Thursday, December 4, 2008

Foreclosure Forecast and Bernanke Finally "Gets It" -- 2 Years Too Late

Lenders appear to be on track to initiate 2.25 million foreclosures this year, up from an average annual pace of less than 1 million during the pre-crisis period, he said.

To provide additional relief, Bernanke outlined a number of what he called "promising options" to reduce preventable foreclosures.

Under one plan, Bernanke called on Congress to ease the terms of a government program called "Hope for Homeowners," which lets distressed homeowners refinance into more affordable, federally insured mortgages if the lender writes down the amount owed on the mortgage and pays an upfront insurance premium.

Bernanke suggested Congress lower lender's upfront insurance premium as well as reducing the interest rate borrowers pay, which presently is quite high, roughly 8 percent. To bring down this interest rate, Treasury could buy Ginnie Mae securities, which fund the mortgage program, or Congress could decide to subsidize the rate.

Another option would ease the terms of a loan-modification plan put forward by the Federal Deposit Insurance Corp. that seeks to make monthly mortgage payments more affordable. The FDIC put this plan into effect at IndyMac Bank, a large savings and loan that failed earlier this year, and has used it to modify mortgages at other financial institutions.

Under the so-called IndyMac plan, struggling home borrowers pay interest rates of about 3 percent for five years.

Rates are reduced so that borrowers aren't paying more than 38 percent of their pretax income on housing.

Bernanke suggested this threshold could be lowered to perhaps 31 percent of income, with the government sharing some of the cost.

Yet another option would have the government purchase delinquent or at-risk mortgages in bulk and then refinance them into the "Hope for Homeowners" or another government program that insures home mortgages.

Other options include a broader push for lenders to forgive a portion of the home loan for certain borrowers, and other permanent modifications over the longer term so that people don't fall back into distress again.

The housing crisis has driven up foreclosures and forced financial companies to take massive losses on soured mortgage investments. The housing debacle touched off the worst financial crisis since the 1930s that Bernanke and Treasury Secretary Henry Paulson have been desperately trying to bring under control.

All the fallout has plunged the country into a painful recession.

*****Bernanke stressed the importance of curbing the foreclosure mess because it is so inter-linked with the economy's health.*****

"Weakness in the housing market has proved a serious drag on overall economic activity," he said.

(Comment - Gee Ben - no kidding. Why didn't you have the rate drop program put into place back in early 2006 - when you should have? You finally "get it" - 2 years later...)

Paulson and his colleagues within the Bush administration have come under fire by Democrats and some Republicans for not doing enough to help Americans at risk of losing their homes.

Paulson has been opposed to tapping the bailout pool to fund a mortgage-relief program championed by FDIC chief Sheila Bair. The $24 billion FDIC plan would use some of the rescue money to help back refinanced mortgages that would lower monthly payments.

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Wednesday, December 3, 2008

Kimbell Hill Homes - Rolling Meadows Going Out of Business

Kimball Hill Homes announced today that it was going out of business.

Kimball Hill Homes, the Rolling Meadows-based home builder that has operated under Chapter 11 bankruptcy protection since April, said late Tuesday that it would wind down its operations after failing to find a buyer.

The 400-employee company, which has been a prominent player in the west and northwest suburban Chicago housing market, has a significant presence in California and four other states. Kimball pulled out of the troubled Florida market earlier this year. A year ago, it had 1,100 employeesIt will refund the earnest money to buyers with whom it has written contracts but has not started construction.

Some 700 homes are in various stages of completion around the country. Locally - 150.

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Mortgage Applications Surge

Mortgage applications are way up -- suggesting that more buyers are coming into the market. I know that we are pretty busy - with more clients than normal for this time of year. But - buyers are taking longer to decide - on average.

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Monday, December 1, 2008

homeless shelters need your donations in lake and cook county illinois

As the weather turns wintry, Chicago suburban homeless shelters are preparing for what's expected to be a record-setting demand for services.

For many PADS organizations, the not-for-profit groups that run shelters and other services for homeless people throughout the Chicago area, the 2008 fiscal year was their all-time busiest.

But because of rising unemployment, the foreclosure crisis and other worsening economic factors, PADS representatives predict the current fiscal year, which began this summer, will be worse.

With temperatures dropping in recent weeks, more people are turning to PADS shelters for warmth and safety.

