Tightening of credit strikes nerve among consumers.

-When Deb Freitag applied for a credit card so she could replace her roof, her leaky refrigerator and her old dishwasher, she was offered a $1,000 line of credit, not the $5,000 she needed.

When Mark Ryan finally scraped together more than enough to buy a home, he found that the mortgage a bank promised him earlier in the year was no longer available.

In a land where TV blares no-money-down pitches and everything from homes to furniture to college education is bought with borrowed money, the crisis on Wall Street is causing the credit market to seize up. On Main Street, this means fewer loans and smaller loans at higher rates — when they are available at all.

No one is quite sure how bad it will get, especially with the fate of the proposed $700 billion government bailout unknown. But people's inability to borrow has potentially dire effects, since consumer spending accounts for two-thirds of U.S. economic activity.

"If not fixed fairly soon, we may find that individuals and smaller businesses have much higher costs for borrowing — or in the worst case are unable to borrow at all," said David Stowell, finance professor at Northwestern University's Kellogg School of Management.

Freitag, a 43-year-old freelance writer in Cincinnati, was surprised when she tried to get a credit card from home improvement chain Lowe's Cos. this month. She got the skimpy $1,000 credit line bumped up to $2,000 after she complained, but even that wasn't enough.

Freitag calculated that her purchases would add up to almost $9,000, including the $6,000 for her roof, which was damaged in a wind storm this month. Now she will have to take out a consumer loan, which has bad consequences: Merely searching for the loan could hurt her credit rating, and she will have to start paying it back right away.

"These are needs," said Freitag, whose husband recently lost his job in corporate video production. "I am not going out and buying a designer kitchen."

Ryan, 37, a social worker in New York City, can finally afford a home in one of the most expensive housing markets. But he can't get a mortgage.

Swiftly pre-approved by his bank for a loan last February, he went back this month after finding the apartment he wanted. But he was told he had to fill out a 17-page application to get re-approved — even though he had since added $50,000 to his bank account. While he waited for approval that ultimately never came, the apartment was sold out from under him.

"As a first-time homebuyer, in a way conditions couldn't get any better," he said. "If you can get your mortgage, rates are going down to the point where average people can afford them. But with the banks so paranoid, it's just tough getting one."

Homebuyers are not the only ones hard-pressed to get a loan. Calvin Parker, 39, a mechanic, was shopping for car parts in Harrisburg, Pa., to keep his 1997 Dodge Caravan going until he can meet the daunting terms for a new car.

"They want too much down," he said. "And the interest rates are too high. I believe I wouldn't be able to get a loan without paying $1,500 to $2,000 down."

Oona Rokyta felt the credit squeeze in her education loans. The 27-year-old publicist consolidated her four student loans — one for each year of college — in late August. She paid an average of 9 percent on them but wanted them redone as a single loan, in part to benefit her parents by removing them as co-signers.

The intention was good but the math worked out against her: Wells Fargo & Co. offered her an 11.75 percent interest rate and wanted the new loan paid back within seven years rather than the standard 15. Those changes boosted her monthly payment to $502 a month, from $301.

"I feel like I've been punished for maintaining good credit," she said.

Some mortgage brokers say there is still no problem for qualified borrowers.

And Ron Kelly, manager of the appliance and electronics department at a Sears in Wausau, Wis., said it was business as usual at his store: "It hasn't affected people applying for credit cards that I have seen. We haven't changed anything."

Shelton Head, a 60-year-old resident of Glendale, Ariz., pulled into a Phoenix strip mall Friday destined for a coin shop with a blue velvet box full of 1942, 1943 and 1945 silver dollars.

Unemployed, he said he has tried several times in recent months to get a loan but was rejected every time for not having sufficient income. Now he needed money for gas and groceries.

He left the coin shop 15 minutes later with $65.

$700 billion question: fate of bad loans.

Debate rages around Treasury plan

The Bush administration's plan to allow the Treasury Department to buy up to $700 billion in troubled mortgage-related assets could help thaw the credit crunch by helping big financial firms move bad loans off their books.

But critics of the plan want the government to provide more protections for taxpayers and help for individuals struggling with their mortgage payments -- goals that may be inherently contradictory.

The battle that's shaping up in Congress over the plan isn't expected to derail it, but the debate over its particulars could complicate or delay its implementation, as lawmakers must authorize the issuance of the Treasury securities that would finance it.

While the plan put forward by Treasury Secretary Henry Paulson on Saturday seems simple enough on its face, the details of how it is implemented could have profound implications for the hardest-hit housing markets and the plan's ultimate cost to taxpayers.

Once taxpayers are in charge of these assets, will troubled borrowers be more likely to get loan modifications or workouts to keep them in their homes? If the government becomes the owner of hundreds of thousands of foreclosed homes, will it sell them quickly at fire-sale prices to investors, or more gradually over time to earn a better return?

While there is general agreement that the government must take action to keep the financial system functioning, the question then becomes: What happens next?

"You save the banking system, now what are you going to do with all this distressed property?" said Dennis Hedlund, president and founder of the mortgage market forecasting firm iEmergent.

As detailed by Paulson, the plan envisions that the mortgage-related assets Treasury buys would be managed by private managers "to meet program objectives."

If the government creates aggressive objectives to keep people in their homes -- by forgiving some of the principal on their loans, for instance -- "that could very quickly solve a lot of problems" in housing markets where prices continue to fall, Hedlund said. But that approach would mean larger losses up front, and perhaps a bigger bill for taxpayers in the long run.

"If the government does more modest workouts and hopes home values sort of correct themselves, there's a danger home prices would continue to fall, and this could really stretch out," Hedlund said. "It's really a question of how fast do you want to get it over with? The faster you want to get it over with, the more the government will foot the bill, so there will be political pressure not to do that."

Hedlund said a less aggressive approach at preserving home ownership could have a "devastating" impact on 50 to 60 urban areas, and rural communities with large numbers of moderate-income homeowners.

"My opinion is that the recovery back to normal lending patterns and purchase trends easily could be five years," Hedlund said. "This thing could go on forever, especially if nothing happens to (check the decline in) home prices."

