worst performing state for the quarter was Rhode Island, where average prices fell 1.74% from the first quarter to the second quarter.

GDP Revised Up

Gross domestic product rose at a seasonally adjusted 4.0% annual rate, the Commerce Department said in a new, revised estimate of GDP in the second quarter, which included the period April through June -- a time that came before credit anxieties bubbled up in the U.S. to send financial markets reeling.

It was the strongest quarterly rate of GDP growth since 4.8% during the first three months of 2006.

Originally, the government had estimated second-quarter 2007 GDP rose 3.4%. First-quarter 2007 GDP climbed 0.6%.

The Commerce Department data showed corporate profits strengthened in the second quarter. Profits after taxes grew by 5.4% to $1.154 trillion, after rising by 1.5% in the first quarter. Year over year, profits increased 3.5%.

Price inflation gauges were lowered in the government's revisions to the economic data.

Stronger business spending and overseas sales led to the upward revision to GDP, a measure of all goods and services produced in the economy. But the adjustment wasn't quite as high as Wall Street expected; the median estimate of 25 economists surveyed by Dow Jones Newswires was a 4.1% advance.

The report showed businesses increased inventories in the second quarter by $5.4 billion, adding 0.21 percentage point to GDP. Originally, Commerce estimated a $3.6 billion increase, a contribution of 0.15 percentage point to GDP. Businesses increased inventories by $100 million in the first quarter.

Trade gave the economy a bigger push than first estimated -- because U.S. exports were revised up, rising by a rate of 7.6% instead of the originally reported 6.4%. Imports fell 3.2%; originally, the decrease was seen at 2.6%.

The revised data showed trade added 1.42 percentage points to GDP in the second quarter. Originally, trade was seen contributing just 1.18 percentage points to GDP.

Businesses elevated spending more than previously thought. Outlays rose by 11.1% in April through June; originally, spending was estimated rising 8.1%. Business spending climbed 2.1% in the first quarter. Second-quarter investment in structures by business surged by 27.7%. Equipment and software increased 4.3%.

Consumer spending advanced by 1.4%, up from a previously reported 1.3% increase but below the first quarter's 3.7% climb. Consumer spending accounts for about 70% of economic activity. It contributed 1.03 percentage points to GDP in the second quarter; the original estimate was a contribution of 0.89 percentage point.

Durable-goods purchases increased 1.7% in April through June, above the previously reported 1.6% increase but below an 8.8% climb in the first quarter. Durable goods are expensive items designed to last at least three years, such as refrigerators.

Second-quarter nondurables spending fell by 0.3%. Services spending went 2.3% higher.

Residential fixed investment, which includes spending on housing, tumbled by 11.6% in the second quarter, a drop bigger than the previously reported 9.3% plunge. Housing fell 16.3% in the first quarter.

Real final sales of domestic product, which is GDP less the change in private inventories, climbed 3.7%, above the previously reported 3.2% increase and above a 1.3% rise in the first quarter.

Federal government spending increased by 5.9%, revised down from an initially estimated 6.7% advance. First-quarter spending fell 6.3%. State and local government outlays increased 3.0% April through June.

Revisions to inflation gauges within the report were generally lower.

The government's price index for personal consumption increased 4.2%, below the previously estimated 4.3% advance but above the first quarter's 3.5% increase. The PCE price gauge excluding food and energy rose 1.3%, below the previously estimated 1.4% advance and lower than the first quarter's 2.4% increase.

The price index for gross domestic purchases, which measures prices paid by U.S. residents, went up 3.8%, below the previously estimated 3.9% advance and the same as the first quarter rate of increase. The chain-weighted GDP rose 2.7%, the same as previously estimated but below the first quarter's 4.2% increase.

Jobless Claims Increase

Te number of U.S. workers filing new claims for jobless benefits jumped last week to the highest level since April, indicating slower growth in employment.

Jobless claims rose 9,000 to 334,000 on a seasonally-adjusted basis in the week ended Aug. 25, the Labor Department said Thursday. Claims for the Aug. 18 week were revised to 325,000 from 322,000.

Wall Street forecasts had called for 2,000 decline last week to 320,000, according to a Dow Jones Newswires survey.

The four-week average -- which economists use to gauge underlying labor market trends -- rose 6,250 last week to 324,500. That's the fifth straight rise.

Investors are closely watching U.S. labor markets amid worries over credit availability triggered by problems in the mortgage market. As long as job growth remains strong, economists predict consumer spending will weather turbulence on Wall Street.

Nonfarm payrolls expanded by just 92,000 last month and the unemployment rate ticked up, though it remains low by historical standards. Thursday's claims figures, suggest the underlying trend is not as strong it was earlier in the year.

If labor markets and, in turn, consumption head lower it would intensify pressure on Federal Reserve officials to cut their main policy tool, the federal funds rate. Futures markets are pricing in multiple reductions in the fed funds rate starting next month to alleviate credit crunch worries and their potential economic effects. The Fed has already lowered the discount rate is charges banks that borrow directly from the Fed.

According to the Labor Department report Thursday, continuing claims for workers drawing unemployment benefits for more than a week rose 13,000 to 2,579,000 in the week ended Aug. 18, the latest week for which such data are available. That's the highest level since mid April.

The insured unemployment rate ticked up to 2.0% in the Aug. 18 week, from 1.9% in the prior week.

There were 15 states and territories reporting an increase in initial jobless claims for the Aug. 18 week, while 38 reported a decrease.

California had the biggest decrease, 3,983, thanks to fewer layoffs in transportation, communications, and public utilities industries. Michigan reported the sharpest increase, 3,254, due to layoffs in the automobile industries.

Article in August 28, 2007 WSJ

Inventories of Homes Rise Sharply

By SUDEEP REDDY
August 28, 2007

WASHINGTON -- U.S. sales of existing homes fell slightly in July, but a surge in inventories set the stage for a steeper slump and sharper price declines in the months ahead.

After the credit crisis that hit financial markets this month, U.S. home sales are expected to drop further as tighter lending standards and a pullback by mortgage firms keep potential buyers on the sidelines.

Sharply rising inventories are a sign of homeowners trying to sell their homes before prices tumble more, said Joseph Brusuelas, chief U.S. economist at consulting firm IDEAglobal.

"There are going to be no happy endings here," he added. "It's the last days of the old order."

