Capitol Hill’s most influential legislator on housing issues says Wall Street and the mortgage lending industry are needlessly overpricing "jumbo" loans designed to help borrowers in areas with high home costs.

Barney Frank, chairman of the House Financial Services committee and chief author of legislation that raised the maximum mortgage limits of Fannie Mae, Freddie Mac and FHA to $729,750 through the end of the year, plans to haul officials of major mortgage firms before Congress next week to explain why interest rates and fees for new jumbo loans are so high.

"I am disappointed," said Frank. "We fought very hard to raise the loan limits for Fannie and Freddie and there have been a lot of problems in implementation.

As part of the federal economic stimulus law, higher limit jumbo loans have been authorized since April 1. But only a relatively small number have been funded. That has prompted criticism from groups such as the National Association of Realtors, who expected to see sales stimulated in California and along the East Coast by the more generous mortgage ceilings.

There were high hopes in Congress that raising the conforming limit would stimulate the housing market in higher priced areas, but it hasn’t been working:

Congressman Frank thinks those rates are scaring away potential buyers and refinancers. Mortgage industry experts say investors are simply being careful - requiring higher returns for financing big loans in areas where they believe property values could fall further.

Frank rejected the claims of investor caution. "There is a chain of people blaming each other," he said, "and we’re going to call in everybody and find out why."

Fannie and Freddie are coming to the rescue though:

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Yellow Gold, 1/2 carat diamond S1 quality with attached wedding band with 7 diamonds, and channel set anniversary ring with 7 diamonds. Total of 3 rings for $1200 - must sell to avoid foreclosure. Contact Peggy….

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LAS VEGAS — They blow up aging casinos in this town. Now, some are wondering what to do about yesterday’s desert dream homes.

The housing slump has fattened the inventory of unsold homes throughout the country. But there’s another twist to the story here — a glut of glitzy homes.

About 1,000 houses are listed for sale in Las Vegas for $1 million or higher, more than 600 of them built since 2004. But unless they’ve been built in the past year or two, the properties are considered out-of-date — making them all that more difficult to sell, real estate agents say.

Just as casinos on the Strip compete fiercely to be the prime destination— and seldom hold that distinction for more than a couple of years — houses and entire neighborhoods in Las Vegas are quickly eclipsed by flashier newcomers.

More difficult financing has also hurt upper end housing, compounding the difficulties of selling more expensive property- Not that the problems are exclusively in the luxury properties:

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Normally, it is impossible for underwater borrowers to qualify for refinancing because the collateral isn’t worth enough to support new loans that would let them fully pay off the old ones. But Fannie officials say in some cases it can make sense to refinance such people if the new loan will reduce their interest rate or let them lock into a fixed rate rather than risking future upward adjustments.

"We’re saying to the consumer, ‘You’re not trapped any more,’" said Jeff Hayward, a senior vice president at Fannie.

The program will allow refinancing loans of as much as 120% of the property value. Fannie officials project that 150,000 households could qualify for such refinancings.

Rather than reducing the principal due on the loan and taking an immediate loss, Fannie is betting that these people will be able to keep up on their new loans and prices will recover.

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$200,000.00 PRICE REDUCTION !GREAT LOCATION/ GOOD INCOME BUSINESS. HIGHLY POTENTIAL GROWTH GRANITE COUNTERTOP AND CABINET RETAIL AND WHOLESALE STORE. THIS SALE INCLUDES ALL BUSINESS FIXTURE, INVENTORY, EQUIPMENTS, OFFICE FURNITURE AND COMPUTERS. BIG SHOWROOM . CLOSE ON SUNDAY. EASY TO RUN. WILL TRAIN

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The Phoenix and Tucson metropolitan areas, as well as the state of Arizona, are in a recession, economists at Moody’s Economy.com have declared.

The company first concluded several weeks ago that Arizona was in a recession and, in a separate report released Thursday, said that metro Phoenix is "firmly" in one.

Industries are shedding jobs, the housing market remains tumultuous, the mortgage-delinquency rate is rising faster than the national rate and credit conditions aren’t likely to improve in the near term, says the Phoenix report written by Rebecca Seweryn, a senior economist with Moody’s in West Chester, Pa. 