In an e-mail to clients, K&L Gates attorney Larry Platt noted that Treasury has not spelled out any requirement to seek to preserve home ownership or otherwise deal with foreclosures and loss mitigation, "which is one of the biggest criticisms leveled at the plan by the Democrats. That doesn't mean that Treasury will not implement an ambitious loan modification program; it just means that (as proposed Saturday) Treasury does not have to do so."

During the savings and loan crisis, the Resolution Trust Corp. disposed of assets over a period of four years, said Donald Kelly, a spokesman for real estate valuation company Zaio Inc.

Kelly said commentators are suggesting that the Treasury would buy troubled assets at a discount, but with the design of managing them with a possibility of a positive return for the government down the road.

"There is a real sense of urgency, in the financial markets, within the administration, and in Congress," Kelly said in an e-mail. "One thing is clear: Decisive action must be taken and taken soon. Postponing a solution will only cause additional instability. From what I have seen, FHA and the secondary market players are ready to continue operations now, but to some extent it is conditional as everyone awaits the details of the financial stability package."

Many securities are being valued at pennies on the dollar due to the very high leverage ratio and illiquidity of some mortgage-backed securities, National Association of Realtors President Richard Gaylord said in a statement.

"Unrealistically low valuations are paralyzing the balance sheets of financial institutions and have hindered liquidity flow," Gaylord said, urging Congress to take action to "stabilize financial markets to allow rational valuation of assets, expedite refinancing and relief efforts for homeowners, and ... reestablish a level of confidence in the housing credit markets."

Some Democrats and consumer groups see the Paulson plan as an opportunity to push through new restrictions on lenders and help for borrowers that didn't make it into HR 3221 -- the sweeping housing bill signed into law on July 30 -- or other recent housing legislation.

The Center for Responsible Lending, for example, has renewed a push for Congress to allow bankruptcy judges to rewrite the terms of troubled borrowers' mortgages -- an idea that has the support of presidential candidate Barack Obama. The lending industry has opposed granting judges such power, saying it would worsen the credit crunch by undermining investors' confidence in mortgage-backed securities.

The center maintains that judicial modifications -- derided as "cramdowns" by industry critics -- would save 600,000 homes from foreclosure, while the Paulson plan to buy mortgage-related assets would save none.

"Only by preventing the 6.5 million foreclosures expected in the next few years -- and the $356 billion drop in surrounding property values that will result for an additional 46 million families -- will the economy begin to recover," the center said in a statement.

Rep. Henry A. Waxman, the California Democrat who chairs the House Committee on Oversight and Government Reform, expressed "serious reservations" about the Paulson plan in a statement, saying it "appears designed to maximize returns for Wall Street and minimize protections for the taxpayer."

The Mortgage Bankers Association said resurrecting bankruptcy cramdowns would be "wholly unproductive" and "runs counter to the bipartisan efforts to restore liquidity to the global capital markets." The issue is irrelevant, the group said in a statement, because once the Treasury buys distressed mortgages, it can write down loan balances itself, without Congress giving bankruptcy judges that authority.

Senate Banking Committee Chairman Chris Dodd, D-Conn., today released Democrats' proposed changes to the Treasury plan, which include granting bankruptcy judges the power to modify mortgages.

"After a year of efforts to get servicers and lenders to modify loans, the industry's voluntary HOPE Now program has fallen far short of what is needed," Dodd said in a statement posted on the Banking Committee's Web site.

Dodd's proposal would allow the Treasury Department to buy a wide range of troubled assets but would require it to hand over mortgage loans and mortgage-backed securities to the Federal Deposit Insurance Corp. (FDIC) for management.

The FDIC, Dodd said, "has shown a commitment to modifying mortgages both to ensure long-term affordability and to protect the taxpayer. The FDIC estimate performing loans are worth about 87 percent of their face value, while nonperforming loans are worth only about 36 percent of par. "Modifying loans to ensure affordability increases the value of the loans," Dodd said.

Democrats will also push for looser criteria for the Federal Housing Administration's HOPE for Homeowners loan guarantee program, which was authorized at $300 billion in HR 3221.

Supporters of the Paulson plan say that without quick government intervention, the financial system is in danger of collapse. Keeping investment dollars flowing into mortgage lending will eventually help slow the decline in home prices in some markets, they say.

In a statement, President Bush acknowledged there will be differences over some details of the plan, "and we will have to work through them. That is an understandable part of the policy-making process. But it would not be understandable if members of Congress sought to use this emergency legislation to pass unrelated provisions, or to insist on provisions that would undermine the effectiveness of the plan."

As Congress kicks off a week of debate -- Dodd's Senate Banking Committee will hear from Paulson and Federal Reserve Chairman Ben Bernanke Tuesday, and the House Financial Services Committee has scheduled a hearing for Wednesday -- lawmakers will also be looking for clarification on details of the plan that are, for the moment, unclear.

In his e-mail to clients, Washington, D.C.-based K&L Gates attorney Platt outlined some important issues still to be resolved, such as what assets Treasury would be authorized to buy.

The Treasury Department has defined "mortgage-related assets" as "residential or commercial mortgages and any securities, obligations, or other instruments that are based on or related to such mortgages" originated or issued on or before Sept. 17.

Platt said Treasury appears to be preparing to buy loans regardless of priority of the lien or the purpose of the loan -- meaning investor loans would be eligible. While it doesn't look like credit default swaps or other "synthetic instruments" tied to performance of mortgage pools would be included in the plan, "the phrase 'related to' could encompass a wide array of instruments that bear some indirect relationship to mortgage loans," Platt said. "We'll have to see."

***

What's your opinion?

New home sales plummet in August, prices tumble.

New home sales tumbled in August to the slowest pace in 17 years, while the average sales price fell by the largest amount on record, demonstrating the depth of the problem that Washington is trying to solve.

The Commerce Department said Thursday that new homes sales fell by 11.5 percent in August to a seasonally adjusted annual sales rate of 460,000 units, the slowest sales pace since January 1991.

It was a much bigger sales decline than the small 1 percent drop that economists had been expecting. The average price of a new home sold in August dropped by a record amount of 11.8 percent to $263,900, compared to the July average of $299,100. The median price was also down, falling 5.5 percent to $221,900.