Existing-home sales slipped 0.2% in July to a seasonally adjusted annual pace of 5.75 million homes, the lowest in five years, the National Association of Realtors said yesterday. The median sales price dropped to $228,900, down 0.6% from the July 2006 level, which was the highest on record.

Inventories of homes for sale jumped 5.1% to 4.59 million, or about 9.6 months of supply at the current sales pace. A supply of about six months generally indicates a balanced market.

The tightening of credit markets became most severe in mid-August. That means the full effect may not be seen until sales figures for September are released. The Realtor group's figures reflect transaction closings, which mark the end of the buying process.

The problems may be most acute in the markets for lower-end homes, which tend to go to less credit-worthy borrowers, and for higher-end homes that require buyers to take out so-called jumbo loans. Rates for such loans, which exceed $417,000, jumped sharply this month.

Even before the market turmoil, inventories were expected to rise sharply into early next year as homeowners increasingly default on loans.

Sellers could face price declines of as much as 10% in the next six months as the market settles, said Joshua Shapiro, chief economist at consultancy MFR Inc. in New York.

"To sell cheaper homes, prices need to be slashed even more because demand is falling off," Mr. Shapiro said. "If the bottom is falling out of the lower end of the market, it's going to have to affect the middle, which affects everything above it."

New-home sales increased 2.8% in July to a seasonally adjusted annual rate of 870,000, government data last week showed. Such sales also are expected to decline as a result of tightening credit and slower activity by builders.

Article in Augsut 26, 2007 New York Times

Drop Foreseen in Median Price of U.S.Homes

By DAVID LEONHARDT and VIKAS BAJAJ

The median price of American homes is expected to fall this year for the first time since federal housing agencies began keeping statistics in 1950.

Economists say the decline, which could be foreshadowed in a widely followed government price index to be released this week, will probably be modest — from 1 percent to 2 percent — but could continue in 2008 and 2009. Rather than being limited to the once-booming Northeast and California, price declines are also occurring in cities like Chicago, Minneapolis and Houston, where the increases of the last decade were modest by comparison.

The reversal is particularly striking because many government officials and housing-industry executives had said that a nationwide decline would never happen, even though prices had fallen in some coastal areas as recently as the early 1990s.

While the housing slump has already rattled financial markets, it has so far had only a modest effect on consumer spending and economic growth. But forecasters now believe that its impact will lead to a slowdown over the next year or two.

“For most people, this is not a disaster,” said Nigel Gault, an economist with Global Insight, a research firm in Waltham, Mass. “But it’s enough to cause them to pull back.”

In recent years, many families used their homes as a kind of piggy bank, borrowing against their equity and increasing their spending more rapidly than their income was rising. A recent research paper co-written by the vice chairman of the Federal Reserve said that the rise in home prices was the primary reason that consumer borrowing has soared since 2001.

Now, however, that financial cushion is disappearing for many families. “We are having to start from scratch and rebuild for a down payment,” said Kenneth Schauf, who expects to lose money on a condominium in Chicago he and his wife bought in 2004 and have been trying to sell since last summer. “We figured that a home is the place to build your wealth, and now it’s going on three years and we are back to square one.”

On an inflation-adjusted basis, the national median price — the level at which half of all homes are more expensive and half are less — is not likely to return to its 2007 peak for more than a decade, according to Moody’s Economy.com, a research firm.

Unless the real estate downturn is much worse than economists are expecting, the declines will not come close to erasing the increases of the last decade. And for many families who do not plan to move, the year-to-year value of their house matters little. The drop is, of course, good news for home buyers.

It does, however, contradict the widely held notion that there is no such thing as a nationwide housing slump. A 2004 report jointly written by the top economists at five organizations — the industry groups for real estate agents, home builders and community bankers, as well as Fannie Mae and Freddie Mac, the large government-sponsored backers of home mortgages — was typical. It said that “there is little possibility of a widespread national decline since there is no national housing market.”

Top government officials were more circumspect but still doubted that the prices would decline nationally. Alan Greenspan, the former Fed chairman, said the housing market was not susceptible to bubbles, in part because every local market is different.

In 2005, Ben S. Bernanke, then an adviser to President Bush and now the Fed chairman, said “strong fundamentals” were the main force behind the rise in prices. “We’ve never had a decline in housing prices on a nationwide basis,” he added.

But Global Insight, the research firm, estimates that the home-price index to be released Thursday by the Office of Federal Housing Enterprise Oversight, a regulatory agency, will show a decline of about 1 percent between the first and second quarter of this year. Other forecasters predict that the index will rise slightly in the second quarter before falling later this year.

In all, Global Insight expects a decline of 4 percent, or roughly 10 percent in inflation-adjusted terms, between the peak earlier this year and the projected low point in 2009. In California, prices are expected to decline 16 percent — or about 20 percent after taking inflation into account.

The government’s index, which compares the sales price of individual homes over time, is intended to describe the actual value of a typical house. Since the index began in 1975, it has slipped from one quarter to the next on a few occasions, but it has never fallen over a full year.

Another index dating back to 1950, calculated by Freddie Mac, has also never shown an annual decline. Price data published by the National Association of Realtors, based on the prices of houses sold in a given year, have also never declined. According to the association, the median home price is now about $220,000.

Mr. Schauf and his wife, Leslie Suarez, put their condo in the Sheridan Park neighborhood of Chicago up for sale shortly before moving to Texas last year so he could take a new job. They bought the two-bedroom unit in September 2004 for $255,000, with a 5 percent down payment. They redid the floors, installed new window treatments and repainted the walls.

They said they expected the condo to sell quickly. Instead, they have cut the price several times and have yet to receive an offer. The current list price is $279,000, though they expect to settle for less.

Without the money for a new down payment, they are renting an apartment in Austin. They also expect the monthly payment on their adjustable-rate mortgage to go up $200 in October.

Ms. Suarez, who grew up in the Dallas-Fort Worth area, says she is not as surprised because she remembers home prices falling after the oil bust in the late 1980s. “Growing up in Texas, real estate has never been a windfall,” she said. “For me, I always just wanted to break even.”

Housing prices have previously declined for long stretches in various regions. Most recently, prices fell in California and in the Northeast during the recession of the early 1990s.

