Forensic Review: A Tactic to Fight Off Foreclosure

Homeowners having trouble with mortgage payments or facing foreclosure can feel ignored by lenders and desperate for solutions. But there is a way to get lender attention and improve the current financial situation.

A forensic loan review can determine if lenders made any mistakes when the mortgage was issued, mistakes that can be actionable offenses and the key to persuading lenders to help.

A forensic review involves a legal expert examining your loan documents for errors and misstatements. Commonly, the truth in lending statement given by the lender after mortgage application and the APR calculation won't match up with the HUD-1 closing cost sheet you received at closing. Even with small mistakes and tiny percentage errors, you can have cause for legal action. Other major violations to uncover could include illegal predatory lending practices or even outright fraud.

While forensic review is usually a tool of mortgage firms, the current economic climate has resulted in several companies offering review to individuals. The drawbacks could be severe - costs for legal review at San Diego firm You Walk Away can be as high as $3000. But the benefits can be significant. Review companies contend that errors are frequent, and can provide you with the leverage you need to make lenders listen and develop a solution.

Experts assert that the goal of forensic review is not to actually sue, but to gain bargaining power. David Petrovich, executive director of the nonprofit Society for the Preservation of Continued Home Ownership in Oakhurst, N.J., and the author of "Fight Foreclosure: How to Cope With a Mortgage You Can't Pay, Negotiate With Your Bank and Save Your Home," is one of these advocates. Lew Sichelman, a real estate writer for over 30 years, has covered the topic extensively in his syndicated column.

Errors in mortgage documents stem from the housing rush of the last few years, when mortgage companies couldn't push borrowers through fast enough, and often (intentionally or not) overlooked key borrower issues. In the mad dash for more money and more loans, borrowers were confused or actually hoodwinked.

Today, lenders are feeling the repercussions through the housing bust, and are under increased pressure by federal and local regulators to shape up their practices. Mortgage lenders are inundated with requests to improve current loans, and many borrowers can get lost in the shuffle. This tactic of legal review can help borrowers move their case up in the ranks, and get the help they need.

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The Fed Stands Pat Keeping Rates Unchanged for Now

At its September 16th meeting, the FOMC decided to keep the benchmark federal funds rate unchanged at 2% for a third consecutive time. This decision was unanimous amongst FOMC members, marking their first uncontested decision on rates in a year. Futures traders were projecting an 80% possibility of a .25 point cut by the Fed yet ironically just several months earlier they were forecasting a 100% chance of a rate increase. After a roller coaster weekend of horrific financial news snowballing from the Lehman bankruptcy filing followed by the B of A acquisition of Merrill Lynch and then the stunning collapse and government takeover of insurance titan AIG, investors and traders alike saw the odds of a cut in the key rate rapidly rising. Fed policy makers had begun their series of seven rate cuts starting in September 2007, commencing just one month after the sub-prime debacle first unfolded, and they continued with this series of rate reductions through April of 2008 when commodities prices and inflation became an overriding concern. Until that time, the Fed’s aggressive rate cutting measures had pushed the federal funds rate down from 5.25% to where it stands now at 2.00%. Futures traders had recently been persuaded to believe the Fed would now ease again at its September meeting in an effort to help beleageaugered financial companies weather the storm and support the stock market which had recently suffered its worst daily slide in six years. Rate cut expectations were further supported by the gradually improving news on the inflation front, as oil prices had been gradually declining as the global economy slows. The downside risk to growth and the upside risk of inflation both remain key concerns at the Fed, however the credit crisis appears to be in large part a crisis of confidence and therefore less likely to respond to further a reduction in rates. The Fed has already been working overtime to make funds readily available, providing liquidity directly to the distressed institutions that need it most. Yet another rate cut by the Fed might have been perceived as a panic response to a crisis that is worsening when Fed officials may prefer to let the dust settle a little longer on the most recent stream of financial disasters before taking further action.

Global Outlook: Recession Fears Expand Beyond the U.S.

The subprime mortgage debacle has had far reaching effects in the U.S. economy. But the effects go beyond our own borders. The economic turmoil has ricocheted throughout the global economy, causing inflation, recession fears and general anxiety.

Consider Europe, which is experiencing the fastest inflation in 16 years and the prospect of a widespread recession. Inflation is currently double the European Central Bank’s 2 percent ceiling, and household spending power is quickly being eroded across the continent.

The ECB has authorized nine interest-rate increases since December 2005, in attempts to curb inflation and slow down money-supply growth. The ECB reported this week that this M3 money supply, a figured used as a gauge of future inflation, rose 9.3 percent from a year earlier. This is the weakest growth since November 2006, but still nearly twice the ideal amount to rein in inflation. Policy makers kept the benchmark rate at 4.25 percent this month, a seven-year high, on concerns that inflation may push up wages and prices.