The big drop in new home sales followed news Wednesday that sales of existing homes were down 2.2 percent in August to a seasonally adjusted annual rate of 4.91 million units. Both segments of the market remain under pressure from the steepest housing downturn in decades.

That housing slump has contributed to a record surge in mortgage defaults, leading to billions of dollars in losses by financial firms and spawning a severe credit crisis that is threatening to send the country into a steep recession.

In a nationally televised speech Wednesday night, President Bush said the credit crisis could trigger a "long and painful recession" unless Congress acts quickly to pass a $700 billion bailout plan for the nation's financial system. Negotiations on that plan were continuing Thursday with expectations that an agreement would be reached soon.

Besides the weak housing report, the government said Thursday that new claims for unemployment benefits shot up last week to the highest level in seven years. Orders to factories for big-ticket manufactured goods fell by a much-bigger-amount than expected amount of 4.5 percent in August. Both indicate the rising pressures facing the economy.

The report on new home sales showed that business was off in every region of the country except the Midwest, which posted a 7.2 percent increase. Sales plunged by 36.1 percent in the West and were down 31.9 percent in the Northeast. Sales fell a more modest 2.1 percent in the South.

Sales, prices sink in August.

Sales and prices of existing homes in August fell approximately 10 percent from a year ago, as total for-sale inventory declined by 128,000 units, according to data released today by the National Association of Realtors.

The seasonally adjusted sales rate, which includes single-family, townhomes, condominiums and co-ops, sank to 4.91 million units last month -- a 2.2 percent drop from 5.02 million in July and 10.7 percent lower than the 5.5 million in August 2007.

The national median existing-home price for all housing types was $203,100 in August, down 9.5 percent from $224,400 a year ago.

While total housing inventory at the end of August (4.26 million units) was 2.9 percent lower than a year ago (4.38 million units), the supply of homes for sale actually rose during the period from 9.6 months to 10.4 months, indicating longer days on market.

By region, existing-home sales fell sharpest in the South (-15.1 percent) compared to a year ago, followed by the Northeast (-15 percent) and Midwest (-12.3 percent). Sales in the West gained 4.9 percent over their year-earlier numbers.

Prices declined greatest in the West (down 23.9 percent to $251,600) compared to a year ago, followed by the Midwest (down 5.6 percent to $168,000), Northeast (down 3.8percent to $271,000), and South (down 3.4 percent to $176,500).

"The highest concentration of foreclosures is in the West, which is weighing down the median price because many buyers are taking advantage of deeply discounted prices," Lawrence Yun, NAR's chief economist, said in a statement.

CalHFA responds to market uncertainty

The State of California’s first time buyer program –CalHFA- announced major changes to their program today that may affect you.

Acknowledging recent market turbulence, CalHFA has made the following changes effective until some stabilization occurs:

1. Rates increased for all CalHFA programs (they set their own interest rates separate from the rest of the market)

2. The CHAP silent 2nd mortgage, used for down payment assistance, is suspended

3. All conventional 1st mortgages (including conventional 30 year fixed, 40 year fixed and 35 year interest only plus) are suspended

4. The normally discounted interest rate for low income and extra credit for teacher program (ECTP) are currently not discounted

FHA CalHFA 1st mortgages are still available as are the CHDAP and ECTP Program silent 2nd mortgages for down payment and closing cost assistance.

If you are pre-qualified with CalHFA financing please have your pre-quals updated to reflect current underwriting guidelines.

Thank you...

First effort to clean up S&L mess misfired.

News analysis: Lessons to be learned this time around


Over the weekend, Treasury Secretary Henry Paulson sent a financial bailout proposal to the U.S. Congress that gives the Treasury Department broad authority to buy mortgage-related assets.

To calm the markets, step one is announcing a plan and proposing legislation to isolate and liquidate bad mortgages. But execution is the next challenge for the Bush administration, and it is no easy task if the record of our last real estate cleanup -- the savings and loan crisis in the 1980s -- is closely observed.

As many as 1,500 savings and loans went under during the country's last financial and real estate debacle, and the U.S government lost $160 billion. Ultimately, a government-created entity, the Resolution Trust Corp. (RTC), sold off the bad real estate for as little as 10 cents on the dollar.

The overall record of the RTC is considered by most financial historians to have been a good one, but the first couple of years of the cleanup were bogged down in politics that should not be ignored this time around. Plus, the rush to liquidate the real estate, which the government acquired when a series of savings and loans went under with billions of dollars of insured deposits, may not have yielded the government the best return on its investment in the cleanup.

The RTC was not the first organization created to clean up the S&L mess. The first agency was called the Federal Asset Disposition Association, and its first CEO was Roslyn B. Payne, a very savvy San Francisco Bay Area real estate dealmaker with an MBA from Harvard.

After two years on the job, Payne was dumped, FADA was dissolved and the RTC was created, which stalled the emergency program.

At the time, Payne was allegedly the highest-paid executive on the federal payroll, which sparked a controversy even though she technically worked for a private company created by the Federal Home Loan Bank Board. Her salary was $250,000 a year: compare that to the compensation of a series of sacked Fannie Mae and Freddie Mac executives over the last five years.

The payroll controversy covered up deeper issues within FADA. While Payne was attempting to create a fair and competitive structure for letting go of property assets to get the best return for the federal government, some private contractors who wanted more of the disposition work were not happy with her and allegedly pressured the U.S. Congress to dismiss the female executive and kill FADA.

She got beat up by the media for her salary and the speed or care -- depending on how you look at -- that she was taking to sell the assets. Payne once walked off the set of an interview with CBS News.

She also came under political pressure by Congress. At the time, many members of Congress were knee-deep in the financial mess through their association with S&L executives. Who knows what Payne -- known to be tenacious when it comes to details --might have uncovered in her diligence?

There are lessons to be learned here if political, government and private business leaders take the time to peel back the onion on the story behind the RTC.

Fannie-Freddie Rescue Averted Collapse.

News analysis: Data shows private MBS drop-off

New data shows that if the U.S. government had not rescued Fannie Mae and Freddie Mac, the secondary mortgage market would have collapsed, leaving the housing market in worse shape with a virtual halt on mortgage lending.