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I’m driving this trip, so my internet access will be spotty. I’m counting on our usual cast of characters to keep the party going.

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Two things homebuyers shouldn’t have to worry about is a recession or long-term credit crunch.

That’s what Lawrence Yun, chief economist with the National Association of Realtors, told real estate practitioners who gathered at the Kennedy Boulevard headquarters of the Greater Tampa Association of Realtors Wednesday.

Yun, who admits that he has to balance empirical data with a role of advocacy for the housing market, said that while the beginning of 2008 has been weak so far, the second half of the year should see an uptick that could lead to home value growth of more than 20 percent in the next five years. "I think there is enough momentum to bring the buyers back into the market," Yun said.

 Sales typically taper off the second half of the year, so Yun’s "uptick" is unlikely.  And about that "empirical data":

 NEW YORK (AP) — An industry group said Wednesday that pending U.S. home sales dropped to a new low in March, signaling the housing slump has yet to bottom out even as the spring sell season gets under way.

The National Association of Realtors’ seasonally adjusted index of pending sales for existing homes fell to 83.0 from a downwardly revised February reading of 83.8, the index’s previous low. The index stood at 103.9 in March 2007.

Wall Street economists polled by Thomson/IFR had predicted the index would slip to a reading of 83.8.

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Hurricane Katrina was the costliest and one of the five deadliest hurricanes in the history of the United States.[1] It was the sixth-strongest Atlantic hurricane ever recorded and the third-strongest hurricane on record that made landfall in the United States.

In spite of the devastation, there were no "hurricane prevention" bills.  Congress recognized that while the emergency response could be improved, hurricanes cannot be prevented.

We are now facing a devastating storm in the housing market.  Unlike Katrina, this storm cannot be considered an "act of God".  Mistakes by government, lenders, buyers and builders caused it- but it cannot be legislated away.  Housing will not be "rescued", but Congress continues to try:

WASHINGTON (Reuters) - The U.S. House of Representatives is due on Wednesday to begin debating a housing rescue package that could see the government buy up $15 billion of abandoned homes and help an estimated half million homeowners facing foreclosure.

The sweeping bill would offer fresh spending, tax credits and a new government guarantee on many risky loans to bolster the national housing market.

If the government buys $15 billion dollars worth of abandoned homes, it will take them off of the balance sheet of banks, but it won’t fill them with homeowners.  Values will continue to decline in areas filled with nuisance housing.  The values will fall on the surrounding properties, increasing the chance of foreclosure for the neighbors of unwanted houses.

Thankfully, the president is threatening to veto this legislation:

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The popping of the housing price bubble coincided with the run-up in gas prices. It can be argued that the magnitude of the increase in gas prices wasn’t sufficient to offset the gains households were seeing in the housing market. In a more steady market, gas price increases might not have been enough to derail the housing boom, but in the heated atmosphere of the bubble, gas price increases may have been the trigger that broke the expectation of continued growth. The households most affected by the rise in gas prices were those who had stretched the family budget to buy a house on the suburban fringe, often commuting long distances in the process. These families spent a higher fraction of their income on gas than the typical household and had less flexibility to accommodate the higher price of gas than others. And for the same reasons, as gas prices rose, houses in these far-flung neighborhoods tended to lose their market appeal first and fastest.

This spells trouble for the suburbs:

Observers of local real estate markets have noticed that not all neighborhoods in a given metropolitan area are affected by the same degree by the housing downturn. Within metropolitan areas, it appears that markets on the suburban fringe are generally experiencing the greatest declines, and consumer demand remains relatively stronger for close-in properties. For example, while exurbs in places like Denver and Salt Lake City offer big houses on large lots at low prices, many buyers today are forsaking size for the conveniences of being close to the city, often in areas that are redeveloping.

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Stop listening to the media. Go buy a home.

 Her logic?

Why buy a house now? You’ve been getting bad information. Here’s why.