At the same time, European retail sales have declined for a third month in August. Although the measure of sales activity in the region using euros increased slightly this month, it’s still the third month the reading held below 50, the boundary between growth and contraction. An executive survey also revealed retailers cut jobs for a fifth month.

Overall, confidence is low across Europe. German business confidence has fallen to a three-year low and consumer sentiment dropped to the weakest since 2003. In France, the housing inventory has reached a record this summer.

In the UK, the outlook is particularly bad. House prices declined this week at the fastest annual rate since 1990, with the average value of a home falling 10.5 percent. At the same time, retail sales have plummeted to the lowest rate since the survey began in 1983. British lending organizations have limited their loans since the subprime collapse, with a 65 percent drop in mortgages granted since last year. The reports suggest a recession is imminent, and forecasts predict the Bank of England will be forced to cut interest rates this year despite fears of inflation.
The economic troubles reach beyond Europe into Latin America, Africa and Asia. In Japan, inflation is a rising concern. Bank of Japan leaders are suggesting a key interest rate increase as the economy shrank at an annual 2.4 percent rate in the second quarter, putting it on the brink of recession.

Globalization has meant significant benefits to the world’s economies and citizens, but it also means that the economic problems of one country extend to every country. The ability to recover from our current economic woes will also be affected by the interrelated nature of our global financial systems.

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Prices Rise and Credit Contracts: Is the Recession Here?

Inflation rose in July to the sharpest price increases in 17 years.

Consumer prices rose 0.8 percent on a seasonally adjusted basis from June to July, according to a government report released today. This is the third consecutive month of inflation, and during the last 12 months prices have risen 5.6 percent.

Driving the price increases are continuing surges in energy and food costs. Energy prices increased 4 percent over the month, while food prices rose 1.2 percent.

The reported figures coincide with consumers cutting back and employment getting squeezed. Core inflation, removing food and energy costs, rose 2.5 percent in the last 12 months, and reaching the levels federal policymakers consider unacceptable. The inflation is causing worker spending power to drop dramatically to rates last seen in 1990. Although average hourly pay rose during the last month, inflation and a cut in average hours means a reduction in real weekly earnings by 0.8 percent. During the last 12 months, real earnings dropped 3.1 percent.

Accompanying the consumer price report was another indication of continuing housing market woes. Existing U.S. home sales fell 16 percent in the second quarter, a 10-year low, according to reports released this week. At the same time, median prices for a single-family house dropped 7.6 percent, from $223,500 to $206,500 over a year period.

A third of all sales in the quarter were foreclosures, with bank seizures of properties in default rising 184 percent in July. Put another way, more than 272,000 properties, one in 464 U.S. households, were in some stage of foreclosure. The increasing foreclosures are depressing home prices further.

For those looking to buy, banks are making it harder to borrow money, with tighter lending standards and terms, according to a survey by Bloomberg. The tight funds extend also to small businesses and credit card loans.

With consumer prices rising, fixed mortgage rates at a six-year high, and a tightening credit crunch, the recession seems to be imminent, or already here.

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Unemployment Spikes, Fed Keeps Interest Rate Level

Initial claims for state unemployment benefits rose to 455,000 last week, according to reports released by the Labor Department. The new figures represent a jump of 7,000 from previous reports, and the highest rate in six years. Overall, the unemployment rate hit 5.7 percent in July, with some analysts predicting the rate to peak next year at well over 6 percent.

Payrolls declined by 51,000 workers in July, the seventh straight monthly drop. Additional figures for unemployment claims, the moving four-week average, posted a jump over the 400,000 mark, the highest since July 2003 and bypassing the threshold for recession.

The Labor Department did cite increased access of benefits, the result of a new federal program, as a partial cause of the increase. But the rising unemployment is also a result of the slowing economy; companies are cutting costs and reducing staff as demand slows and raw material costs spike.

Rising unemployment also increases worry that consumer spending will decline in the coming months. For the last few months spending has been secure on the basis of economic stimulus checks. Now that these are spent, spending will probably decrease as costs rise, jobs are cut, and the economy continues to falter.

With the economy is dragging and labor markets softening, the Fed decided to halt its pattern of interest rate cuts and stay firm at its recent meeting. The Federal Reserve kept the benchmark interest rate at 2 percent, suggesting that weak employment and general financial instability will keep naturally keep borrowing costs low.

After an aggressive series of rate cuts, the most in two decades, the Fed halted the cuts at their last meeting in June, and has continued to do so. Experts contend the Fed will leave the rate unchanged in coming months in efforts to slow inflation and balance economic turmoil.

A rise in the pending home sales index, based in contracts signed in June, was a surprising but welcome piece of news in the midst of the unemployment and economic crises. The 5.3 rise brought the index to 89.0, the highest since October. Some analysts note this could mean a stabilization of sales and a flattening in the market. Others note it could be a rise from increased sales of foreclosed homes.