The current slump is different from that one, though, in both depth and breadth. In fact, the national median price rose only slightly faster than inflation from 1950 to the mid-1990s.

But as interest rates fell and lending standards became looser, prices started rising rapidly in the late 1990s, even in places like Chicago, which had rarely seen a real estate boom. The result was a “euphoric popular delusion” that real estate was a can’t-miss investment, said Edward W. Gjertsen II, president of the Financial Planners Association of Illinois. “That’s just human nature.”

Many families are clearly richer because of the boom. In the Old Town neighborhood of Chicago, the town house that Ian R. Perschke, a technology consultant, and Jennifer Worstell, a lawyer, bought in late 2004 has appreciated more than 30 percent, they estimated. The gain was big enough to allow them to take out a larger mortgage and renovate two rental units in the house. But Mr. Perschke said he understood that he was “not going to see that appreciation over the next three years.”

Prices in Chicago peaked in September 2006 and have since dipped 1.7 percent, according to the Case-Shiller home-price index, which is tabulated by MacroMarkets, a research firm.

For all the attention that the uninterrupted growth in national house prices received, some economists argue that it was misplaced. The Case-Shiller index, which many experts consider more accurate than the government measure, did show a drop in prices in the early 1990s. (Unlike the government’s measure, it includes mortgages of more than $417,000, which are not held by Fannie Mae or Freddie Mac.)

After adjusting for inflation — the most meaningful way to look at any price, economists say — even the government’s index fell in the early 1990s.

Dean Baker, an economist in Washington who has been arguing for the last five years that houses were overvalued, said the idea that house prices could go only up had fed the bubble.

“It was very misleading,” said Mr. Baker, co-director of the Center for Economic and Policy Research, a liberal research group. There are a lot of people, he said, who bought “homes at hugely inflated prices who are going to take a hit. You also have a lot of people who borrowed against those inflated prices.”

Perhaps the most prominent housing booster was David Lereah, the chief economist at the National Association of Realtors until April. In 2005, he published a book titled, “Are You Missing the Real Estate Boom?” In 2006, it was updated and rereleased as “Why the Real Estate Boom Will Not Bust.” This year, Mr. Lereah published a new book, “All Real Estate Is Local.”

In an interview, Mr. Lereah, now an executive at Move Inc., which operates a real estate Web site, acknowledged he had gotten it wrong, saying he did not fully realize how loose lending standards had become and how quickly they would tighten up again this summer. But he argued that many of his critics have also been proved wrong, because they were bearish as early as 2002.

“The bears were bears way too early, and the bulls were bulls too late,” he said. “You need to know when you are straying from fundamentals. It’s hard, when you are in the middle of the storm, to know.”

Article in August 24, 2007 WSJ

Home Sales, Factory Orders
Offer Encouraging Signs

New-Home Sales Rose 2.8% in July;
Durable-Goods Orders Jump 5.9%

By JEFF BATER
August 24, 2007

WASHINGTON -- New-home sales defied expectations and stopped sliding during July, making a modest increase that gave the beleaguered housing market a little good news.

Meanwhile, demand surged for expensive goods during July in a broad-based increase that topped expectations by a wide margin and included a strong climb in a key barometer of capital spending by businesses.

Sales of single-family homes increased by 2.8% last month to a seasonally adjusted annual rate of 870,000, the Commerce Department said Friday. June new-home sales fell 4% to an annual rate to 846,000; originally, the government said June sales dropped by 6.6% to 834,000.

The median estimate of 23 economists surveyed by Dow Jones Newswires was a 1.4% decline in July sales to an 822,000 annual rate.

Year over year, new-home sales were 10.2% lower than the level in July 2006.

The sickly housing sector has pulled down U.S. economic growth for six straight quarters. Groundbreakings by home builders in July fell to the lowest level in 10 years. Analysts expect the slump to continue. Lenders are tightening standards for borrowers, which sent up mortgage rates during the summer. Inventories of homes are running high.

Friday's data showed the ratio of new houses for sale to houses sold slipped during July, falling to 7.5 from 7.7 in June. There were an estimated 533,000 homes for sale at the end of July, down from June's 538,000. The median price of a new home increased by 0.6% to $239,500 in July from $238,100 in July 2006. The average price decreased by 3.4% to $300,800 from $311,300 a year earlier. In June this year, the median price was $230,600 and the average was $304,900.

Regionally last month, new-home sales increased 22.4% in the West and 0.6% in the South. Demand plunged 24.3% in the Northeast and dropped 0.9% in the Midwest. An estimated 74,000 homes were actually sold in July, down from 77,000 in June, based on figures not seasonally adjusted.

Orders for Durable Goods Top Expectations

Orders for durable goods rose by 5.9% last month to a seasonally adjusted $230.7 billion, the Commerce Department said Friday. Durables, which are goods designed to last at least three years, rose 1.9% in June, revised from a previously estimated 1.3% advance.

The barometer of business equipment spending -- orders for nondefense capital goods excluding aircraft -- increased by 2.2%, after dipping 0.1% in June. Analysts will monitor future data for any indications whether credit conditions are putting a chill on corporate capital spending plans. July shipments for nondefense capital goods excluding aircraft rose 0.5%, after slipping 0.8% in June; the shipments are used in calculating gross domestic product, which is the barometer for economic growth in the U.S.

Wall Street expected a much smaller increase in orders. The median estimate of 23 economists surveyed by Dow Jones Newswires had durables 1% higher in July. The 5.9% gain was the largest since 8.8% in September 2006.

Transportation orders in July increased 10.8%, after rising 9.2% in June. Demand for commercial planes rose 12.6%, after surging 37.1% in June. Military aircraft orders increased 15.8%. Motor vehicles and parts increased by 9.8% last month. Orders for all durables except transportation goods advanced 3.7% in July. Orders rose by 7.9% for primary metals, 7.4% for computers and electronics, 1.4% for fabricated metals, and 5.5% for machinery. Demand fell by 1.2% for electrical equipment. Demand ex-transportation had gone 1.2% lower in June.

Article In August 23, 2007 RealEstateJournal.com by WSJ

Can't Get a Mortgage?
Try Your Credit Union

By Amy Hoak
From MarketWatch

As many mortgage lenders tighten loan underwriting standards and interest rates on jumbo mortgages rise, consumers may be able to find a friend in their credit union.