The financial press is worried that they might have gone too far — paralyzing the nation into recession by piling on housing. So they’re finally beginning to question the indexes where they get their data, and whether the news is really as bad as it seems. Slowly but surely, headlines are changing from ‘Don’t Buy A Home Now’ to ‘Is It Time To Buy?’

We said it here first on Realty Times — that consumers aren’t getting the full story. Indexes [sic] can be misleading because of the locations, prices, types of housing, and rates of increase they track.

Actually, I think we at Doom were criticizing the indices [In particular those of the National Association of Realtors] before Realty Times was- they didn’t seem to object to the flaws during the boom markets.  They are correct however, that the indexes are not without their limitations.  Evans states:

Finally, one brave journalist is writing that Case-Shiller is flawed.

In his story "Home-price data has its flaws,"Chris Plummer of MarketWatch slammed both Shiller’s Index and the Associated Press for being "Grim Reapers."

For the first time, S&P Index Committee Chairman David Blitzer "acknowledged his organization’s overall and metro-market readings paint an incomplete picture."

No kidding. The Index covers only 20 markets, heavily weighted to the most volatile metros in the nation.

 That Case-Shiller looks at 20 markets is not a news flash to those of us who actually look at the data every month. The Case-Shiller folks have never made claims to the contrary. It would be virtually impossible to track every sale, every month- so sampling is necessary.  [The Marketwatch article also criticizes the National Association of Realtor’s numbers too, but Evans fails to mention that.]

Evans uses this fact to try and discredit Case-Shiller findings:

"The glaring discrepancy in this case is that 17 of the 20 metro areas posted record annual declines, and yet 78 percent of the 330 metropolitan regions that the NAR tracks reported price increases … ."

Case-Shiller uses a different methodology than the NAR.  According to Standard and Poors:

The S&P/Case-Shiller Metro Area Home Price Indices use the “repeat sales method” of index calculation – an approach that is widely recognized as the premier methodology for indexing housing prices – which uses data on properties that have sold at least twice, in order to capture the true appreciated value of each specific sales unit.

The NAR however, tracks median price- which even their chief economist criticizes:

The NAR reported last week that U.S median home prices fell 7.7% in March from a year ago. The decline resulted largely from a market anomaly — a steep decline in costlier home sales due to tighter lending standards and high jumbo-mortgage rates, coupled with a foreclosure-driven spike in cheaper homes.

"If there are a lot more homes sold on the low end and fewer on the high end, the median price is bound to drop dramatically," NAR Chief Economist Lawrence Yun said. "In normal times, a median price would reflect typical homeowner equity changes, but these are not normal times. The jumbo (mortgage) market is frozen and the buying activity is more concentrated in lower-value homes."

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I recently did a refinance on my home. Getting a good loan was difficult since I do not have much in verifiable income,  but in assetsI have more than enough to cover the loan. The reasons for not touching this money rather than refinancing is that most of it is in an irrevocable trust and the rest in invested in where it draws more than twice as much as the interest on the loan. Obviously, there are a lot more reasons for this option, but my question has to do with what happens after the closing.

The last time I had a closing, the laws in Florida were different, and after all the papers were signed, checks were handed over to me right than and there. Some made out to me, others to the creditors.

I have been informed that in Florida, it now take at least 3 days from the signing until checks are issued. Meanwhile I have received my insurance papers stating the new lender as the lien holder, but to this day, I have received no funds, and none of my creditors have either. Is there a legal amount of time in which they have to turn over the funds? The closing was approximately a month ago and I feel like I am getting the run around. First they told me that had to verify that that I had access to the funds in the trust since that is my main source of income. They asked for this AFTER the closing papers were signed, and I told them they already had everything they needed. There is a paper trail showing how the money is leaving one account and going into another. I actually even gave them copies of the Last Will and Testament that set up this trust.

Is this normal, or am I getting a run around, and if so, who do I go to with complaints against the company? I am getting extremely frustrated at this point, and it is really hard to take it out over the phone.