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Housing and Economic News: A Roundup

A flurry of reports, statistics, and announcements this week provide a portrait of the struggling economy as it stands today.

Prices and Inflation

A report from the Labor Department revealed this week that consumer prices jumped 1.1 percent in June, the second-biggest monthly increase since 1982. Over the past year, prices have risen 5 percent. The sharp increases mean worries about the economy are rising as well, and are causing some analysts to predict a boost in interest rates soon.

Major components of the increasing consumer prices are surging food and energy costs. Food prices have jumped 8 percent on an annualized basis during the past three months; energy costs have increased at a 30 percent annualized rate since the start of the year. Other sectors are also feeling the price squeeze, indicating food and energy costs are affecting the entire economy. Transportation costs rose 3.8 percent last month, and rents and education costs also increased.

Overall, core inflation increased 0.3 percent in June.

Housing Market Ups and Downs

Single-family construction starts fell to the lowest levels since 1991 in June, the Commerce Department said Wednesday. The single-family starts in the U.S. fell to an annual pace of 647,000, a decrease of 5.3 percent.

Multifamily home construction starts, on the other hand, jumped 43 percent in June to an annual rate of 419,000. A change in New York City building codes, as well as a general upswing in the Northeast, led the increase with a 242 percent surge in that area.

Taken together, total housing starts rose by 9.1 percent to a 1.066 million per year pace.

The turmoil in the mortgage market, and the sluggish number of starts in portions of the construction market, has caused builders’ confidence to drop and job losses to increase. After stabilizing over the last nine months, the National Association of Home Builders/Wells Fargo sentiment index, reflecting builder’s confidence, dropped to 16 in July. This is the lowest level since records began in 1985.

In addition, job losses in construction and manufacturing have increased. Payrolls at builders declined by 43,000 in June after a drop of 37,000 the prior month. The total loss of construction jobs since September 2006 has grown to 528,000.

Plans for Fannie Mae and Freddie Mac

Treasury Secretary Henry Paulson expressed confidence this week about the passage of a three-part plan to rescue Fannie Mae and Freddie Mac. His plan will allow the Treasury to increase credit lines for the two companies, buy shares in the firms, and give the Federal Reserve a bigger role in overseeing their capital requirements.

Together, the two organizations own or guarantee more than half of the $12 trillion in outstanding U.S. home loans. The companies have lost more than 80 percent of their stock market values this year as investors grow increasingly concerned about their ability to weather the housing slump.

Paulson emphasized the plan will be temporary, granting the Treasury powers in the interim to support the two companies. Lawmakers intend to tack the rescue plan onto the pending housing bill that will assist subprime borrowers in refinancing into fixed-rate mortgages backed by the government, and institute tougher regulation for Fannie Mae and Freddie Mac.

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Burgeoning Inflation, Bigger Fed Powers, Better Lender Response: A Market Report

The economy continued to struggle this week. The most recent statistics shows prices jumped in May as energy costs soared. Prices Americans pay for goods and services is up 4.2 percent for the past year, driven mostly by food and energy costs. When these two items were excluded, prices only rose 0.2 percent.

The higher prices were expected. But they show the pressure being placed on consumers and companies, with higher rates and less credit available to them, and the Federal Reserve, trying to prevent major inflation.

The role of that central bank might expand to better respond to financial emergencies under new recommendations from Treasury Secretary Henry M. Paulson Jr. Paulson is expected to deliver a speech today proposing the Federal Reserve should assume new powers to protect the financial system and intervene in the workings of Wall Street firms.

Responding to the major loss of Bear Stearns, and the emergency steps the Fed took to keep the dissolution from causing a major international catastrophe, Paulson plans to promote the permanent powers of the Fed to respond to any future emergencies. In March, the central bank threw out decades of precedent and provided financial backing for J.P. Morgan Chase's acquisition of Bear Sterns, and made emergency loans available to all major investment firms.

The new recommendations push beyond the financial regulation plan Paulson offered earlier this year, which proposed a bigger role for the Fed without details on what that role would entail. The planned comments for today will offer these details, suggesting the Fed should have the power to step in when a firm poses risk to the system, as well as the power to mandate information sharing from financial institutions to anticipate future problems. This last recommendation will prevent banks and other firms from assuming they can continue risky behavior and still be bailed out.

Paulson's speech comes at the same time as a potential shift in the residential environment. Major mortgage lenders have agreed to assume greater responsibility for and simplify and speed up assistance for assisting homeowners in distress. This move is in response to complaints that lenders have done little to offer help, even as foreclosures climb and late payments skyrocket.

The new guidelines state that lenders will acknowledge borrowers' help requests within five business days, approve or deny requests within 45 days, and update borrowers with status after 30 days. The guidelines also encourage lenders to beef up staff to better respond to homeowners in need, and to consider pausing foreclosure when homeowners contact them.