In the last year, Fannie and Freddie Mac provided $1.1 trillion in new mortgage credit, while private mortgage-backed securities issuance fell from $900 billion to nothing, according to the Federal Reserve's Flow of Funds data.

"A surge in agency (Fannie and Freddie) issuance has offset a total collapse in 'private' MBS issuance," according to the "Follow the Money" blog written by Brad Setser for the Council on Foreign Relations -- private MBS refers to mortgage-backed securities that did not have a guarantee from the secondary mortgage entities. "Agency lending has been absolutely essential," he writes.

In February of this year, the Office of Federal Housing Enterprise Oversight, which regulated Fannie and Freddie, lifted restrictions on the amount of mortgages the government-sponsored companies could hold on their books. Loan limits were also increased last fall.

The federal takeover earlier this month, while controversial, was necessary to avoid even more serious problems with the housing market. While Fannie and Freddie are owned by the U.S. government and have a much skinnier footprint, they are central to the housing market stabilizing.

At their peak, Freddie and Fannie purchased about 50 percent of the $12 trillion mortgage market. While the private MBS market backed much riskier loans, the bloated portfolio of the two agencies is what got them into trouble as the housing market collapsed.

Both agencies have been reined in with new management and a revived public purpose: to fund the mainstream housing market.

Down Payment Assistance

For your first time homebuyer (those who have not owned real estate in the last 3 years), here’s an update on the local down payment and closing cost assistance programs.

State of California First Time Buyer Program (CalHFA)

Has funds available for use towards down payment and/or closing costs!! They’re also still offering their Extra Credit for Teacher Program with discounted interest rates for teachers and classified employees in schools with API ranks of 1-5.

County of San Bernardino HAP, Down Payment and Closing Cost Assistance

Effective last week, the county has committed all of its funds for the 2008 fiscal year. It looks like they’re going to try and obtain interim funds but that hasn’t been confirmed yet.

County of Riverside Down Payment and Closing Cost Assistance Program

Effective last week, the county is has committed all its funds for the 2008 fiscal year. Unless they inform us otherwise, they will replenish their funds July 2009

City of Redlands Down Payment Assistance Program

The city ran out of funds almost as soon as they received them in July. They generally receive enough money to assist 10 families. By August, their funds were committed and they had a waiting list. Their funds should be replenished July 2009.

Snag for FHA Hope

Although Wall Street's woes got a lot of attention on Capitol Hill last week, so did the continuing crisis in home foreclosures.

Starting October 1, home owners who owe more on their mortgage than their property is worth may be able to qualify for new FHA "Hope" refinancings that cut their debt, lower their interest rates and help them start rebuilding equity.

Sounds like a great opportunity for hundreds of thousands of hard-pressed owners, but there's a huge potential snag: Their lenders and loan servicers have to agree to participate, and they may not.

Why? Because among other requirements, lenders and bond market owners of mortgages will have to agree to write down the balances due on the loans below current market values for the house -- in other words, they'd need to take immediate and sizable losses on those mortgages.

At a House financial services hearing last Wednesday, a top Bank of America executive, Michael Gross, said Congress may have unrealistic assumptions about how many lenders and investors will agree to participate in Hope refinancings.

"My biggest concern," said Gross, "is that expectations for (this) program might be too high."Rather than booking instant losses many banks and bond investors might prefer to work out customized loan modifications with borrowers instead -- renegotiating loan balances, reducing monthly payments and even interest rates - without having to deal with FHA.

But Congressional critics like House financial services committee chairman Barney Frank say the banks have already been doing that -- and foreclosure rates are still rising in many markets.Frank is threatening to make massive -- though as yet unspecified -- changes in the federal rules governing home mortgage servicing that would force lenders to be more responsive to borrowers stuck with underwater properties.

In the meantime, borrowers who believe they might benefit from a Hope refinancing, should start talking with their servicers to see whether there's a chance. The law expressly makes the decision voluntary for all financial institutions -- borrowers cannot compel them or take them to court to force their hands.

But Barney Frank's ominous warning to lenders just might get some banks' attention and soften their stances on taking part in the Hope program. At the very least, home owners who talk to their lenders about Hope refinancings could open the door to customized loan modifications that help them out of their jams.

FHA Hope Program - Highlights

FHA Mortgage Refinance and Insurance Program


The Act establishes the HOPE for Homeowners Program under the FHA with a Board to administer standards and requirements for that program. The Act authorizes the FHA to insure payment of up to $300 billion of mortgage loans originated from October 1, 2008 through September 30, 2011. The program would be voluntary for eligible borrowers, and their lenders would have to agree to release the existing mortgages at a discounted payoff amount from the proceeds of a new FHA-insured loan. To participate in the program, borrowers and their mortgage loans must meet the following eligibility criteria:

Eligibility of the borrower:

The borrower must be unable to pay the existing mortgage loan and must certify that he or she has not intentionally defaulted on that loan. The mortgage debt-to-income ratio on the existing loan, using only verified and documented income in the computation, must be greater than 31 percent as of March 1, 2008;

The borrower must occupy the mortgaged property as his or her principal residence; and -The borrower must have no fraud conviction in the previous 10 years; Eligibility of the existing loan to be refinanced: -The loan was originated on or before January 1, 2008; -The existing lender(s) must waive any prepay penalties or other outstanding fees related to default or delinquency; and -The existing lender(s) must accept the proceeds of the insured loan as payment in full of all existing mortgage debt and extinguish all liens.

Officially, this program will commence October 1, 2008 and will run to September 30, 2011

EFFECTICE IMMEDIATELY:

Borrowers using FHA mortgages will no longer be allowed to qualify for their loans using rental income from their existing primary residence.

What the “buy and bail” is:

HUD has issued their interpretation and rule on the issue of borrowers vacating their current residence to purchase another residence- some with the intention of letting their current residence foreclose after the transaction. This increasingly popular phenomenon has been dubbed the “buy and bail”.

