Bloomberg News

Dec. 31 (Bloomberg) — Mortgage applications in the U.S. last week reached a five-year high as borrowing costs slid.

The Mortgage Bankers Association’s index of applications to purchase a home or refinance a loan rose to 1,245.7, the highest level since 2003, from the prior week’s 1,245.4. The group’s purchase gauge climbed 1.4 percent and the refinancing measure fell 0.4 percent.

The drop in borrowing costs, sparked in part by the Federal Reserve’s plan to buy mortgage-backed securities, is the lone bright spot in a market plagued by record foreclosures and plunging home values. While lower rates will help owners reduce monthly payments, they have yet to stimulated sales, indicating the housing slump will persist for a fourth year.

“We’ve seen a bit of recovery in mortgage applications as borrowing costs are easing,” John Herrmann, president of Herrmann Forecasting LLC in Summit, New Jersey, said before the report. “The housing market has not yet reached a bottom. Sales and prices will continue to grind lower into next year.”

The Fed in November announced a program to reduce the cost and increase the availability of credit for homebuyers. Yesterday, the central bank selected four firms to manage a $500 billion purchase of mortgage-backed securities, to be completed by June. Only fixed-rate agency mortgage-backed securities guaranteed by Fannie Mae, Freddie Mac, and Ginnie Mae are eligible assets for the program, the Fed said.

The mortgage bankers’ purchase index increased to 320.9 last week, from 316.5 the prior week. The measure reached an eight- year low of 248.5 in mid November and peaked at a record 529.3 in June 2005.

Refinancing

The refinancing gauge decreased to 6,733.8 from the prior week’s five-year high of 6,758.6.

The average rate on a 30-year fixed-rate loan dropped to 5.03 percent, the second-lowest level since records began in 1990, from 5.04 percent the prior week. At the current rate, monthly borrowing costs for each $100,000 of a loan would be about $539, or $91 less than the end of October, when the rate was 6.47 percent.

The share of applicants seeking to refinance loans slid to 82.9 percent of total applications, from a record 83.2 percent the prior week.

Today’s report also showed the average rate on a 15-year fixed mortgage decreased to 4.79 percent, the lowest level since March 2004, from 4.91 percent the prior week. The rate on a one- year adjustable mortgage dropped to 6.15 percent from 6.36 percent.

Mounting foreclosures and slumping sales are accelerating the drop in property values. Home prices in 20 major U.S. cities declined 18 percent in October from the same month last year, the most on record, the S&P/Case-Shiller index showed yesterday.

The Washington-based Mortgage Bankers Association’s loan survey, compiled every week since 1990, covers about half of all U.S. retail residential mortgage originations.

To contact the reporter on this story: Shobhana Chandra

Foreclosure postings for the upcoming Jan. 9 auction are up in four Central Texas counties, with double-digit spikes in Travis, Bastrop and Williamson counties..

The elevated numbers for those and some other Texas counties are “somewhat surprising, since (mortgage giants) Fannie Mae and Freddie Mac had pledged to suspend foreclosure sales on occupied single-family homes until Jan. 9,” said George Roddy Sr., president of Foreclosure Listing Service Inc., the Addison-based firm that tracks the numbers.

Postings for January are up 73 percent in Bastrop County compared with a year ago, followed by increases of 58 percent in Travis County, 50 percent in Williamson County and 9 percent in Hays County. Roddy said recently that he thinks foreclosures have “pretty much peaked in Texas.”

Bonnie Brown, vice president of Foreclosure Listing Service, said she is at a loss to explain the spikes. She said about 75 to 80 percent of Fannie Mae and Freddie Mac foreclosure postings involve owner-occupied homes, leaving only 20 to 25 percent that could be foreclosed with the moratorium in effect.

“There’s obviously been no easing in the postings regarding the delinquent loans,” Brown said.

Brown said one theory is that lenders may be overloaded.

Although lenders have been encouraged to work with homeowners who are falling behind on their mortgages, and many are trying to, she said, “there’s simply such a large number of homeowners requesting loan modifications that the lenders, I think, are overwhelmed. And instead of being able to get answers to the borrowers about their loan modification requests, it’s taking six months and longer in many cases.”