Cedric Lee, is community outreach director of Lake County's PADS Crisis Services - and sees numbers up.

Scott Block, is division director with McHenry County PADS. His agency operates seven shelter sites at area churches, with one open each night of the week, between October and April, and a year-round day center with additional beds for emergencies.

There's room for about 50 people each night - and they've found themselves out of space already this season.

During the 2008 fiscal year, McHenry County PADS served about 400 homeless men, women and children - a record for the group. The agency is on pace to exceed that total in 2009.

Dennis Hewitt, is executive director of PADS of Elgin, which operates a single year-round shelter in that city for residents of Dundee, Elgin and Hanover townships.

Most people who lose their homes first rely on friends or family for shelter. Then people turn to churches and social-service groups to help them get by temporarily. When those wells run dry, people turn to PADS.

DuPage PADS operates three shelters every night, at rotating sites throughout that county. Maximum capacity is 140 people.

The number of people seeking shelter through DuPage PADS in October was 37 percent greater than it was a year earlier, Executive Director Carol Simler said. She attributes the increase to people with low-paying jobs who saw their hours cut and no longer could afford rent.

During the last fiscal year, Lake County PADS served 787 adults and 114 children. This year, Lee expects more than 850 adults and at least 150 children will seek emergency shelter at his group's 14 rotating shelters and one permanent site.

Demand typically peaks in January,

Donations of goods are appreciated. But cash gifts are needed, too, so organizers can buy specific things that people need that may not be among the donated items.

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the feds talf program and its impact on upcoming mortgage rates

The Federal Reserve's plan to spend $600 billion buying mortgages is driving down lending rates and boosting home affordability, which combined with decreasing inventories may signal a 2009 recovery for the battered home-building sector, some Wall Street analysts said.
My comment --- The Fed's announcement last week pushed rates on 30-year fixed-rate mortgages down - and they are now about 5.5%. I expect they will have to go into the 4's or less - and if I may be radical - perhaps even the 3's to get things really moving again - to counter the glut of foreclosures and tighter lending standards. So - if you are a buyer - now is probably the best time to buy in the history of the US. (You just have to have good credit, a job (fancy that), and a nice downpayment now...)

Many people who had short sales or foreclosures will be out of the market for a number of years....unable to buy. Also - though
lower rates can help borrowers seeking to refinance - many of those may have been "no doc" in the first place - and they won
t have an opportunity to do a "no doc" refinance. So - they are stuck with the loans they have.


The Term Asset-Backed Securities Loan Facility (TALF), may lead to a significant improvement in affordability.
A one percentage-point decline in mortgage rates has the same impact on affordability as a 10% decline in housing prices. However - changes in affordability often take nine months to a year to result in improving home sales.

Under TALF, the Fed plans to buy up to $500 billion of mortgage-backed securities issued by Fannie Mae and
Freddie Mac
and other government-sponsored enterprises, as well as $100 billion of debt.


Credit Suisse estimated that the mortgage payment on the median-price home now represents 16.7% of median household income, down from 21% this past summer, with most of the decline taking place last week after TALF was unveiled.
That's well below the long-term average of 23% from 1981 to 2007, and housing is the most affordable it's been since February 1994 when the mortgage on the median-price home equated to 18% of the median income.

"Importantly, affordability is also returning to attractive levels in key building markets," the analysts said.
"We do not expect a snap-back in sales activity given the negative consumer sentiment toward housing as of late, as consumers are nervous about spending money on what is now generally viewed as a depreciating asset," they wrote. "However, we expect that this improved affordability will help and will likely lead to at least a bottoming of sales in 2009."

After a historic boom in home prices fueled in large part by easy credit, the U.S. residential housing market is caught in the grips of one of the worst downturns in recent memory. There is an enormous overhang of unsold homes on the market that could rise further if foreclosures spike.
Buyers lacking pristine credit scores have had difficulty getting loans, while worries about the health of the overall economy have dampened sentiment. However, falling home prices and lower mortgage rates could finally entice wary buyers.
With some foreclosures selling at rock-bottom prices, Credit Suisse had anticipated an incremental 15% further decline in home prices over the next year, but said the drop-off in mortgage rates could make this figure less.

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Tuesday, November 25, 2008

Finally, Mortgage Interest Rates to Come Down!