HUD’s Rule as of Today:

For the new purchase loan, the borrower must qualify with both their existing payment and the proposed payment on the property being purchased. This is applicable to borrowers who have not yet been assigned an FHA case number. Case # assignment is sort of like registering a loan # with HUD, which is tied to a property for which there is an executed purchase agreement. If you have borrowers in escrow with FHA loans that already have a case # assigned, this rule is not applicable to them.

Exceptions to the Rule:

1. Relocation
The homebuyer is relocating with a new employer, or being transferred by the current employer to an area not within reasonable and locally recognized commuting distance. A properly executed lease agreement (i.e., a lease signed by the homebuyer and the lessee) of at least one year’s duration is required. Most FHA underwriters will also require evidence of the security deposit and/or evidence the first month’s rent was paid to the homeowner.

2. Equity in current home
The borrower has at least a 25% equity position in their current residence.

The HUD Mortgagee letter is attached if you’d like to forward it to borrowers who are currently looking for homes and were planning on using rental income from their current primary residence to qualify for the new loan. It explains HUD’s position and reasoning for this decision.

Free Foreclosure Prevention Clinic

Mabuhay Alliance, a non-profit organization and a HUD approved housing counseling agency in collaboration with Housing Opportunity Collaborative of San Diego is conducting a Free Foreclosure Prevention Clinic to help distressed homeowners address their concerns about mortgage defaults, foreclosure, bankruptcy and short sale.

Housing counselors, mortgage counselors and attorneys will be in site to give valuable information to assist homeowners in making an informed decisions.

To register, please log on to mabuhayalliance.org

or housingcollaborative.org.

Sponsors for this event are Wells Fargo, Bank of America and Hispanic Chamber of Commerce.

Time and location of the counseling workshop is:

Where: Ontario Senior Center at 225 E. B St. Ontario, CA 91764

Date: Saturday, October 4, 2008

Time: 10:00 am to 3:00 pm

Mabuhay Alliance, Inc.

1-858 586 7382

www.mabuhayalliance.org

The Price is Right.

Southern California home sales were up over last year for the second straight month in August as prices continued to decline.

San Bernardino County posted the biggest year-over-year price decline, with its median home price plummeting 40.3 percent in August to $215,000 from $360,000 a year earlier. Sales, however, were up 16.4percent in August.

Riverside County's median home price fell 37.3percent to $247,450. Sales in August increased by a whopping 43.9 percent.

Los Angeles County's median price fell 30.9 percent in August to $380,000 compared with $550,000 a year earlier. Sales remained down by 7.7 percent.

Feds to pick up bad mortgages.

Fannie, Freddie will also boost purchases...

The U.S. government is attempting to head off a collapse of the financial system by promising to provide "hundreds of billions" of support for financial markets and institutions by purchasing troubled mortgages from banks and other institutions.

Bush administration officials including Treasury Secretary Henry Paulson and Federal Reserve Chairman Ben Bernanke have briefed lawmakers on Capitol Hill on the "urgent need for Congress to pass legislation approving the federal government's purchase of illiquid assets, such as troubled mortgages, from banks and other financial institutions," President Bush said today.

"This is a decisive step that will address underlying problems in our financial system," Bush said. "It will help take pressure off the balance sheets of banks and other financial institutions. It will allow them to resume lending and get our financial system moving again.

"The details of the move to create an agency similar to the Resolution Trust Corp., which was created by Congress in 1989 to sell off the assets of failed thrifts, have yet to be hammered out.

Bush and Paulson said the government would also provide insurance for trillions of savings held in money market mutual funds -- a critical source of capital for lenders that could disappear if investors panic and withdraw funds.

The U.S. Securities and Exchange Commission also issued new rules temporarily suspending the practice of short-selling the stocks of 799 publicly-traded financial institutions -- a move that sent stocks soaring.

At a press conference, Paulson said that Fannie Mae, Freddie Mac and the Treasury Department will boost purchases of mortgage-backed securities to fund new loans but that the government must also take bad loans off the books of banks and financial institutions to unfreeze credit markets.

"We have acted on a case-by-case basis in recent weeks, addressing problems at Fannie Mae and Freddie Mac, working with market participants to prepare for the failure of Lehman Brothers, and lending to AIG so it can sell some of its assets in an orderly manner," Paulson said.

Despite these steps, he said, the government must take "further, decisive action to fundamentally and comprehensively address the root cause of our financial system's stresses."

Investments backed by mortgages have become difficult to trade and "are choking off the flow of credit," Paulson said. The clogging of financial markets "has the potential to have significant effects on our financial system and our economy."

Investments backed by troubled mortgage loans are "parked" on the balance sheets of banks and other financial institutions, preventing them from financing productive loans, Paulson said. "The inability to determine their worth has fostered uncertainty about mortgage assets, and even about the financial condition of the institutions that own them. The normal buying and selling of nearly all types of mortgage assets has become challenged."

The government, by taking on the assets that are weighing down financial institutions and threatening the economy, can prevent more failures of financial institutions and thaw a frozen credit market that's unable to fund economic expansion.

Paulson said Fannie Mae and Freddie Mac will boost purchases of mortgage-backed securities (MBS), and the Treasury Department will also boost spending on a program in which the government buys such securities directly.

The Mortgage Bankers Association welcomed that aspect of the plan, saying it should provide support for mortgage rates.

"The fear was that the illiquidity in the financial markets we have seen this week would have reversed the recent drops in mortgage rates," said John Courson, MBA's chief operating officer.

"The broader steps outlined by Treasury are aimed at ending the further meltdown in the financial markets and are designed to minimize the resulting impact of the market turmoil on the broader economy," Courson said. "It is another step in the long-term process of restoring a balance between the supply and demand for housing in a number of markets and thus addressing the continuing problem of mortgage delinquencies and foreclosures."

Boosting purchases of mortgage-backed securities will provide some initial support of the financial system, Paulson said, but not enough. Many banks and financial institutions hold are stuck with securities that don't meet the regulatory requirements to be eligible for purchase by Fannie or Freddie, or by the Treasury program.

Congress must authorize the government to buy bad loans, Paulson said, through a "troubled asset relief program" that would likely involve an investment of "hundreds of billions" of dollars. Bush acknowledged "a significant amount" of taxpayer dollars will be on the line, but that the plan is for the money to eventually be paid back.