One reason: Many (although not all) of the mortgage loans made by credit unions are held in their own portfolios and therefore don't need to be sold to investors, said Bill Hampel, chief economist for the Credit Union National Association and Affiliates.

"A credit union considering a mortgage loan application doesn't have as many things to worry about as a mortgage banker that has to sell that to a secondary mortgage market," he said.

Selling nonconforming loans in the secondary market over the past few weeks has been a challenge, as the market has been repricing the risk associated with mortgage loans that aren't bought by Freddie Mac and Fannie Mae. As a result, some loan products have been removed from lenders' offerings, while lending standards have tightened on other products, perhaps requiring better credit scores or larger down payments from borrowers.

At credit unions, however, underwriting standards haven't needed to change, Hampel said.

And while the rates on jumbo loans offered by many lenders went "haywire" over the past couple of weeks, at credit unions the rates on those loans haven't experienced a jump, Hampel said. Jumbo loans are those that exceed the conforming loan limit of $417,000 in most states.

"Many borrowers will find a credit union an easier place to get a mortgage right now than other lenders," he said.

And consumers seem to be discovering this, according to Steve VanSickler, chief lending officer at Red Rocks Credit Union in Highlands Ranch, Colo.

"Without a doubt, we are seeing increased traffic," he said.

Credit union mission

Even if it's a good time to head to the credit union for a mortgage, it's important to point out that these institutions are far from being risk takers. They're not-for-profit, co-op organizations that were founded with a main mission to serve members.

It's not that they "cherry pick" borrowers who are approved for a mortgage, VanSickler said. "Credit unions still have higher approval rates to lower income borrowers," he pointed out.

But there's a more measured approach to how that mortgage works with the member's overall financial picture, since the credit union is often that borrower's primary institution, he added.

Plus, the majority of mortgage products at credit unions don't tend to be risky -- regardless of what is going on in the rest of the lending market, said Jay Johnson, executive vice president of Callahan & Associates, a national credit union research and consulting firm.

"They're not likely to get into exotic products and jump on the bandwagon," Johnson said.

Subprime loans never thrived in credit unions, Hampel said. And the Alt-A mortgages that require little documentation are used sparingly, he added, usually with members who are well known to the credit union and have belonged for a long time. That way, the credit union can confirm that a borrower has a steady history of income into a savings or checking account, he said.

As a way to address high-cost housing markets, credit unions have also offered 40-year mortgages and interest-only loans, Hampel said. But only if they fit the borrower's needs.

"We don't want to get members into a deal where they will likely lose their home," he said.

The approach tends to work: Last year, the net charge-off rate for credit union mortgages was 0.02%, he said. The net charge-off rate is the amount lost in default minus the amount the credit union is able to recoup through the sale of the property.

If the borrower does see trouble coming around the bend regarding a mortgage, credit unions can often address it before the payments are late, Hampel said. Many of them also partner with credit-counseling agencies to help borrowers in a pinch, Johnson said.

How to find a credit union

One of the tricks for consumers interested in working with a credit union for a home loan is finding one that makes them. There are about 8,000 credit unions throughout the country, but only 3,500 of those do first-mortgage lending, Johnson said.

In order to join a credit union, individuals must meet the institution's criteria. A credit union's "field of membership" can be an employer, a church, a school, a community or another subset, according to the Credit Union National Association's Web site.

The Web site has a searchable directory for consumers to find credit unions throughout the country.

Article in August 22, 2007 WSJ

How FHA Could Help Borrowers

Bush Backs Giving Agency
Flexibility to Offer Options
For Mortgage Refinancing

By DEBORAH SOLOMON

August 22, 2007

WASHINGTON -- As the subprime-mortgage crisis ripples through the broader housing market, the Bush administration is eyeing an often overlooked federal mortgage insurer to help low- and middle-income homeowners avoid foreclosure.

President Bush has balked at allowing mortgage giants Fannie Mae and Freddie Mac to buy more mortgages for their portfolios to ease the credit crunch triggered by rising defaults on home loans to borrowers with poor credit. But he said earlier this month that he supports giving the Federal Housing Administration more flexibility to help those facing foreclosure refinance their homes.

The administration is looking to FHA to offer refinancing options to homeowners, including those who aren't yet in default or foreclosure, but who are at risk of falling behind in their payments on mortgages that were structured to offer payments that were very low at first but then escalated.

The effort is likely to jump-start legislation in Congress to give the housing authority more tools to assist homeowners. Senate Banking Chairman Christopher Dodd (D., Conn.), said recently that FHA reform will be among his top priorities when Congress returns from its August recess. The House Financial Services Committee passed a bill in June that is expected to head to the full House this fall.

For decades, the New Deal-era agency was used by low- and middle-income home buyers who had little or poor credit and would have trouble getting a loan in the primary market. The FHA didn't originate loans, but insured them against default by somewhat risky buyers, giving lenders an incentive to issue a mortgage.

In recent years, the agency lost market share as the market for subprime loans exploded and home buyers of all income levels were offered a range of exotic loan products, such as no-money-down mortgages and interest-only payments. While FHA-insured loans once accounted for roughly 15% of the mortgage market, that number has fallen below 5%.

But many buyers who got subprime loans are beginning to have trouble making their mortgage payments as the attractive initial "teaser" interest rates are reset at much higher levels. While many of those buyers believed they could refinance their loans, that has become much harder as mortgage lenders tighten their standards in the face of defaults and foreclosures. The Center for Responsible Lending estimates as many as 2.2 million loans will reset over the next two years.

FHA says it is constrained from doing more now because of limits on the size of the loans it can back and some requirements that borrowers must meet. While its refinancing business has picked up and the agency expects to refinance about 120,000 loans this year, FHA officials say they could easily double that amount if given greater flexibility.

Among the options being discussed in Congress is eliminating or reducing the required 3% down payment, raising the size of the loans FHA can insure to as much as $417,000 from $362,790, and being able to charge insurance premiums based on a borrower's risk instead of a one-size-fits-all rate.

Federal Housing Commissioner Brian Montgomery said the current rules effectively prevent FHA from helping borrowers in high-cost states, such as California and New York. Most of the loans it insures are in places such as Texas and the Midwest.

For the Bush administration, backing FHA reform offers a way to straddle the growing calls for government assistance to those caught in the subprime mess without advocating a financial bailout.