Comment -- Finally - at Long Last - Mortgage Rates to Come Down! Everyone had thought that with the government bailing out Fannie and Freddy and guaranteeing those instruments - that rates would come down after that. But they only came down in the few days after that govt action - and then went back up again - and stayed up - until recently - when they have been trending down. Now - rates should trend down even more -- something that has been needed for a long long time to bring more buyers into the market for housing. In my opinion though - it will still take quite some time for an increased foreclosure rate to work itself out. Rates may have to drop into the 4 something percent area for things to really start being absorbed in greater quantity..

Excerpt from a Yahoo Finance Article --

Total bailout commitments, loans and pledges of backing has now neared a staggering $7 trillion. (almost half the US GDP)

(comment - unreal eh?)

Treasury Secretary Henry Paulson, who has been criticized for constantly revising the original $700 billion rescue program, said the administration was considering even more changes in its final two months in office.

Reports on the nation's economic health weren't getting any better. The Commerce Department said the overall economy, as measured by the gross domestic product, declined at an annual rate of 0.5 percent in the July-September quarter, even worse than the initial 0.3 percent estimated a month ago as consumer spending fell by the largest amount in 28 years.

The Federal Reserve will purchase $200 billion in securities backed by different types of debt including credit card loans, auto loans, student loans and loans to small businesses. That market essentially froze in October. These types of loans as a result have become harder to obtain and have carried higher interest rates

The Fed also announced that it would spend $500 billion to purchase mortgage-backed securities guaranteed by mortgage giants Fannie Mae and Freddie Mac and another $100 billion to directly purchase mortgages held by Fannie, Freddie and the Federal Home Loan Banks.

This would greatly expand an initial modest effort announced back in September in which Treasury spent $26 billion to purchase mortgage-backed securities. The current credit crisis was triggered by soaring losses on securities backed by subprime loans.

******Analysts predicted the program could send mortgage rates down by as much as one-half to a full percentage point in coming months, helping to spur demand in the beleaguered housing market, which is suffering its worst downturn in decades.

The programs to buy mortgage-related assets and securities backed by consumer debt have the same aim: to boost demand for those assets. In doing so, the government hopes to lower the costs being charged for consumer loans. That would make loans on everything from mortgages to cars more available.

This is one of the key actions we've been advocating," said Charles McMillan, president of the National Association of Realtors, referring to the purchase program for mortgage-backed assets.

As for Tuesday's actions, the mortgage-backed securities the Fed will buy will be investment-grade assets -- not the toxic mortgage-related assets that the administration initially had said the $700 billion financial rescue program would buy.

By focusing on investment-grade securities, the Fed will be able to help provide a functioning secondary market. It will pay the prices for these securities that are being set by the market. Had the Fed needed to buy bad assets, it would have had to develop a mechanism to properly price assets that weren't being traded.

The use of Fed resources also gets around another problem Treasury faced: a limited amount of money in the program. The $800 billion being committed to buy mortgage-related assets and other assets backed by consumer loans will come from the Federal Reserve's vast resources. It will not count against the $700 billion rescue program.

The Treasury Department also announced Tuesday that the rescue program had spent another $2.91 billion in direct purchases of stock from 23 regional banks around the country. These institutions ranged from HF Financial Corp. in Sioux Falls, S.D., to Centerstate Banks of Florida Inc. in Davenport, Fla.

The government has now injected $161.5 billion in 53 institutions. The goal is to spend $250 billion of the $700 billion bailout fund to buy bank stock as a way of encouraging banks to resume more normal lending to bolster the shaky economy.

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Monday, September 8, 2008

I Believe That if There was Ever a Market Bottom in Real Estate - This is the Mother of All Bottoms...

I think things should pick up for sellers now - due to the govt takeover of Fannie Mae and Freddie Mac on Sunday.

The government just gave potential home buyers and investors a very visible market bottom. (which is going to last for the next month or two at least - as it takes time to absorb inventory)

But if you are a home buyer or investor - and you miss the market bottom - not to worry - there are always very flexible sellers to be found at any time.

Rates just dropped a whopping 3/8 of a percent today to about 5 7/8's. If rates stay low - home prices should not only stabilize - they should start moving up again at some point - as buyers flow into the market.

Are you ready Chicago?

There has never ever in the History of Real Estate in the USA been a better time to buy than right now. You now have an amazing confluence of

low rates and low prices. It doesn't get any better...

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