"The vast majority of assets the government is planning to purchase have good value over time, because the vast majority of homeowners continue to pay their mortgages," Bush said.

The risk of not acting would be far higher, Bush said, because further stress on financial markets "would cause massive job losses, devastate retirement accounts, and further erode housing values, as well as dry up loans for new homes and cars and college tuitions. These are risks that America cannot afford to take."

Appearing on "Good Morning America," Senate Banking Committee Chairman Chris Dodd, D-Conn., said the United States was "days away from a complete meltdown" of the financial system, which Congress would work to prevent.

After meeting with Paulson and Bernanke Thursday night, House Speaker Nancy Pelosi, D-Calif., said "time is of the essence" and that she hoped Congress would move "very quickly," the Associated Press reported.

Augustine Faucher, director of macroeconomics at Moody's Economy.com, said that while it's unclear what mechanism the federal government will use to purchase debt, it's safe to assume companies unloading illiquid securities on the government would take "huge losses" on the face value of those assets. But taking those losses would allow the firms to continue providing the loans that make the global economy function.

In a column for the Dismal Scientist newsletter, Faucher said the government could dispose of the debts gradually, "without the pressure to dump it all at once and thus push down prices, exacerbating the problem."

Faucher said the reluctance of banks to lend each other money demonstrated that drastic measures were needed. The TED spread -- the difference in yields between three-month Treasury bills and the three-month LIBOR banks charge each other for loans -- soared above 300 basis points Wednesday, higher even than the aftermath of the stock market crash of 1987, he said.

"In normal times, no one would want the federal government buying hundreds of billions of dollars worth of financial market instruments," Faucher said. "But these are obviously not normal times.

"The American Bankers Association was critical of the plan to insure money market mutual funds."

Today's action will undermine the role of banks during this current crisis and has the potential to have an extremely negative impact in the future," ABA President and CEO Edward L. Yingling said in a letter to Paulson and Bernanke. "Simply put, the ability of banks to attract and keep deposits is being compromised in a profound fashion. Our bankers are, understandably, very upset by the action."

Faucher characterized the proposal to insure money market mutual funds and the temporary ban on short-selling financial stocks as "minor." What really matters, he said, "is that someone needed to step in and take control, and the Treasury and Federal Reserve have done so."

Writing on his blog, The Big Picture, Fusion IQ Chief Executive Officer Barry Ritholtz called the Bush administration's plan "the new New Deal," reffering to the government programs created during the Great Depression in the aftermath of the 1929 stock market crash.

"We now see that the grand experiment of deregulation has ended, and ended badly," Ritholz said. Ironically, he said, proponents of deregulation "have effectively turned the United States into a massive Socialist state, an appendage of Communist Russia, China and Venezuela."

Quick sale seen for home.

FONTANA - There is a good chance the home at 14738 Rosemary Drive will be sold in the next couple weeks.

The bank-owned home has been on the market for 13 days at $132,900 and already has three offers.

"We've accepted an offer on it and we're now waiting for escrow to open," said Siama Ahmed, real estate agent with Blackstone Realty. "I think we may even close above the list price."

Ahmed said she is confident this home will sell quickly because, while the housing market is saturated with homes in the $200,000 to $300,000 range, this one is "way below that."

Although the home is in an unincorporated area, the average sale prices for bank-owned homes in Fontana and Rialto is between $130,000 and $235,000, with an average sale price in September of $260,000, Ahmed said.

Selling point

Someone has the potential to make a lot of money off the 8,100-square-foot piece of property, Ahmed said.

The site of the two-bedroom, one-bathroom home has two other homes, each with two bedrooms and one bathroom. "In my opinion, the other pieces do not have permits," Ahmed said.

Ahmed said if potential owners do their part by getting the necessary permits on the other structures, they have a better chance of benefitting from the land.

"Most millionaires become millionaires because they can take these types of bank-owned properties, invest in them and then once the market changes make a whole lot of money," she said.

Like most homes around it, the lot is gated.

The street is quiet, doesn't have a lot of traffic and most residents keep to themselves, said longtime resident David Estrada.

But the 58-year-old recalls a time when the street was alive with music.

"I used to be in a rock 'n' roll band and jammed with Sammy Hagar," he said. "He really liked my mom's tortillas.

"Although the street hasn't seen the likes of Hagar for more than a couple of decades, Estrada said he hopes his future neighbors like music."We still play our music," he said.

Developer outlook

John Schatz, principal planner with San Bernardino County, said the area west of the home is zoned for special development with an emphasis on commercial use.

"There is a chance for the development to be mixed-use, but its emphasis is to have more commercial development," he said.

Schatz said that's because Auto Club Speedway is a mere two blocks away.

The nearest supermarkets are three miles away at Foothill Boulevard and Cherry Avenue, with the nearest gas stations less than a half-mile away at Valley Boulevard and Cherry Avenue.

Good news, bad news

The biggest change Estrada has seen in his community has been the presence of law enforcement.

"I really think these scrap yards just west and north of here have really brought in a lot of heat," he said. "There are always positives and negatives when it comes to cops coming down your street, but I guess it's good to know they're coming down here and in some ways it makes me feel safe.

"Estrada, who has lived in the neighborhood since the 1950s, said it is safe and kid-friendly, but that crime does happen.

Ahmed said she did have to board up the windows of the house due to vandalism."The property was vandalized before it was listed and once we found out, we took action to prevent anything else from happening to the home," she said.

Estrada said the law enforcement patroled the area two weeks ago because of a robbery that took place at the Circle K on Valley Boulevard.

"They closed down the street and were asking people questions," he said.

"We don't hear gunshots or anything, but I guess if you're going to live here, don't expect everything to go according to plan."

Home Prices Fall One-Third.

SAN DIEGO -- The value of a Southern California home price fell dramatically from last year, according to a local research firm.

MDA DataQuick said in its report Wednesday that the median price for new and resale homes and condos fell 34 percent in August year-to-year, dropping to $330,000 in Los Angeles, Riverside, San Diego, Ventura, San Bernardino and Orange counties.

The median San Diego County was valued at $475,000 in August 2008. That figure dropped to $350,000 last month, the report showed. A DataQuick spokesman said the median price had not been that low since February 2003.