Fannie and Freddie, backed by a host of Democratic lawmakers, have argued they could provide liquidity to the rattled housing market if allowed to grow their portfolios beyond strict limits. Their portfolios are capped in part because of accounting scandals at the government-sponsored entities and Mr. Bush has said Congress should pass long-awaited reforms that would tighten oversight of Fannie and Freddie before allowing them to grow.

Still, an administration official said the government is sensitive to the need to help minimize "collateral damage" from the subprime woes, such as massive foreclosures that could hit certain neighborhoods hard and affect property values broadly. To that end, Treasury and HUD are looking to find ways to assist borrowers who are creditworthy, but who got caught in a pinch and are facing higher mortgage payments than they can afford.

One challenge for the administration is trying to identify borrowers who are likely to get hit with a change in their loan payment -- known as a reset -- that could force them to default on their mortgage, and then figuring out ways to help them refinance. Among the possible options are for government agencies such as FHA or Fannie Mae and Freddie Mac to refinance some of those loans at a lower interest rate.

But not everyone is convinced, and FHA reform may run into trouble in the Senate. Alabama Sen. Richard Shelby, the ranking Republican on the Senate Banking Committee, has expressed concern about expanding FHA, saying it could ultimately hurt taxpayers.

"One lesson learned from the current pattern of defaults and delinquencies in the subprime market is that those borrowers with little or no equity in their home will be the most likely to fail," he said at a hearing last month. "We must approach any attempt to expand the program or lower the program's standards with great caution."

Article in August 21, 2007 RealEstateJournal.com by WSJ

How to Bid Low on a Home
Without Offending the Seller

By Amy Hoak
From MarketWatch

With stagnant prices and elevated inventory in many markets, home sellers are no longer automatically turning up their noses at offers that come in far below their asking price.

But buyers who do ask for deep discounts still risk offending sellers to the point where they quash any deal. So before making an aggressive offer, some homework is in order, real-estate professionals say. And buyers will need to effectively explain why the price of a home should be lower.

Pat O'Heron was able to negotiate a steep discount with a seller who relocated for a job, in a neighborhood in Ann Arbor, Mich., that had two year's worth of inventory on the market.

Mr. O'Heron says before he even made an offer, the asking price had already dropped by about $80,000. He eventually bought the home for $270,400, with about $11,000 in other credits. The price ended up being $115,000 below the initial asking price.

Mr. O'Heron was able to take advantage of a market in which buyers decidedly hold the upper hand, with its excessive for-sale inventory due, in large part, to job losses in the area.

But even though housing is in a slump in many parts of the U.S., those tactics won't work in markets that remain healthy. And there's always an inherent danger in going too low. A low offer could insult the seller to the point that they'll refuse to counter, Realtors say. And the seller could easily make the assumption that the buyer isn't committed to making a deal.

"When you're making the offer," says Jon Boyd, Mr. O'Heron's agent and president of the National Association of Exclusive Buyer Agents, "if you justify that offer with outside data, then it's much less likely to be perceived as being an insult or [the buyer] not as serious."

Here are three guidelines on how -- and when -- to make an aggressive bid:

1. Learn how motivated the seller is to make a deal.

Certain sellers are going to be more willing than others to negotiate a low offer -- and there are several giveaways that might indicate more leeway on price.

For instance, if the sellers have already purchased another home and that sale has closed, they're likely to be more willing to make a deal, says Dick Gaylord, president elect of the National Association of Realtors and a broker with Re/Max Real Estate Specialists in Long Beach, Calif.

If the property has been on the market for a long time, sellers will be interested in entertaining any offers, he adds.

Mr. Gaylord says he talks to the seller's agent to get as many details as possible about how motivated the seller is.

Overall local market conditions also play a role. The housing market in which Mr. O'Heron bought, for example, was sluggish. The home he purchased had been on the market for about a year.

Because of the job relocation, the seller needed to move and wasn't in the position to take the home off the market until conditions were more favorable, Mr. O'Heron says.

2. Make your case with hard facts.

When putting together an aggressive offer for a client, Mr. Boyd doesn't just hand the seller a purchase agreement with the price the buyer is willing to pay -- he creates a cover letter explaining exactly where that number came from.

In addition to citing comparable sales in making the offer, it also could be important to include details regarding the amount of inventory in the immediate surrounding area, he says.

"If we just looked at the relative values of the houses that sold, we would end up paying too much for that house because we know that the values are going to fall," Mr. Boyd says. "If we see two years' worth of inventory, we should be buying 5%, potentially 10% less than what houses have sold for in the past year in the neighborhood."

Buyers may even personally write a letter to the sellers to make their point, as they did when the market was hot and they aimed to stand out from the crowd, Mr. Gaylord says. That way, they can detail what they like about the house but express their fear of future dropping values.

3. Prepare for the possibility of rejection or negotiation.

Ultimately, a real-estate agent working on behalf of a buyer needs to honor and facilitate the offer that the buyer wishes to make -- even if it seems to be too low.

Mr. Gaylord warns buyers making very low offers that the seller might refuse to negotiate. On a "super aggressive offer," Mr. Boyd says he might tell a client "there's a one in five chance there will be a positive response."

Still, there's that potential for a seller to make a counteroffer, especially if there haven't been many other bids.

Danielle Kennedy, a real-estate sales coach and author based in Pacific Palisades, Calif., advises sellers not to think of a low offer as an insult but as "a sign of interest."

It "begins the dialogue regarding the purchase of your house," she says.

Not all hope is lost even if a seller doesn't bite immediately.

Sometimes after time elapses, the seller comes around and decides to negotiate, Mr. Boyd says. New information -- such as the sale of a comparable home at a lower price -- also can nudge a seller to give an aggressive offer a second look and open the negotiation process.

Article in August 20, 2007 Detroit News

Lenders to offer loan aid

Some homeowners will qualify to switch ARMs to fixed rates

Nathan Hurst / The Detroit News

Desperate to stop the flood of foreclosures among their Michigan customers, mortgage brokers are loosening some of their lending rules to help homeowners trapped in adjustable-rate mortgages.

The lenders are making it easier for some homeowners to convert their ARMs, many of which are set to adjust upward over the next six months, to fixed-rate mortgages with payments that stay the same over the life of the loans. The bankers figure that if they can keep payments reasonable for their borrowers, they can reduce future foreclosures.