Related from the Washington Post
Paulson To Urge New Fed Powers
Mortgage Lenders Pledge More Help For Homeowners
Fuel Costs Pushed Up Inflation In May

May Employment Report Spooks the Market

The Labor Department reported on Friday that payrolls in the month of May fell by 49,000 as job losses continued for the fifth consecutive month, now totaling 324,000 for the year. The unemployment rate rose a surprising half a percent from 5.0% in April to 5.5% in May, reflecting the biggest month over month increase since 1986. The number of unemployed grew to 8.5 million in contrast with this time a year ago when the unemployment totals stood at 6.9 million. The impact of the housing and credit crisis is continuing to take its toll on the economy yet skyrocketing energy prices are a significant culprit as well. Most Americans are being hit from both sides as the value of their home is declining just as other expenses are rising resulting in a drop off in consumer spending leading to a further loss of jobs.

The percentage increase in the unemployment rate was sharper than analysts had anticipated, as most had expected a job loss of closer to 60,000 rather than the 49,000 reported. Many teenage students reported entering the workforce and this may have resulted in a seasonal deviation in the report as teen unemployment experienced its biggest spike since 1948. May's employment report was therefore greatly impacted by both new entrants as well as re-entrants coming into the labor pool. Job growth continues to remain fairly robust in the areas of healthcare, education and government hiring. However the jobless rate overall now stands at the highest level since October of 2004. The Dow fell 395 points or 3.13%, the NASDAQ dropped 75 points or 2.96%, while the S&P 500 fell 43 points or 3.09%, sustaining the sharpest sell-off in three months.

Mortgage Rates improved as investors shifted out of stocks. This could be an opportunity to lock in a low fixed rate.

Freddie Mac Reports Massive Losses

Freddie Mac, the stalwart government-sponsored entity responsible for mortgage funding and market reporting, has been hit hard by the struggling economy, a recently released report shows.

In the three-month period ending March 31, Freddie Mac lost $151 million, or 66 cents per share. In the first quarter of 2007, Freddie Mac lost $133 million, or 35 cents per share.

While it may seem that the increased loss is significant but not deadly, the bottom line numbers do not reflect the building cost of actual and anticipated losses from defaults, foreclosures, and other credit-related expenses. Freddie Mac reported $1.45 billion of these expenses in the three-month period ending March 31. This represents an increase of more than 50 percent from the previous quarter and more than fivefold from the first quarter of 2007.

Put another way: the estimated asset value of Freddie Mac was $12.6 billion on December 31 of 2007. On March 31 of this year, the estimated asset value plummeted to a negative $5.2 billion. If not for changes in valuation methods, the estimate would have sunk by an additional $4.6 billion.

Freddie Mac is an organization formed by the government to keep credit liquid and mortgage money flowing. The company packages mortgages into securities for sale on the secondary mortgage market, and covers the loan payments if borrowers default. With the booming housing market, Freddie Mac and the other government-sponsored entity, Fannie Mae, were also booming. Accounting scandals at both firms, however, pointed the way for problems with the rest of the housing market and enhanced the damages from the subprime fallout.

Freddie Mac is required to maintain minimum levels of capital as protection against losses, but the government is currently decreasing this amount, counting on the company to help support the struggling market. To raise additional capital, Freddie Mac plans to sell more common and preferred stock, diluting current investor shares and increasing costs to the company, but adding power to Freddie Mac’s ability to meet the housing market’s needs.

Freddie Mac's financial woes are indicative of the housing market and financial services companies’ troubles, with rising loan delinquencies and falling home prices causing massive fallout.

Related Article at Washington Post

Fed Makes Last Interest Rate Cut in Series to Stimulate Economy

After seven months of interest rate cuts in a campaign to boost the sagging U.S. economy, the Federal Reserve cut a key interest rate yesterday and signaled this would be the last.

The Fed lowered the federal funds rate, the interest rate banks use when lending to each other, to 2 percent. The goal with this cut is to create lower borrowing costs for adjustable-rate mortgages, credit cards, or business loans, and to offer one more means to prevent the current economic downturn from extending.

In a statement issued with the cut, the Fed indicated this was potentially the last cut in the foreseeable future, but left open the possibility of further cuts if the economy continues to deteriorate. The cut comes at the same time that a new report indicated the economy grew at a small, but better than expected rate in the first quarter. The 0.6 percent annual rate growth, along with fiscal stimulus checks mailing this month, is influencing the Fed's restraint for the time being.

The risks from continued and prolonged interest rate cuts are significant, and important to weigh against the burgeoning economic problems. High inflation, caused by higher prices for food and energy, could raise expectations for future inflation, creating a self-fulfilling prophecy. Continuing to cut the interest rate could weaken the dollar further, and worsen inflation. Plus, continued lowering of rates could undermine the Fed's credibility as an authoritative source for fighting inflation and economic troubles.