That's down from the market peak of $500,000 in August 2007 and down 5.2 percent from $348,000 in July. That is a drop of more that 26 percent.

A total of 19,366 homes and condos were sold during the month, up 9.1 percent from August 2007 but down 4.7 percent from July.

Foreclosures accounted for 45.5 percent of all resold properties last month, up from 10 percent in August 2007 and 43.7 percent in July.

DataQuick: Almost Half of SoCal House Sales are Foreclosure Resales.

From DataQuick: Southland home sales post second annual gain; another record price drop.

Southern California home sales downshifted slightly in August from July, but were higher than a year ago for the second consecutive month. The median sales price continued to tumble, declining the most where buyers were the most active, a real estate information service reported.

The median price paid for all new and resale houses and condos sold in Los Angeles, Riverside, San Diego, Ventura, San Bernardino and Orange counties was $330,000 last month, down 5.2 percent from $348,000 in July and down a record 34 percent from $500,000 in August 2007, according to San Diego-based MDA DataQuick.

Last month's median stood at the lowest point since November 2003 when it was also $330,000. The median peaked at $505,000 in the spring and summer of last year.

We have to be careful with the median house price because that can be impacted by the mix of homes sold. Most of the foreclosure activity is at the low end, and this pushes down the median. A better measure of prices are repeat sale indices.

Sales have picked up most - sometimes at double or more last year's pace - in inland communities where home values have plummeted and foreclosures have soared. Foreclosure resales made up 45.5 percent of all Southland resales last month, up from 43.7 in July and 10 percent a year ago. The figure represents the percentage of homes resold in August that had been foreclosed on at some point in the prior 12 months.

Foreclosure resales were highest in Riverside County, at 65.2 percent of resales, and lowest in Orange County, at 33.4 percent.

Almost half the sales in SoCal are foreclosure resales. Wow...

Regional home prices continue to fall.

Southern California home prices continued their free-fall in August and are now as low as they were five years ago, a real-estate research form reported today.

Sales have accelerated sharply from a year ago in Riverside County and were also up in San Bernardino County, according to DataQuick Information Systems. But the activity is largely centered on foreclosures and other sales of distressed properties, which is keeping other sellers away from the market.

DataQuick President John Walsh said in a statement home values have fallen sharply in the Inland housing markets, where sales interest in foreclosed homes is highest.

The median price of a resale home in Riverside County was $247,500 in August, down from $260,000 a month earlier and 37.3 percent lower than August 2007, DataQuick reported.

In San Bernardino County, the median sales prices slipped to $215,000, down from $230,000 in July. The price has dropped 40.3 percent in the last 12 months.

The all-time highs were $432,000 in Riverside County and $380,000 in San Bernardino, both recorded in late 2006.

HOUSING: Banks haven't wiped out all risky loans.

As housing prices plummet and foreclosures dominate the real-estate market, major banks across the nation have continued to issue loans some analysts consider risky.

Lenders continue to make mortgages that require little or no down payments in areas where housing prices have fallen as much as 3 percent each month.

Meanwhile, some analysts have identified exotic loans as one of the culprits behind the region's foreclosure problem.

In some cases, loans issued as recently as June already exceed the market value of the home.

Whether a mortgage with a small or zero down payment in a rapidly depreciating market is inherently risky is cause for debate among analysts.

Some point to studies, such as one by the Federal Reserve Bank of Boston, that suggest price decline is a more accurate indicator of foreclosure than a loan with high interest rates. Also, they say, if a borrower owes more than the home is worth, the homeowner is more willing to enter foreclosure.

Collateral v. Borrower

If many homeowners adopt that philosophy, one of the entities in biggest trouble would be the Federal Housing Administration, a government agency that insures loans for first-time home buyers with a down payment of just 3 percent.

"You could literally be under water for most of the FHA loans made since January," said Bruce Norris, a real estate investment adviser based in Riverside who covers Southern California. "In Riverside County, you could be 30 percent under water from January. And I think those could turn into a pile of foreclosures.

"However, other analysts said the quality of the borrower, not the value of the house, matters most.

Mortgage brokers, real estate agents and lenders said underwriting guidelines have tightened, meaning many of the dicey loans, such as applications that required no proof of income, made during the real estate boom of three years ago have been eliminated.

"Banks still have to lend money to stay in business," said Shawn Harris, a mortgage broker based in Oceanside. "They're just betting that people are not going to walk away.

"Over the last year, 30 percent of all new mortgages in Riverside and San Bernardino counties, or about 16,000 loans, carried a down payment of 10 percent or less, according to data from First American CoreLogic and DataQuick Information Systems, two real estate research firms.

During that time, the median price in Riverside County has fallen 35 percent, according to DataQuick.

Drowning right away

Further, some loans in the region were made on properties that real-estate agents said were overvalued at the time of purchase. In south Escondido, prices at one condominium complex increased by 31 percent while the median price in the area tumbled by 54 percent.

Units at Brookhaven Condominiums at the corner of 15th Avenue and Escondido Boulevard were the only condos to sell in 2008 for more than $300 per square foot. The average price in the area was $141 per square foot, according to Sandicor, a local real estate listing and sales database.

Not only did the condos sell at double the price of comparable units, but banks also approved loans that carried very little down payments.

For one unit, Washington Mutual approved a no-money-down mortgage in December 2007 at the price. Seven months later, a notice of default, the first step in the foreclosure process, was filed on the condo, according to county records.

Washington Mutual declined to comment, citing privacy concerns. The nation's largest savings and loan institution, Washington Mutual's shares have plunged 92 percent over the last year over concerns that it might not survive multibillion dollar writedowns on its mortgage portfolio.

In total, 12 units sold at prices that baffled real estate agents. All carried loans with down payments of 12 percent or less, according to county records.

Four mortgages carried down payments of 5 percent or less.

"The prices are not at market value, they're just not," said Troy Sauvageau, a real estate agent in Escondido.

Potentially widespread problem

But the Brookhaven condos were not the only recent house sales to carry mortgages with low down payments.