That's not only good for the homeowners who qualify, but also for the bankers. With a market so slow that homes can go unsold for months, even years, foreclosed houses have become a banker's burden. If they can sell the houses at all, it's often for much less than what the homeowners owe on their loans. So it's become a lot cheaper to make refinancing easier for those who are current on their ARM payments, but could find themselves in trouble once the interest rates go higher.

"Here in Michigan, with our economy, banks absolutely do not want houses," said Audrey Acquisti, an owner-broker with MSource Financial Group, based in Clarkston. "They will lose money. Working out a deal with a homeowner is better on their end, too."

The deals lenders are offering counter a larger trend toward stricter requirements to get home loans, in light of a deepening crisis in the mortgage industry. That tightening has accelerated in the past two weeks as many lenders have stopped making all but the safest mortgages.

But loosening the rules for credit-worthy customers with burdensome ARMs makes sense for lenders.

"It's simple," said Brian Seibert, president of Watson Group Financial in Waterford. "Banks are willing to work with good customers who might not have qualified for some fixed-rate loans just a few years ago. Anything but foreclosure."

Foreclosures skyrocket

Michigan's foreclosure rates began rising quickly last year, and this year they have skyrocketed -- fueled by not only the surge nationwide in high-interest subprime mortgages to borrowers with shaky credit, but also the sustained economic slump in Michigan that has left thousands of workers without jobs, especially in the auto industry.

The number of Metro Detroit foreclosures in the first half of this year jumped by more than 50 percent over the same period last year, and the Metro region has consistently ranked among the top in the nation for foreclosure rates this past year.

The help from lenders is coming in many forms and is available primarily to homeowners who have strong payment histories on their existing mortgages and good credit.

Some local brokers are using existing mortgage programs through agencies like the Federal Housing Administration and the U.S. Department of Agriculture to offer fixed-rate refinance options to adjustable rate mortgage holders. Others are crafting their own deals, including loans that let some at-risk owners refinance to prime loans just years after they could qualify only for a subprime mortgage. To get that type of deal, homeowners must have good payment histories on both their mortgages and other bills.

Owners get options

A key provision of many of the refinancing programs, especially those offered by the feds, is that they allow mortgage holders to refinance to a fixed rate for up to 100 percent of a home's value.

Owners who qualify typically have high credit scores and haven't missed payments on their existing loans. The programs are extensions of previous federal offerings meant to stave off foreclosures.

Other options include federal and private loans that will cover up to 97 percent of a home's value, also of particular interest for homeowners who have faced decreasing housing values in recent years.

Options are more limited for those who are current with their mortgage payments, but are upside down on their house -- they owe more on the loan than the house is worth -- because of falling home prices, a trend that has hit Metro Detroit particularly hard the past two years.

In those instances, only certain types of already-issued FHA loans can be easily readjusted to accommodate a drop in a house's value, Seibert said.

Brokers say a homeowner's best bet is to find out when the ARM's interest rate will reset and take action before that happens.

ARMs begin to reset

Homeowners across the country are facing higher mortgage payments in the months ahead, with more than $797 billion worth of ARMs scheduled to reset over the next two years, according to a report released earlier this year by Credit Suisse Group, a global investment services bank.

Just less than $200 billion of those mortgages will reset in the next four months, meaning families with reasonable mortgage payments could face a big jump in their mortgage bill just in time for the holidays. Some $32 billion worth of ARMs will reset in October alone.

The adjustments can bump a mortgage payment up significantly. Acquisti said she had a client visit her office recently who had an ARM on her $112,000 home.

By refinancing to a fixed-rate loan, the homeowner was able to avoid a 2-point increase in the loan's interest rate -- and paying $150 more toward her home loan each month.

The smart ARM holders are those who seek pre-emptive help, said Pava Leyrer, president of the Michigan Mortgage Brokers Association.

"Know your situation," she said.

"Be very proactive, especially if you have a readjustment coming due. Most people would be surprised by the help they can get."

Article in August 16, 2007 Detroit Free Press

Ways to assess homes altered

With foreclosures in state formula, some fear values could fall

August 16, 2007

BY CHRIS CHRISTOFF and EMILIA ASKARI

FREE PRESS STAFF WRITERS

Until Wednesday, home foreclosures were considered an aberration not to be included by tax assessors setting property assessments in their cities.

But a state panel changed the rules to allow sales of foreclosed homes -- usually at depressed prices -- to be part of the mix in figuring assessments, a move that could help drive down property assessments in some communities as much as 8%.

The State Tax Commission also gave assessors authority to use sales studies based on just one year, not two years, of sales.

Two-year sales studies tend to hold down property assessments during periods of sharp inflation but exaggerate values in a declining market.

Wednesday's changes won't necessarily translate into lower taxes, especially for homeowners who have lived in their homes at least a few years and have benefited from a law that doesn't permit property taxes to rise faster than the rate of inflation.

Figuring in foreclosures and doing one-year sales studies beginning next year will mean that overall residential assessments will fall even in wealthy Oakland County for the first time in at least four decades, said Dave Hieber, the county's equalization manager.

He predicts 7,800 foreclosures in the county by year's end. That, combined with falling prices in other home sales, will drive down property values an average of 5%, he said.

The decrease could be more like 8% in Pontiac, Southfield and Hazel Park -- communities with high numbers of foreclosures.

"We have never had a year, as far back as our records go, when Oakland County had an actual decrease in the value of real property," Hieber said.

Steve Mellen, director of Macomb County's equalization department, said that foreclosed properties are selling for an average 20% less than their market value. In Clinton Township, he said, some foreclosed properties have sold at half the market value estimated by assessors in 2007. He expects to see about 5,000 foreclosures in the county this year, or about 100 a week.

That's about 10% of all property transfers in the county.

As a result of the rule changes the tax commission enacted Wednesday, Mellen expects property assessments to fall about 5% county-wide and more in communities with high numbers of foreclosures. In Eastpointe, for example, he's expecting a 10% slide.

The changes could affect actual home values, not taxable values, which are usually lower and are used to figure property taxes. Under state law, taxable values can rise 5% or the rate of inflation, whichever is less; actual values often have risen much faster.

As a result, some property owners will see their tax bills increase, even as the actual values drop.