Details about the higher prices for food and energy surfaced Thursday. The Commerce Department reported that consumer spending is up 0.4 percent, higher than forecasts. But inflation is responsible for much of this increased spending: without inflation, spending increased by 0.1 percent. The figure for consumer spending is important, as two-thirds of economic activity comes from consumers. Too big of a slowdown could push the country into a recession.

The interest rate cut is another bulwark against deepening economic worries, including the 1.1 percent drop in construction spending in March, a decrease lasting 23 straight months. Unemployment claims rose by 35,000 to 380,000 last week, almost double what economists expected. Unemployment and job losses are also expected to rise in April figures.

Washington Post Articles:

Fed Cuts and Signals Halt

Soaring prices for food, gas push consumer spending higher

Fed Releases Regional Economic Stats

(from April 22, 2008)

The so called Beige Book report of regional economic statistics was released by the Fed to reflect the overall economic health of the 12 Districts of the Federal Reserve, seemingly taking the "economic temperature" of the nation since the month of February. The news appears to support a weakening economy in 75% of the districts as housing starts have fallen to a 17-year low and foreclosure filings climbed 57%. The news on property values is also bleak as prices have fallen in many areas of the country and could be down by as much as 10% in some locations as the supply of homes for sale continues to outpace demand. Tightened lending guidelines, coupled with the declining credit quality of many loan applicants, means the pool of qualified buyers will continue to shrink dramatically. Overall consumer spending, the linchpin of economic activity in the U.S., has declined in response to the housing crisis as retailers nationwide have begun reporting slow to declining sales, in areas beyond that of the automotive industry, in over 80% of the districts.

The unemployment rate is 5.1% while the consumer price index (CPI) rose 4.00% with the core rate, which excludes food and energy, rising 2.4%. However anemic growth had been reported by the end of 2007, as overall growth had slowed from the brisk pace in the 3^rd quarter of 4.9% down to 0.6% by the 4^th quarter as both consumption as well as business spending had slowed decidedly. In response, the Fed has exercised a policy of monetary easing as they have brought the Fed Funds rate down to 2.25% from 4.25% and will be expected to cut another .25% from the rate at the next FOMC meeting on April 29^th-30^th.

Existing Home Sales Decline Again

Existing home sales dropped in March, yet another sign of a housing market spiraling downward and dragging the greater economy with it.

The 2 percent drop was the seventh decrease in eight months, according to the National Association of Realtors. The median price of a home also decreased to $200,700, a 7.7 percent drop from last year and the seventh consecutive year-over-year price drop.

In addition, the National Association of Realtors revealed a survey showing 18 percent of homes up for sale in March had negative equity. These homes, where the mortgage was larger than the value of the home, are either in foreclosure or in "short sale." In comparison, from 2002-2006 this amount of negative equity stayed around 3 percent.

Sales are falling as a result of increasing loan restrictions on the one hand, and the prospect of further price declines on the other. Defaults on subprime mortgage loans have led banks to tighten credit and borrowing rules, resulting in less people able to get mortgage loans. For those borrowers who can obtain loans, home values continue to decrease and savvy buyers are waiting until prices hit bottom.

The inventory of homes on the market keeps rising, causing prices to continue to drop. Unsold homes increased 1 percent in March to 4.06 million homes, representing a 9.9-month supply at the current sales pace. Rising foreclosures are pushing more homes on the market.

Existing-home sales make up around 85 percent of the U.S. housing market, and new-home sales make up the rest. Figures from the Commerce Department are expected later this week on sales of new homes, and a 13-year low is predicted. Decreasing overall sales are encouraging builders to stop construction and/or reduce prices. The amount of new homes initiated in March, 947,000, was the lowest in 17 years.

Different areas of the country are experiencing the drop in home sales differently. For March, sales were down 6.5 percent in the Midwest and 3.5 percent in the South, but they increased by 2.2 percent in both the Northeast and the West.

Washington Post Article: Existing home sales fall in March

Economic Reports Profile Sputtering Economy

Reports released today confirm much of the bad news we've been hearing about the economy.

According to the "beige book," a combination of anecdotal reports prepared by the Federal Reserve that chronicle business conditions from around the U.S., the economy is slowing, the homebuilding sector is tanking, and prices are rising to painful levels.

The residential real estate and construction industry are "anemic," according to the book. The Commerce Department provided more specifics this week on this sector of the economy, nothing that builders started 11.9 percent fewer units of housing in March than in February, a huge decline. Permits for single-family homes are down 63 percent from the 2006 peak. Both numbers together indicate a picture of significantly reduced building activity. But this could actually be a good thing. The backlog of houses available for sale, an astounding surplus nationwide, combined with less construction, could actually help reset the balance of supply and demand, and prod the economy back in shape.

Consumer spending is softening, said the beige book. Plus, prices are rising. Consumer prices were up 0.3 percent in March, according to the Labor Department. Rising prices are due to increases across the board, but are driven particularly by natural gas and heating oil. Food prices are also increasing. In March, food prices rose 1.2 percent from big price jumps in vegetables and beef and the biggest increase in rice prices in more than five years.