In one case, a homeowner in the Denton area requested a loan modification in May, Brown said. The owner sent in all the required documentation, but didn’t hear back from the lender until October, with a letter saying her request had been accepted and paperwork outlining the new terms. A new loan was to go into effect Nov. 1, Brown said.

Yet, Brown said, the homeowner ” is still getting letters dunning her for the old monthly amount.”

“These lending institution are geared to make new loans, not to have these high delinquency rates,” Brown said. “And now they’re having to handle a large volume of requests to modify loans,” which she said involve ” a tremendous amount of paperwork.”

In the following press release Texas Attorney General Greg Abbott and state Sen. Craig Estes (Wichita Falls) announced a legislative initiative that will help protect Texas homeowners from foreclosure rescue scams. If enacted, the proposal would enhance the Attorney General’s enforcement authority, provide new protections for homeowners, and place new restrictions on foreclosure prevention consultants.

“At a time when regulators, policy makers and stakeholders are working to help struggling families, unscrupulous operators are scheming to profiteer at homeowners’ expense,” Attorney General Abbott said. “Too many scam artists attempt to target homeowners with large fees and the false promise that they could help Texans avoid foreclosure on their homes. The legislation that Senator Estes and I encourage the Legislature to pass would give the Office of the Attorney General increased authority to crack down on these unlawful foreclosure rescue scams.”

Media Links

View Video of News Conference

Final judgment against Abell Mediation, Inc.

The Foreclosure Rescue Fraud Prevention Act would require foreclosure prevention consultants to provide customers a written, plain language contract memorializing their services agreement. It would also require that these consultants obtain their customers’ written consent, in the form of a signature, before beginning any services or accepting any fees. An additional requirement mandates a written disclosure statement instructing homeowners to contact an attorney or a housing counselor before signing mortgage rescue agreements.

“While most homeowners may never feel the threat of home foreclosure, it is an issue that can impact all of us when it strikes our neighbors, friends, and family,” Sen. Estes said. “This morning I filed the Foreclosure Rescue Fraud Prevention Act, which was drafted in coordination with the Attorney General’s office. This issue has impacted constituents in my district and across the state, we are here today to send a very clear signal that these actions by unscrupulous mortgage foreclosure consultants will not be tolerated.”

The written agreements mandated by the proposed law would apply to both foreclosure prevention consulting and equity purchase contracts. Both types of agreements would have to include plain language cancellation procedures.

In addition to new disclosure requirements, the proposal would place new limits on equity purchase agreements. To protect Texans’ interest in their homes, the law would require equity purchase agreement buyers to pay at least 82 percent of the property’s fair market value.

The Foreclosure Rescue Fraud Prevention Act would give the OAG expanded authority to crack down on mortgage rescue fraud scams under the Texas Deceptive Trade Practices Act.

Foreclosure rescue scams prey upon people who have fallen behind on their mortgages and face foreclosure. Using notices that mortgage lenders publish before foreclosing on homes, the scam identifies potential victims who are promised help avoiding foreclosure. These scams are often marketed as “foreclosure consultants” or “mortgage consultants,” and their businesses as a “foreclosure service” or “foreclosure rescue agency.” But, instead of providing the services promised, the scams take homeowners’ money, ruin their credit record, and wipe out the hard-earned equity victims built up in their homes.

When announcing today’s legislative proposal, Attorney General Abbott revealed the results of a recent enforcement action against a mortgage rescue fraud scheme.

Arizona-based Abell Mediation, Inc., and its president and vice-president, Elizabeth Cory and Michael Cory, respectively, were charged with fraudulently claiming that their company could save homeowners from imminent foreclosure. Homeowners who were delinquent on mortgage payments responded to the defendants’ solicitation cards and Web site. The defendants’ cards claimed that “Abell Mediation, Inc. has saved over 7,000 homes from foreclosure,” boasted about a “staff of highly trained loss mitigation specialists” with established relationships with mortgage lenders and banks nationwide and promised to “achieve results that no one else can.”

Under an agreement secured by the Attorney General, the defendants are permanently enjoined from conducting a foreclosure mitigation business in the future. The defendant is also required to pay a total of $1.55 million in fines, restitution and attorneys’ fees.