Wayne County assessors have been counting foreclosed home sales for some time to establish property values, said county spokesman Dennis Niemiec. So the county does not expect home values to drop because of the new rules.

Still, county assessments could decrease because of falling home prices in general. Wayne County officials do not yet have any estimates of 2008 assessments, Niemiec said.

The three-member tax commission approved revised guidelines at the urging of local assessors, said commission Chairman Bob Naftaly.

He said including foreclosed property sales might or might not result in lower property values in communities. But he said the large number of foreclosures indicates a changing marketplace.

"It's an attempt to give the tools to assessors they need to make sure they value property correctly," Naftaly said.

Because foreclosed properties can sell for less than their former owners paid for them, a large number of such sales could drag down property values. But not necessarily.

"Just because there's a repossession in your area doesn't mean your values will drop," Naftaly said. "Other home values may have gone up."

The tax commission issued explicit guidelines for when foreclosed properties can and can't be used to determine area property values. For example, sales between related people could indicate an artificially low price was set, so those sales shouldn't be counted.

Also, one or two foreclosed home sales in an area might not justify using their prices to determine surrounding home values. But many foreclosures could have a real impact.

Article in August 15, 2007 Detroit Free Press

More in danger of losing homes

Foreclosures soar in metro Detroit, even in Oakland

August 15, 2007

BY EMILIA ASKARI, GRETA GUEST and VICTORIA TURK
FREE PRESS STAFF WRITERS

Foreclosure rates in metro Detroit have grown worse this year, with even wealthier communities like West Bloomfield seeing more residents facing removal from their homes.

From Jan. 1 through late last month, Oakland County had 3,389 foreclosures, according to the county's equalization division. That's an increase of 21% over the first seven months of last year, when 2,806 foreclosures occurred in one of the nation's richest counties.

Wayne and Macomb counties were hit even harder in the first half of this year -- with reported foreclosure rates more than 50% higher than in the first half of 2006.

While struggling Oakland County cities like Pontiac (446) and Southfield (415) are battered with foreclosures, places like West Bloomfield -- with 160 through late July -- Farmington Hills (167) and Troy (105) are not immune.

"Just because someone is wealthy doesn't mean they manage their cash well," said Doug Duncan, chief economist of the Mortgage Bankers Association.

So many people in West Bloomfield -- average household income $90,000-plus -- are worried about foreclosure that Oakland County Commissioners Marcia Gershenson and Karen Spector have scheduled a home retention seminar Aug. 29 at the township library.

"Our citizens are hurting and we're here to help them," Spector said Monday. "A lot of people don't know that there are options to get them out of this. They just feel so alone and so afraid of what will happen."

Real estate agent Marshall Mandell of RE/MAX Classic in Farmington Hills said Monday that in the last couple of months he has seen more residents trying desperately to sell their homes before the bank kicks them out.

"All of sudden, a ship can sink," he said. "It touches everyone, from the top to the bottom."

One middle-aged woman in West Bloomfield said Monday that she tried but failed to sell her home in the Cumberland Commons subdivision for $290,000 -- a home with $425,000 left on the mortgage.

She said her husband died last year about the same time she lost her job.

Now, she plans to leave the state to live with her adult children.

"I'll just have to go with the change, whatever that will be," said the woman, who requested anonymity. "I have no choice. So I'm counting my blessings. My children are fabulous and I'm healthy and it's a beautiful day today."

Karry Rieth, manager of Oakland County's community and home improvement division, said he expected more grim news in 2007. "We're well on track to exceed last year's foreclosure numbers in Oakland," he said.

Oakland County officials expect about 7,800 foreclosures in 2007, Spector says.

In Macomb County, foreclosures are up 52% in the first half of 2007 over the same period last year, according to RealtyTrac, an Irvine, Calif.-based company that compiles foreclosure data nationwide.

In Wayne County, foreclosures increased 51% in the same span, RealtyTrac said.

The rate of foreclosures in Wayne County -- one per every 29 homes -- is the second-highest in the country for the first half of the year, RealtyTrac said Tuesday. Only Stockton, Calif., had a higher rate among the nation's 100 largest metropolitan areas.

A note of caution: RealtyTrac's estimates tend to be significantly higher than what the counties themselves report. And Macomb and Wayne counties could not immediately provide the detailed numbers the Free Press received from Oakland County.

Nevertheless, the peak of loan delinquencies hasn't been hit yet, said Duncan, the Mortgage Bankers economist.

Many adjustable-rate mortgages will reset to higher interest rates in the next year or two, possibly putting higher monthly payments out of reach for borrowers, he said.

With the tightening of capital markets, Duncan said, the days of people borrowing their way out of bad financial decisions are likely over, and that means more loan delinquencies and foreclosures.

"It is difficult at the moment to see the sun or the silver lining," Duncan said. "But at the end of the day 94% of Americans with a mortgage are paying on time, and 35% of Americans don't have a mortgage at all.

"The big picture is not a grim picture."

Article in August 9, 2007 Detroit Free Press

A CONDO BUYERS' MARKET: Builders foot bills, slash fees, host dinners to gain sales

August 9, 2007

BY GRETA GUEST

FREE PRESS BUSINESS WRITER

If you want to buy a condominium and have not sold your current house, chances are good you can find a developer in metro Detroit to make your house payment until it sells.

Chances also are good for getting a great deal on the condo's purchase price or a waiver on association fees for a number of years due to the current market slowdown.

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"The days of setting a sales price and that being the bottom line are gone. There's always another negotiation that comes into play," said David Jacobson, a partner in Birmingham-based Jacobson Brothers LLC, which develops apartment buildings and condominiums throughout metro Detroit.
Jacobson said he has cut prices, offered free upgrades and waived association dues to sell his condos in Troy and Canton.

After a surge in condominium construction and apartment-to-condo conversions, the demand has slowed along with the rest of the real estate market.

The National Association of Home Builders expects the market, which had become about 50% condos and 50% rentals, to go back to historic building levels of one-third condos and two-thirds rentals by the end of the year. But for now, condo developers are offering creative incentives to stimulate sales.

Dining with developers

Next Thursday, Garden Court Condominiums in Detroit will host a free dinner for prospective buyers featuring a mortgage expert to advise on qualifying for a loan.