Producer prices are also spiking, but so far businesses have kept the majority of price increases away from the consumers. The producer price index rose 1.1 percent last month, the largest increase since November (which experienced the highest one-month increase in 33 years) Over the last year, producer prices for finished goods are up 6.9 percent, the biggest year-over-year increase in nearly two years.

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Since increased producer prices are not affecting the majority of consumer products yet, core inflation (price increases of goods other than food and energy) is still at manageable levels for the Federal Reserve. But the forecast for the immediate future is uncertain.

Washington Post Article:

Fed: Economy Worse Off Than Believed

Producer Prices Rise 1.1% in March; Food Up More Than Expected

World's Central Bankers Address Credit Crisis at G-7 Meeting

Heads of Finance from Canada, France, Germany, Italy, Japan, the United Kingdom and the Unites States all met this week in Washington. The meeting came a day after Europe's Central Bank President issued a warning that the crisis in the financial markets may develop into a broader economic dilemma. But the so called G-7 finance ministers found little common ground upon which they could agree in dealing with the crisis as each country maintains differing viewpoints on the level of responsiveness required to combat the problem. Discussions involving strengthening the regulatory environment in which the financial industry operates failed to address the pressing need to mitigate the current market crisis. While implementing more stringent regulations would certainly help prevent the recurrence of a similar crisis again in the future, agreement must be reached now to minimize the damage from the existing crisis before re-focusing on the future.

Unfortunately a joint, coordinated level of cooperation appears unlikely as each of the G-7 nations is facing different economic problems and a one size fits all approach will not work. In the United States, the economy is slowing rapidly and the threat of recession is looming, while in Europe inflation seems to be the overriding concern as they are facing the worst rate of inflation in over 15 years. Given this backdrop, it is unlikely that coordinated monetary and fiscal policies could be effectively applied. However looking toward the future, agreement could be reached on issues of improving the level of multi-national cooperation in both monitoring and regulating the financial markets. Agreement may also be reached in implementing new levels of financial transparency along with the disclosure of losses and raising the over all capital requirements. Steps which could be taken jointly now by the central banks, include lending to foreign banks as well as following the path of the U.S. Fed in lending shorter term government securities and acquiring mortgage-backed assets. ERATE is an excellent source to find the lowest mortgage rates in your state for nearly all loan programs.

Expansion of FHASecure Program Proposed

With over 8.5 million homeowners having virtually little to no equity in their homes, fears of mounting foreclosures continue to grow. In response to the problem, the White House has proposed expanding a program which has been in place since August of 2007 to help stem the tide. This existing Federal Housing Administration (FHA) program makes it possible for many low to moderate income borrowers to refinance into government-insured mortgages, resulting in more manageable monthly payments and helping almost 100,000 homeowners by expanding the role of FHA in dealing with the nationwide credit and housing crisis. FHA loans are insured by the federal government in cases of default though the mortgages themselves are made by private mortgage lenders such commercial banks and mortgage bankers, then after the loans have funded, they are bundled, packaged and sold as mortgage-backed securities known as Ginnie Mae's.

The program, called FHASecure, was established last year to help homeowners in distress who had some equity remaining in their home and had been able to make their mortgage payment but would face a substantial rate increase in the process of refinancing into a government insured fixed rate mortgage. Therefore the program was geared to help borrowers who were stuck in adjustable rate loans (ARMs) and were able to meet their payment obligation up until the point that their interest rate reset higher. About 150,000 homeowners have been able to refinance under FHASecure and the program is projected to reach an additional 400,000 by year's end. Under the new expanded rules proposed, a borrower would be eligible for a refinanced FHA loan even if they were delinquent in making several mortgage payments. With home prices on the decline now in many areas of the country, concessions would be required by both lenders and investors of mortgage-backed securities, because without a reduction in the principal balance owed on the mortgage, a borrower would be left in the position of having to come up with 3% equity in order to refinance. Naturally for an already financially stressed and cash strapped borrower this is not feasible and refinancing is not possible with out agreement by all parties on a reduction of the principal balance. It appears to be the judgment of the Bush Administration that it is the lender and the investor who should bear the responsibility for doing this rather than asking the U.S. taxpayer to assume the burden. Excellent source to find your lowest mortgage rates.

Senate Passes Contentious Housing Package; Bush Offers Own Plan

A bipartisan package offering assistance to businesses and homeowners hurt by the housing crisis passed the Senate today with an impressive 84-12 vote.

The plan includes large tax breaks for homebuilders, a $7,000 tax credit for buyers of foreclosed properties, and $4 billion in grants to buy and improve abandoned homes. The bill also includes $150 billion in pre-foreclosure counseling and stronger loan disclosure requirements. Finally, it includes $10 billion in tax-free mortgage revenue bonds to help homeowners refinance subprime loans.