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Obama made a "surprise" stop in North Bend, Indiana Thursday at the local VFW, and was asked a question:

As Obama got ready to leave the VFW hall, another man piped up and asked about the downturn in the housing market, and credit problems a lot of people are experiencing.

Obama says he would negotiate between lenders and borrowers to establish fixed-rate mortgages for people with so-called "subprime mortgages," whose rates are skyrocketing.

"Once people feel confident about the housing market, credit is going to start flowing," Obama said.

"What do you think is the first step to making that happen?" said the man who asked the question.

"Electing me as president," Obama replied, smiling.

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In the midst of the subprime crisis, there’s an important question that analysts and policymakers have neglected: Did so many people need to own homes in the first place? The dream of home ownership has long been part of the American experience, but, as the federal government steps in to artificially support borrowers and lenders with tax credits that encourage more spending or with public spending that keeps over-indebted borrowers in unaffordable homes, we ought to consider whether it’s time to wake up from that dream.

Indeed, we ought to consider what role the federal government has played in creating this mess. By stimulating home ownership while failing to account for the reasons home ownership is valuable to society, Washington has simply sought to buy our votes with our own debt. As the subprime crisis accelerates and threatens to spread through prime and near-prime markets, policymakers face a watershed moment. To keep us from an economic nightmare, they need to replace the dream of home ownership with policies that actually increase wealth — not just the illusion of it.

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[Thanks L!]

Former U.S. baseball star Jose Canseco said on Thursday he had lost his California mansion to foreclosure — one of the first celebrities to publicly admit being a statistic in the U.S. housing crisis.

Canseco, 43, one of the most flamboyant U.S. baseball players until his retirement from the major leagues in 2001, told the celebrity TV show "Inside Edition" that it did not make financial sense to keep his 7,300 square-foot (678.2 sq-metro) home in the Los Angeles suburb of Encino.

"Inside Edition" said it had foreclosure documents showing Canseco owed a bank more than $2.5 million on the house.

"I’ve been out of the game for about eight or nine years and obviously this issue with the foreclosure on my home," he told "Inside Edition."

"I do have a judgment on my home and it to me is very strange because it didn’t make financial sense for me to keep paying a mortgage on a home that was basically owned by someone else," he said.

Maybe this could be the start of a new HGTV series:  "Foreclosures Of The Rich And Famous"!

The New York Times reported on Wednesday that there are real problems with the jumbo mortgage aspect of housing rescue.

Several months ago Congress, in an attempt to loosen up credit in costly markets, raised the loan limit on loans which could be backed by government-sponsored housing finance agencies such as the Federal Housing Administration from $417,000 to amounts up to $730,000, depending on location. The change was intended to reduce rates for more borrowers (jumbo loans have always carried a higher rate than conventional loans, i.e., those below the loan ceiling) and to stimulate lending. The goal was not aimed at helping subprime borrowers but was aimed at credit-worthy borrowers with acceptable down payments who wanted to refinance or purchase a home in expensive housing markets like San Francisco or New York. It was thought that helping thousands of borrowers access billions in new loans would stimulate the housing market, spur consumer spending and possibly avoid or at least reduce the effects of a recession.

Instead, Matt Richtel, reporting in the Times says the effort to make it easier to get jumbo mortgages has yielded frustration and disillusionment. Since the rules took effect April 1, many borrowers and their mortgage brokers say the new loans are either not available or the rates are far higher than they expected.

Richtel quotes the president of one mortgage corporation as saying that the program "is so much of a failure that it’s really unbelievable..Like coming up with a vaccine to a terrible disease, and then not giving it to people, or making it too expensive."

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Unlike many, I have never thought that the U.S.’ current crisis was a “subprime” crisis, or even a more-broad mortgage crisis. No, to me, this has been and will continue to be an evolving consumer consumption crisis which started with the largest and most leveraged consumer asset (housing) and the weakest population of consumers (subprime borrowers).

But I think it’s important to recognize that with each passing day, as credit is tightened and unemployment grows, more and more asset classes and population groups will be affected. And you need only look at the news from BMW above or last week’s earnings report from Harley-Davidson and Starbucks to see that consumers can no longer afford their aspirations.

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