Texas homeowners who believe they have been targeted by a mortgage-related scam should contact the Office of the Attorney General at (800) 252-8011 or file a complaint online at www.texasattorneygeneral.gov.

Lately there has been talk about the 4.5% 30-year fixed rate mortgage. Will it become a reality though? Right now, no one really knows. Homeowners who could benefit from a lower interest rate need to know that even if 4.5% becomes a reality from Washington’s actions, it would only be available to home buyers, not homeowners seeking to better their rate. If you need to refinance, you will be left out.

You also may have heard about Hope for Homeowners, which is a program approved by legislators to help distressed homeowners. However, regardless of its best intentions, the program has not been embraced by investors, and it is not available to many it could help.

The bottom line is, the Fed announced recently that they are going to buy up to $600 billion in mortgage-backed securities. This has already driven rates to historical lows. In January, the SEC is meeting and information may be released that could have a significant bearing on rates, potentially for the worse.

Waiting to obtain the best rate is only possible for those with loan applications already in process. Interest rates are incredibly volatile and fluctuations that used to take months are now occurring in just days or even hours. If you don’t have an application in process, you could lose out.

We are already seeing lender backlog due to low interest rates. In 2003, with rates at these same low levels, we saw some lenders taking up to 90 days to close a loan.

Home loan rates are currently in the mid- to low-5% range. Home values are currently at 2003-2004 levels, coming down significantly from their high point. If you–or friends and family members you know–are contemplating seeking financing, now is the time to act.

With a first time home buyer tax credit of up to $7,500 and low or no money down programs available for many people today, now is a great time to buy a home.

If you have any questions about how we can help you, call us today.

Sincerely,

Nancy Baier
Benchmark Mortgage
(512) 986-4124

Take the following paragraph from a lead AP article last week:

http://www.amarillo.com/stories/121308/bus_12016280.shtml

WASHINGTON – Consumers reduced their spending at retail stores again in November while the costs of goods before they reach store shelves also continued to drop, more bad signs in a recession that appears to be deepening. Businesses also cut their inventories by the largest amount in five years, the government said Friday, a sign the recession will force further cuts in production.

Depending on how you interpret the above paragraph, will determine how you react to it. Effectively it says prices are coming down on the shelves of America and Americans are saving more (if spending less) of their hard earned dollars, and business is responding quickly to consumer behavior.  The remainder of the article projects the ramifications in the economy if this behavior persists. I don’t know about you, but I’ve cut every ounce of fat I can out of my budget, and I will cut muscle if necessary to maintain budgetary order at home. I guess I’m part  of the problem!  Americans are the most under saved people on the planet, literally, yet lay claim to the largest most dynamic economy in the history of economy!  It’s about time we begin to save a little more and spend a little less, isn’t it?

Sure, Americans will loose jobs. Hardship will follow. Psychiatrists are warning that many Americans have fended off depression with their luxury purchases, and predict depression cases will soar in the coming months. If restrictive buying behavior persists the recession will deepen in proportion to how long consumers withhold their dollars from the marketplace. People may have to be retrained and reeducated. Our economy will adapt as consumers dictate what is and is not worthy of their money.

If current consumer behavior continues, or Heaven forbid, becomes an adopted discipline with Americans, what might be some long term effects we will endure.

1) We will buy what we need

2) We will buy what we can afford

3) We will have less credit card debt

4) We will have a choice to help others less fortunate as they re-acclimate into the job market

5) We may be healthier (Less eating out, less stress over debt, less me me me-ing)

6) Less demand for county dump sites…ok…this is one of my Jayism zingers…….My theory: As Americans, we spend inordinate amounts of money for “stuff”. Our spending behavior for this “stuff” is fueled by our personal insecurities and unquenchable desire for peer approval. This “stuff” after a short period of time invariably ends up at the county dump. Last time I dropped a load of of my own “stuff” at the county dump, I noticed, no kidding here, a Cabbage Patch Doll mushed in with all the dump refuse.  As some of you will remember, people in the ’80’s were willing to pay hundreds of dollars in the Cabbage Patch rage days for one of these dolls. Another expression of love I suppose for a loved one, none the less after a time, tossed to the endless junk pile of excesses. Only in America!

