0 Waking Up to The Problem Most Americans Face

Mort Zuckerman of U.S. News and World Report gave a gloomy assessment of the housing market yesterday: he gets it. This is a housing depreciation problem not a "contained subprime" issue.

How much longer will house prices keep falling? That collapse is a larger threat
to our economic well-being than even the headline-grabbing problems of our
increasingly frozen financial system. We’ve had half a century of rising home
values, capped by an inflation-adjusted rise of 85 percent from 1997 to 2006.
Now the loss of value tops $1 trillion, and the financial world has incurred
hundreds of billions of dollars of losses on the premise that U.S. home prices
would never fall. The median price of a new home is at $206,500, receding to
where it was in November of 2003, thus wiping out more than three years of price
appreciation. It takes 6.3 months to sell a finished home compared with 4.3
months a year ago. The ratio of inventory to sales is the highest since October
1981—there’s an unsold extra backlog of a million single-family homes and
condominiums. Builders have cut their housing starts by approximately 40 percent
over the past year. David Rosenberg of Merrill Lynch estimates construction will
fall from a million units to approximately 700,000 units, an all-time low since
World War II.
House prices, though, haven’t fallen enough to tempt buyers,
despite sales incentives and rebates. According to the Conference Board, fewer
Americans plan to buy in the next six months than at any time since 1994. The
decline in conventional mortgage rates has failed to spark sales because it has
been trumped by tighter lending standards. Speculators, who helped fuel the
bubble, have virtually disappeared from the market.

The rest of the article is also interesting, and he did a good job of discussing the problem of fighting a deflating bubble with lower interest rates:

Lower rates can help those with adjustable-rate mortgages, but they cannot stop
the deflation of the housing bubble or prevent a tidal wave of mortgage
defaults. This is partly because mortgage rates reflect the 10-year treasury
bond yield more than the federal funds rate. That rate has dropped, but the
spread of both fixed- and adjustable-rate mortgages over treasuries has widened,
which means smaller declines in mortgage rates. Then there are those many
borrowers who got mortgages in 2003 and 2004 when the federal funds rate was 1
percent; they’re not going to get a better deal than that. And if they now have
zero or negative equity in their home, they won’t be able to refinance in any
event.
Zuckerman made this recommendation:
There is no time to delay in
combating the trends. Monetary policy cannot make bad investments turn good.
Cheaper mortgages won’t cure the market where properties are plunging so much in
value. The collapse of value will affect all homeowners and, through them, the
whole economy. It’s bound to be the most pressing issue in this presidential
election year. Voters in the primaries and general election should look to
candidates with credible policies in mind to address this downturn.

Too bad "candidates with credible policies" are in short supply. Too many of our politicians seem to believe that government can somehow stop the trainwreck if enough money is thrown at the problem. The FED and ECB have injected north of $500B into the markets in the last few weeks and mortgage rates have gone higher in the last few days. The FED is pushing on a string. Don't wait for the FED or a politician to handle your mortgage situation. Be proactive and review your options today as the programs, rates and/or your home value may be much worse tomorrow. We have spoken to dozens of people recently who can't refinance because they have little or no equity. The recent bill passed does nothing for these folks. The effects of the downturn can be addressed, but the downturn itself cannot be stopped. Policy can’t combat gravity.

Detail: Waking Up to The Problem Most Americans Face

0 New Conforming Loan Limit Becomes Law.

President Bush on Wednesday signed H.R. 5140, the Economic Stimulus Act of 2008, making official a temporary boost to both conforming and FHA loan limits. This might be the stiff drink the real estate market needs. The new law boosts the GSE conforming limit to as much as $729,750 through the end of this year, and also raises FHA lending limits to the same level for high-cost areas.

“I know many Americans are worried about meeting their mortgages,” President Bush said prior to signing the bill. “My administration is working to address this problem.” Bush cited HOPE NOW and the recently announced Project Lifeline initiative as examples of ongoing work by the administration to address the housing crisis.

A White House-produced fact sheet covering the new growth package is available here.
The U.S. Department of Housing and Urban Development now has 30 days to publish a database of house prices that will be essential in determining which markets get access to the new ‘jumbo conforming’ or ‘expanded FHA’ loan products.

Of course, that could prove to be bit of a problem in and of itself, given that HUD doesn’t currently independently gather or otherwise publish home price data. Bankrate’s Holden Lewis was on this right from the start when Congress first passed the bill:
The Office of Federal Housing Enterprise Oversight, or OFHEO, compiles periodic indexes of home prices. Fannie Mae and Freddie Mac use the OFHEO data each November to update the next year’s conforming limit.

The Federal Housing Finance Board and the National Association of Realtors both collect and publish home prices. The FHA takes information from both entities to calculate the FHA limits for each metro area.

Congress could have pegged the conforming and FHA limits to data collected by OFHEO, the Federal Housing Finance Board or the Realtors. But it didn’t. Instead, the law says: “The secretary of Housing and Urban Development shall publish the median house prices and mortgage principal obligation limits … for all areas as soon as practicable.” The law gives HUD 30 days to publish the database of house prices.

The simplest solution would be for HUD to use the same house price information it uses to calculate FHA loan limits. But a HUD spokesman says: “We have not yet determined if the same data will be used to make the new calculations.” That leaves lenders in the dark until HUD makes a decision.

While price designations aren’t yet known, a few industry sources close to the process have suggested that the new conforming limits won’t be as broadly applied as many might expect; just 15 counties in California might be designated as eligible for the loan limit increase, for example.
That’s not the only grey area out there, of course — there’s also the as-of-yet unclear issue of TBA trading in the secondary market that will need to be settled. Mortgage bonds are sold before the loan are completed and funded. That's why you lock in a rate. (The unconfirmed word from our sources today is still that the industry agency SIFMA wants to keep the new ‘jumbo conforming’ loans out of TBA pools.)

It’s also unclear exactly how the new jumbo conforming will price, given that neither Fannie nor Freddie have experience underwriting within the jumbo mortgage market.

Similarly, it isn’t exactly clear what the initial underwriting criteria will be, although most expect it to at least sit close to existing ‘traditional conforming’ guidelines — if not ending up more restrictive. “OFHEO has already gone on record saying that jumbo loans are more risky, so I wouldn’t be surprised if the underwriting guidelines end up being tighter than what you’d see for usual conforming products,” said one executive at a large lender, who asked not to be identified.

Detail: New Conforming Loan Limit Becomes Law.