Despite the show of support, the bill has many detractors including the House and the Bush Administration. Opponents claim the package is biased in favor of businesses instead of homeowners and bails out lenders with taxpayer money. They contend the tax credit for the purchase of foreclosed homes will unfairly reward purchases happening anyway, give banks an incentive for foreclosure, and depress home values. The House will likely reject key points in the package.

Another key sticking point seems to be the $25 billion tax break offered to homebuilders and other businesses experiencing heavy losses. The tax break was dropped from an earlier bill after criticism, but was added to this package after increasing worries among the public and policymakers about the housing crisis.
The Bush administration offered its own proposal on Wednesday. This narrower plan aims to rescue 100,000 homeowners at risk of foreclosure with relaxed government-backed loans standards and increased loan forgiveness.

Subprime borrowers who have missed two or three mortgage payments will be eligible for assistance from the Federal Housing Administration. More specifically, borrowers who have missed two payments and have at least 3 percent equity, and those who have missed three payments with 10 percent equity, would be eligible. Lenders will be encouraged to forgive portions of some loans and enable refinancing.

The plan drew immediate criticism from consumer groups, who said the small measures would do little to help homeowners with no equity and the millions of homeowners facing resetting loans and foreclosure.

Washington Post Article:
Scant Support for Senate Housing Bill

White House Presents Plan To Aid Subprime Borrowers

Bernanke Talks Recession; Groups Oppose Treasury Plan

Confirming what many in the industry and throughout the country already believe, Federal Reserve Chairman Ben Bernanke suggested this week that the U.S. might be in a recession.

In comments to the congressional Joint Economic Committee, Bernanke projected the economy could shrink and contract during the first half of this year. He couched his first use of the term "recession" with optimism, saying he expects growth in the second half of the year, and thinks 2009 will be solid on the basis of the recent interest rate cuts and the fiscal stimulus package.

Bernanke outlined the issues that contribute to his assessment of recession, including a stagnant unemployment rate, decelerating consumer spending, tighter credit, and reduction in business prospects and spending.

Analysts believed the Fed Chair's comments explained some of the unprecedented actions in recent weeks, including continuing interest rate cuts and an intervention to save Bear Stearns from bankruptcy. Bernanke claimed the move to help the Wall Street company is a direct motion to preserve credit and financial solvency for the country.

Bernanke's comments came as opposition grows to the Treasury plan to overhaul the nation's financial regulatory structure in attempts to streamline government response to such crises in the future.

The plan, released this week by Treasury Secretary Henry M. Paulson Jr., offers up a wholly revamped system of regulation in the coming decade, correcting the oversight mistakes that led to today's current crisis. The Treasury hopes to create three more powerful agencies to monitor and oversee banking, market stability, and consumer and investor protection in mortgage lending and other activities. Another goal is to ease the approval process from the Securities and Exchange Commission for mortgage-backed bonds, so oversight is more complete. Eventually the SEC would merge with the Commodity Futures Trading Commission. Finally, the plan also grows the role of the Treasury into chief regulator of financial markets.

The mounting opposition (from lobbyists and members of the Bush administration) contends the plan is too widespread, shutting down longtime financial institutions. Banks could have less choice among regulators and credit unions could be placed under new, business-killing regulations. The SEC and CFTC are crying foul about their major overhauls. Finally, many opponents are questioning the wisdom of centralizing regulation into the Treasury, and the benefits of it for the greater economy.

Washington Post Article:
It Might Be a Recession, Fed Chief Tells Congress?
Opposition To Treasury's Blueprint Gains Steam

Insurance Losses Due to Sub-prime Top Those of Natural Disasters

Insurers are now faced with the prospect of having to hold onto mortgage-backed securities in a market where buyers for such investments have all but disappeared. Without buyers it is difficult if not impossible to establish value and on that basis a ripple effect throughout the entire organization occurs without hope of a turnaround. There is much doubt as to whether significant portions of mortgage-backed debt will ever reach maturity unscathed. The continually unfolding developments resulting from the mortgage meltdown are forecast by many within the industry to ultimately produce a bigger hit to insurers than any of the previous natural disasters. Losses resulting from mortgage-backed securities continue to be revised upward from all initial estimates with no end in sight. And for the first time since the late 1990's the book value of 24 companies within the KBW Insurance Index actually declined.

Total industry losses currently exceed $38 billion and that is not where things will likely end. As auditors continue to process the financial standings of the insurers, many are found to have underestimated their losses and incorrectly valued their holdings. Many portfolio managers are now being advised to carefully weigh the credit quality of all that is purchased to insure each acquisition can safely be held to maturity. Markdowns on many of the now defunct mortgage-backed assets will continue to occur as the assets supporting them, namely home values, continue to decline. It is difficult to project when a bottom will be reached and the course reversed as many insurers may continue with write downs resulting in losses spanning the next five years.