David Farbman, president of Farbman Group of Southfield, said the event was organized to increase demand in this slow market.

Existing condominium and co-op sales fell 6.3% in June to a national rate of 740,000 units from 790,000 in May. They are off 6.6% from June 2006, according to the National Association of Realtors.

"When you are in this market, you want to be very accommodating to the desires of purchasers, and you want to do the things that it takes to have happy purchasers and complete transactions," Farbman said. "The easier you make the process, the more likely they will make the property their home."

Farbman said the company has hosted a number of events in the past. The company has spent more than $12 million to convert the 65-unit Albert Kahn-designed apartment building into condominiums in the past year.

The condos, at Jefferson and Jos. Campau Avenue in Detroit, feature hardwood floors, 10-foot ceilings, fireplaces, balconies and views of the Detroit River and city. The units range in price from $140,000 to $350,000 and about half have sold, he said.

Monthly association fees average $250 to $300 and include security. Also, since the building is in the city's enterprise zone, property taxes are substantially reduced for 12 years.

"Our goal is if someone wants to make Garden Court their home, we will work with them to make it happen," Farbman said.

Farbman's attitude is shared by Arthur Rosen, president of the Diamond Edge Companies in Southfield.

Rosen said he would buy anyone dinner just to share the benefits of buying a condominium in one of two developments being built in Green Oak Township. His attached condo community called Lake Forest Trails sits next to Island Lake Recreation area, giving residents access to bike trails, nature walks and fishing.

And at the single-family home development called Hooper's Creek, the association fee is included in the home price for the first five years and includes everything from gutter cleaning to snow removal, Rosen said.

So far, he has sold eight condos of the 46 planned at Lake Forest Trails since starting construction in 2005. The association fees are $96 a month.

"We are lucky in that we have a unique program. We are offering incentives, not just lower prices," Rosen said. "For some, we have paid their mortgage until the previous home sells. Customers can come to us and tell us what their concerns are, and we can sit down and help solve their problems."

The Lake Forest Trails condos sell for $189,900 to $275,000 and the Hopper's Creek development, on which construction has just begun, will sell for $289,900 to the mid-$300,000s, Rosen said.

Incentives fit buyers

Condo developers tailor their incentives and deals to the most likely buyers. Helping with the mortgage on a previous home appeals more to empty nesters, while price breaks and association fee cuts typically help first-time buyers and young professionals.

Jacobson's approach is to trim prices and give some buyers a break on association fees. For example, the company's Troy development, Bayberry Place, waives the monthly $180 fee for two years. Many buyers there are starting out in careers.

"That one really is done from the standpoint of it allows someone to have less money out of pocket on a monthly basis," he said. "It has a much stronger net effect to their money out of pocket than taking the price down by a couple of thousand dollars."

Article in August 3, 2007 Wall Street Journal

Lenders Broaden Clampdown on Risky Mortgages

Tightening Standards
Could Worsen Slump
In the Housing Market

By JAMES R. HAGERTY and RUTH SIMON

August 3, 2007

Jittery home-mortgage lenders are cutting off credit or raising interest rates for a growing portion of Americans, extending well beyond the market for subprime loans for people with the weakest credit records.

This worsening credit crunch threatens to put further pressure on the housing market, where prices are flat to declining in much of the country.

Lenders say they are being forced to raise interest rates and stop offering certain loans because mortgage-bond investors have lost their appetite for a broad range of mortgages considered risky. That includes those dubbed Alt-A, a category between prime and subprime that often involves borrowers who don't fully document their income or assets, or those buying investment properties. Notably, American Home Mortgage Investment Corp., which stopped making loans earlier this week, said late yesterday it would cease most operations, slashing its work force to about 750 from more than 7,000.

"It is with great sadness that American Home has had to take this action," Chief Executive Michael Strauss said in a statement. "Unfortunately, the market conditions in both the secondary mortgage market as well as the national real estate market have deteriorated to the point that we have no realistic alternative."


Lenders are tightening standards and "raising rates like crazy," said Melissa Cohn, chief executive of Manhattan Mortgage, a New York mortgage broker. She said Wells Fargo & Co. is charging 8% for a prime jumbo 30-year fixed-rate loan that carried a 6 7/8% rate late last week. (Jumbo loans are those too large to be sold to government-sponsored mortgage investors Fannie Mae and Freddie Mac.) A Wells spokesman said rates are lower on loans made directly by the bank than on those through brokers.

The market for mortgage-backed securities is "very panicked," Michael Perry, chief executive of IndyMac Bancorp Inc., another big lender, said in a message on the lender's Web site yesterday.

Seeking to soothe the market, Countrywide Financial Corp., the nation's largest home lender, said it had plenty of funds available to weather the industry's troubles.

The fright among investors is forcing lenders to go back to more-conservative practices that were the norm before the housing boom of the first half of this decade. Many now are focusing on loans to borrowers who are willing to document their income, can make a down payment of at least 5% and have a history of paying bills on time.

Alt-A loans accounted for about 13% of U.S. home loans granted last year, according to Inside Mortgage Finance, and subprime loans about 20%. Industry executives have said subprime lending is likely to shrink by more than 50% this year, and now much of the Alt-A market is vanishing too.

This credit squeeze "will further crimp the effective demand for housing, and will make the late summer home-sales season even worse than the dismal spring season," said Thomas Lawler, a housing economist in Vienna, Va.

Tom Lamalfa, managing director of Wholesale Access, a mortgage-research firm in Columbia, Md., expects that half or more of the market for no- and low-documentation loans will disappear.

Some people use so-called low-doc loans to avoid paper work or because they are self-employed and have trouble showing a steady stream of income. But low-doc mortgages also can be used by people exaggerating their incomes.

National City Corp., another large lender, said yesterday that it is suspending originations of stated-income loans, which don't require the borrower to verify income. Wachovia Corp. said it had stopped making Alt-A loans through brokers, joining a trend among big lenders to rely less on outsiders to arrange mortgages. Wells Fargo told brokers this week that it was making "day-to-day" decisions on the pricing and availability of Alt-A loans amid reduced investor demand.

Several dozen lenders have gone out of business in the past six months, and others are teetering. Shares of Accredited Home Lenders Holding Co. fell 35% yesterday on the Nasdaq Stock Market after auditors said its "financial and operational viability" is uncertain if a pending merger isn't completed.