For example, Flagstar Bank, a Michigan-based lender, originated a 5 percent down payment loan on an Oceanside home in the 92057 ZIP code, an area in northeast Oceanside that has led northern San Diego County in foreclosure filings and seen some homes lose as much as 50 percent in value.

The home sold for $162,000 and carried a loan of $153,900. Just one week later, a similar-sized home down the street sold for $140,000.

Flagstar Bank declined to comment, citing privacy concerns.

It isn't just banks. The Veterans Administration has guaranteed several loans with no money down in the middle of Oceanside's foreclosure cluster.

Also, the Federal Housing Administration continues to insure loans with very little down payment. But mortgage brokers and economists said the government agencies will avoid high foreclosure rates because of tight income guidelines.

Analysts said banks are making a bet that home values won't drop much more, and if they do, qualified borrowers will not be willing to wreck their credit scores for a cheaper home.

But critics said foreclosure becomes attractive, even economically sensible, when the homeowners start to see six-digit losses.

However, mortgages on apparently overpriced condos such as the ones made at Brookhaven raise larger issues, said Paul Leonard, director of the California office of the Center for Responsible lending.

"It does raise serious questions about whether the banks are doing a good job of establishing good, strong collateral under the loans," he said. "You would think that after the huge market meltdown that banks and lenders would be paying a whole lot more attention to make sure they're appropriately pricing that collateral."

Bargain hunters fuel housing market.

Bargain hunters continued snapping up local foreclosure properties in August, as repos accounted for eight in 10 homes sold and local home prices hovered near 2003 levels, according to a report released Wednesday.

The number of existing homes sold in August declined from July, but soared 150 percent compared to August 2007, according to Victor Valley Multiple Listing Service figures collected by Larry Trombley of Century 21 Rose Realty.

For the month, home prices dropped 3.6 percent. The average home that sold in August was 1,872 square feet, selling for $182,859 or $92 per square foot. That’s equivalent to August 2003 levels.

“The bottom is in sight,” said Bobby Tarango, head of business development for Chicago Title in Victorville. “The good deals are out there, and there are multiple offers on the good deals. It is a buyers market — but buyers don’t buy in a buyers market.

”While cautious about making predictions, Tarango said the end of the housing slump may be nearing.

“Based on some of the numbers we’ve been seeing, it could be the end of spring when we get to the bottom,” he said. “The bottom is in sight.

”While Jack Fales of Ambassador Realty is seeing some stabilizing of the local housing market, he said an interest rate cut and federal backing of mortgage giants Fannie Mae and Freddie Mac would significantly strengthen the housing market.

“I am seeing now a lot of bank repos selling, naturally,” said Fales, who along with his wife Shirley, has been in the local real estate market for more than 30 years. “If the government loosens up the interest rates there will be a lot more people buying.

”Across the High Desert, one in nine homes for sale sold, and real estate experts say that equates to about a nine-month’s supply.

The decline in home prices has been good news for first-time homebuyers. Tarango said he’s seeing more first-time buyers. Entry-level housing affordability doubled in second quarter 2008 compared with a year ago, according to the California Association of Realtors. The High Desert region was the most affordable area in the state.

Fales said he expects new home builders to resume construction when they see the housing inventory shrink to an eight-month supply.

“I think we’re going to see some good stuff in the next month or two.” said Fales. “I’ve been here 38 years and I’m still going to be here.”

One family’s lost dream is another’s opportunity.

VICTORVILLE — Record foreclosures in the Victor Valley are creating opportunities for those looking to invest.

Recently, about 800 people were registered to attend an auction at the San Bernardino County Fairgrounds to bid on the 163 foreclosed homes that were on the market.

Rob Friedman, chairman of Real Estate Disposition Corp., conducted the auction and said the banks are very motivated to get rid of the properties and are taking some big losses.

“We are liquidating foreclosures for numerous banks. A lot of major national banks have decided they need these properties off their books,” Friedman said.

One example is a large home that was valued at more than $300,000 and the winning bid was $70,000.

“The banks realize that if they leave them on the market without a tenant or without someone in them, they tend to (deteriorate) and the properties get vandalized. So it’s better for them to take their losses and take their medicine, rather than wait for a year or two for it to sell at a higher price,” Friedman said.

However, after the auctioneer says “sold,” banks still have a final say on acceptance of the bid.

Locally at least 41 percent of homes listed for sale are foreclosures, said Caroll Yule, president of the Victor Valley Board of Realtors and a partner in Shear Realty. She said the number of bank-owned homes has created a whole new niche market of home buyers.

“For the first time in years and years we have people getting back into the home-buying market that have been closed out. So on the good side, it is a very exciting time for young people who thought they would never be able to buy their own home in California,” Yule said.

She said the number of foreclosed homes is about 1,600 to 1,700 and she expects that number to increase over the next four to six months.

Yule said most of the foreclosures didn’t happen overnight and in many cases it is a combination of factors that lead to a family losing their home, with the biggest issue being equity.

“People got this gift of equity. We went up 130 percent in home values between 2000 and 2005, so people got this imaginary gift and people borrowed it all,” Yule said.

As a result, mortgages went through the roof and now Yule said homeowners will never be able to get that amount back because homes recently dropped in value by about $100,000 based on current market estimates.

Jason Landon with Hamilton Landon GMAC Real Estate says buyers are perceiving that the best values right now are in the bank-owned properties, but he warns buyers to beware when purchasing a foreclosure residence.

“You’re missing a chance to talk to the prior owner, get full disclosure on the history of the property. So, yes, you’re getting a better buy, but you may be buying problems you’re unaware of,” Landon said.

FHA's new down payment and LTV requirements.

Here are the 5 things you need to know about these changes...

1. One single down payment requirement of 3.5% for all purchases

2. Closing costs/prepaids are in addition to the 3.5% down (6% seller contribution allowed)

3. New maximum LTVs (based on lower of sales price or value) are:

• 96.50% for all purchases.
• 98.28% for all regular rate and term refinances (cash out remains at 95%).
• 98.52% for all streamline refinances.

4. These changes are effective October 1st, 2008.

5. Purchases already in the pipeline will have until December 31st to be assigned a case number. After January 1st, 2009, all purchases will require the new down payment requirements.