Consumer Confidence Lowest Since 2003

A slumping housing market and skyrocketing gas prices have pushed consumer confidence to a five-year low.

The Conference Board, a business-backed research group, reported Tuesday a Consumer Confidence Index score of 64.5 for March, a drop from the score of 76.4 in February. The March score is far below the 73.0 expected by analysts, and is the worst since March 2003, prior to the U.S. invasion of Iraq. The score then was 61.4.

The Consumer Confidence Index has shown a pattern of decline since July of 2007. The Conference Board and industry analysts predict sagging consumer confidence will continue, deriving from a depressed job market, uncertain business conditions, and the credit crunch.

Weakened consumer confidence is an important factor in determining the overall strength of the economy, and the outlook for the future. Lower confidence usually translates to reduced consumer spending. Less money pumping in from consumers will further damage the sputtering economy.

The Conference Board also reported steep declines in companion indexes. The present situation index dropped to 89.2 in March, a slump from 104.0 in February. The expectations index dropped to 47.9, the lowest score in 35 years. Contributing to this index score is a growing number of consumers who are pessimistic about business conditions, expecting them to worsen in the next six months. Consumers also expect fewer jobs to be created during this time.

These reports also came with new data on the freefall in home prices. Standard & Poor's/Case-Shiller home price index reported the biggest drop in U.S. home prices in over 20 years. Prices fell 11.4 percent in January, the largest decline since 1987, when the index was first collected.

Taken with the prices from the last 19 months, the recent drop shows a pattern of over a year and a half of declining or slowly growing home prices.

Figures like these are encouraging some analysts to announce the existence of a recession. Many policymakers, government members and economists have been reluctant to suggest a recession is here, but others contend it's already arrived.

Washington Post Article

Is the Fed Rate Cut What the Housing Doctor Ordered?

Source: Informa Research Services

Today, the U.S. Federal Reserve slashed the discount rate by 75 basis points down to 2.25%. But how does the Fed rate cut affect you and your search for a new home? Is the Fed rate cut the miracle elixir to cure the housing market pain?

When the Fed makes a rate cut, it actually doesn't affect consumers directly since the Fed funds rate is the rate that financial institutions are charged for overnight loans to fulfill reserve funding requirements. However, this does affect consumers indirectly by allowing financial institutions to offer more financing options, possibly at lower rates.

The Fed cut should not directly affect fixed rate mortgages, but it can have a more immediate impact on short term loans, such as adjustable rate mortgages (ARMs). Check online rate comparison tables to stay up to date with rates in this volatile market.

This should be good news for responsible borrowers looking to purchase a home. If home prices either continue to drop or stay put, and more financing options become available, the market may look like a buyers market soon enough.

But if you already own a home, don't fret! The Fed rate cut could mean an opportunity to refinance an existing mortgage at a lower rate or use your equity to fund home improvement projects. However, be aware that some lenders will have set floor rates. These floor rates may be set slightly higher than how the rate is typically calculated, which is prime rate plus a margin. To be sure you are getting a good rate, check convenient home loan equity rate tables.

Fed Working Overtime This Weekend

In order to head off the global market repercussions that a collapse at Bear Stearns would surely have, the Fed worked through the weekend to help facilitate an acquisition deal between Bear Stearns and JPMorgan Chase. Just last Friday the Fed, in conjunction with JPMorgan Chase, worked quickly to save Bear Stearns from the brink of insolvency and over the weekend the Fed made further strides by offering special financing to JPMorgan Chase so it can proceed with an acquisition of Bear Stearns. Many details have yet to be disclosed but it appears that the Fed will fund up to $30 billion of Bear Stearns illiquid mortgage-backed assets and that JPMorgan Chase will acquire the battered 85 year old institution for approximately $236 million. Then as added insurance, the Fed moved to cut the discount rate, that is the interest rate which banks are charged on loans received through their regional Federal Reserve Bank's discount window, from 3.50% to 3.25%. It is hoped this move will help prevent the deepening crisis from spreading even further as financial markets re-open on Monday. The Fed is also expected to cut the fed funds rate, that is the interest rate which banks charge each other for overnight loans, when it holds its scheduled FOMC meeting this coming Tuesday and Wednesday.
To find some of the Lowest Mortgage Rates click the map on our homepage.

Fed Pulls Out Depression Era Stops in an Effort to Save Bear Stearns

The hits just keep coming for the Fed as things continue to go from bad to worse as they are forced to utilize provisions not employed since the Great Depression in order to rescue beleaguered Bear Stearns from insolvency. The nation's fifth largest investment bank has been struggling on life support as a result of problems related to wide-spread losses incurred by mortgage-backed securities. Bear Stearns was amongst the first to disclose mortgage related problems in the summer of 2007 when several of its hedge funds collapsed; it has amassed up to $2.75 billion in write-downs to date. The situation snowballed as rumors of insolven