7) Our Children will learn the value of the dollar bill and discover a self respect that comes with hard work and accomplishment.

8) We could discover just how much we DON”T need to have meaning, contentment and purpose in life.

9) Retirement may actually be attainable

10) In good conscience, after experiencing the fruits of budgetary constraint, we may vote leaders into office that platform fiscal responsibility, balanced budgets and expose porkers to the populous that will in turn vote them out.

To think that the sustainability of our country’s world economic dominance hinges on how often the average American goes to the Mall, is appalling. (Consumer spending accounts for roughly 67% of our GNP)  If Visa and Master Card rethink their respective credit models, our country may have to File Chapter 11. Can’t you hear it one day, Grandpa, how did America become a great economic power……….Well, Grandson, you know that Walmart down the road….here’s a fifty, go get you some stuff! When your grow tired of it, and you will,  there’s a dump outside of town, Jay’s Junk, throw it away there and earn Retail Bonus Coupon Points at your favorite discount outlets, Saturdays are daily doubles. America is counting on you!

All kidding aside, maybe there is a silver lining, a blessing of sorts for each of us, in the coming recession in America…………….Let’s hope so.

The Sunset Advisory Commission late Tuesday voted not to abolish the controversial state agency that polices homebuilders and investigates consumer complaints about shoddy construction, after years of complaints that the agency has become a tool of the industry it is supposed to regulate.

But commission members made it clear they want the Texas Residential Construction Commission to start doing a better job, recommending that complaints be resolved within 105 days and giving the agency more authority to revoke or suspend homebuilders’ licenses.

A staff report made public months ago had recommended that the agency be abolished, arguing that it has been ineffective in policing the homebuilding industry amid consumer complaints that it is controlled by builders. The sunset commission recommendation will go to the Legislature for debate next month.

Article originally published by the Austin American Statesman

By Ed Hewitt, Features Editor

This Season Could be one of the Most Challenging Yet!!

The NY Times

Five or 10 years from now, when the financial crisis has ended and housing prices are up smartly once more, we will look in the rearview mirror and realize that we missed a golden age for first-time home buyers.

Then, everyone who sat on their down payment savings accounts for a few years too long will kick themselves for not taking advantage of what may turn out to be the buying opportunity of a lifetime for those who can qualify for a mortgage.

Unfortunately, we do not know when this golden age will begin, because we will be able to identify a bottom to the housing market only with the benefit of hindsight. But as it does with the stock market, the moment will probably arrive when everyone is feeling the most pessimistic.

That moment is certainly getting closer. Housing prices have fallen drastically from their peak levels in many areas of the country. Rates on 30-year fixed-rate mortgages are already close to 5.5 percent, and this week there were suggestions that the federal government might try to drive them down to 4.5 percent, a truly incredible figure to be able to lock in for three decades.

Meanwhile, first-time home buyers have the same advantage they have always had, which is that they do not have to sell their old place before buying a new one. That is an added advantage in areas where many available houses simply are not moving, because the people trying to sell them will not be bidding against you.

If you’re hoping for a recovery in the housing market, you ought to be cheering on the first-time home buyers. When they purchase homes, their sellers are free to move on or move up, stimulating further sales.

But if you are a potential first-time buyer yourself, or lending or giving the down payment to one, you are probably as frightened as you are tempted by all the “For Sale” signs that have become “On Sale” signs. So let’s quickly review some of the still-grim pricing data in certain areas — and consider the reasoning offered up by first-time buyers who have forged ahead anyhow.

As is always the case with real estate, much depends on location. One study, “The Changing Prospects for Building Home Equity,” tries to predict where today’s first-time buyers in the 100 biggest metropolitan areas may actually have less home equity by 2012 as a result of continued price declines. The verdict was that buyers in 33 of the markets could see a decline by 2012, including potential six-figure drops on an average home in the New York City, Los Angeles, San Francisco and Seattle metropolitan areas.

This is obviously scary. (I’ve linked to the study, a joint effort of the Center for Economic and Policy Research and the National Low Income Housing Coalition, from the version of this article at nytimes.com/yourmoney.) It’s worth noting, however, that these predictions came before the government made its most recent move to reduce borrowing costs.

Also, the price projections in the study are based, in part, on the fact that the ratio of purchase prices to annual rents is still higher in many areas than the historical average, which is roughly 15 times rents. While past figures may well have some predictive value, I have never been convinced that first-time buyers compare a home that they could own and one that they would rent in purely or even primarily economic terms.

When Jaime and Michael Proman moved this fall to Minneapolis, his hometown, from New York City, they craved a different sort of life after two years together in a 450-square-foot studio apartment. “We didn’t want a sterile apartment feel,” said Mr. Proman, who is 28 (his wife is 26). “We wanted something that was permanent and very much a reflection of us.”

The fact is, in many parts of the country there are few if any attractive rentals for people looking to put down roots and enjoy the sort of amenities they may spot on cable television home improvement shows. Comparing a rental with a place that you may own seems almost pointless in these situations, especially for those who are now grown up enough to want to make their own decisions about décor without consulting the landlord.

Still, for anyone feeling the urge to buy, a number of practical considerations have changed in the last year or two. The basics are back, like spending no more than 28 percent of your pretax income on mortgage payments, taxes and insurance. Even if a lender does not hold you to this when you go in for preapproval, you should hold yourself to it.

You will also want to start now on any project to improve your credit score because it may take several months to get it above the 720 level that qualifies you for many of the best mortgage rates.

John Ulzheimer, president of consumer education for credit.com, a consumer credit information and application site, suggests starting to pay down and put away credit cards months before you apply for a loan. That is because the credit scoring system could penalize you if you use a lot of credit each month, even if you always pay in full. Also, check your three credit reports (it’s free) at annualcreditreport.com and dispute errors.

While no one can easily predict the likelihood of losing a job, Friday’s startling unemployment figures suggest the need for caution if you think you might be vulnerable. A. C. Panella, who teaches communications at Pasadena City College in California, waited until she had a tenure-track job before buying a home in the Highland Park section of Los Angeles with her partner, Amy Goldman, a lawyer for a nonprofit organization. “We could afford the mortgage payment on one salary, were something to come up,” Ms. Panella, 31, said. “It’s really about being able to stay within our means.”

For many first-time home buyers, that philosophy stretches to the down payment, too. Ms. Panella and her partner put down 20 percent when they bought their home in September, as did the Promans when they bought their home in the Lowry Hill neighborhood of Minneapolis.

Alison Nowak, 29, put just 3 percent down on a Federal Housing Administration-backed loan last month when she and her partner, Lacey Mamak, bought a $149,900, 800-square-foot home several miles south of where the Promans live. “Anything that is an opportunity also has a bit of risk,” she said. Her house was in foreclosure before a plumber bought it and fixed it up. “One way we mitigated it was that we bought a really tiny house in a very good neighborhood.”

One other strategy might be to buy new instead of used. Ian Shepherdson, chief United States economist for the research firm High Frequency Economics, says he believes that a steep drop-off in inventory of new homes is coming soon, thanks to a rapid decrease in home builder activity.

Since prices generally soften in the winter, it may make sense to start looking seriously once the mercury bottoms out. “If you look at new developments next spring, you may not have the choice you thought you would have or be in the bargaining position you thought you would be,” Mr. Shepherdson said. Also, if you wait after June 30, you will miss out on a $7,500 federal tax credit for income-eligible first-time home buyers that works like an interest-free loan.

Finally, allow yourself to consider how it would feel if you bought and then prices dropped another 10 or 15 percent. It might not bother you if you plan to stick around. Plenty of people seem to be making a longer commitment to their homes. According to a survey that the National Association of Realtors released last month, typical first-time buyers plan to stay in their home 10 years, up from 7 last year.

Perhaps people are more aware that they will not be able to build equity as rapidly as others did in the real estate boom. Or they simply have more confidence in hard, hometown assets now than in other markets.

“We wouldn’t let another decline bother us,” said Michael Proman. “You can never time a bottom. This is a long-term investment for us, and it truly is the best investment we have in our portfolio right now.”

Read Original Article in The NY Times