Silver lining of housing slump: Tax may decline

The Arizona Republic - December 2007

Valley homeowners upset about the fast rise in their property-tax assessments may feel some relief this year as the latest valuation notices hit their mailboxes.

The Maricopa County Assessor's Office says the new round of valuations to be mailed around Feb. 1 will reflect the slump in the housing market. The office, however, would not disclose specifics and emphasized that not all property owners will see a decline in assessed value. Some neighborhoods have held values better through the downturn.

"In some parts of the Valley, values will be flat or maybe increase a little bit," said Paul Petersen, an assessor's spokesman. "It depends on where you are located."

The valuations are important because they are used to calculate the taxes that support such things as cities, school districts, community colleges and other taxing districts.

Consumers hoping for an immediate property-tax reduction will likely be disappointed. Though the valuations come out in February, the payments are billed in 2009.

The lag time is built into the system so property owners can appeal the valuations. Petersen said appeals have increased 25 to 30 percent during the housing boom. The combined median prices of new and existing homes increased 55 percent in the Valley from 2004 through 2006, according to Arizona State University's Realty Studies program.

But the market turned locally and nationally, and home prices fell in more than half of the Valley's ZIP codes in the first eight months of this year, according to The Republic's latest Valley Home Values study.

The valuations being mailed in February will reflect sales data from the third quarter of 2006 to the same quarter of this year. Of course, the market may change a great deal by the time taxpayers write a check for those assessments next year.

"We're always playing catch-up," Petersen said.

Many Valley homeowners, though, are keenly aware of neighborhood price moves, and they balk when they pay taxes based on a market snapshot that's a year old. There was so much aggravation about how values were set during the boom that three initiatives were filed this year with the goal of controlling property taxes. A November poll of county residents indicated that 31 percent think home values are a little too high and 24 percent call prices much too high, according to WestGroup Research of Phoenix.

The valuation notices provide two figures: the full cash value of a house and its limited-property value. The assessor says the full cash value is the current market value of the land and house. It is used to figure secondary taxes for such things as bonds, budget overrides and special districts.
The limited value is the basis for calculating primary taxes that are used to run government and schools. It is based on a formula set by law and can't exceed the full cash value.

The full cash value does not necessarily represent how much the property is worth or could be sold for. That is set by the marketplace.

Kevin McCarthy, president of the Arizona Tax Research Association, said his group advocates that state and local governments reduce tax rates rather than pushing for initiatives it believes would damage public financing. But he said new, reduced valuations in Maricopa County will not reduce angst over the higher tax bills of the past two years.

"Even if there are small reductions, I don't think it will do a lot to alleviate people's fears that taxes will continue to increase," he said.

Framing subcontractor Bob Larson successfully appealed a valuation notice for land he bought in Desert Mountain in north Scottsdale. He bought the land for $105,000 in 2003 but said his first tax bill showed a value of $288,000.

He filed the affidavit of value from the sale with the assessor, and the value on the land was reduced to the sale price. He's not sure what happened but assumed it was a technicality: A pricey golf membership attached to the land was removed before he bought it.

"It wasn't any huge financial hardship, but it's very unfortunate when you buy a property after that appeal time has expired," he said.

Major real estate broker shuts down

azcentral - December 2007

A major Valley real estate broker shut its doors just days before Christmas, leaving 350 agents without a home, and about 20 salaried employees without a job.

RE/MAX 2000, based in Gilbert, is closing its 13 offices around the Valley. An attorney for owner Robert Kline told 12 News Sunday the company was not generating enough sales to meet its expenses because of the Valley's depressed housing market. As for the timing of the closing, attorney Dax Watson said, "We felt it wouldn't be fair to our clients to wait."

Agents were learning the news over the weekend through office managers or a company e-mail. Watson said Friday was the last day of work for the company's 15 to 20 salaried employees.

Bruce Fraser, an agent with RE/MAX 2000 in Gilbert, said Sunday the company held its Christmas party about two weeks ago, and there were no signs the broker was in trouble. "I did not see this coming," he said.

But Fraser said he had already received about a dozen calls Sunday from other brokers looking to hire him.

The 350 RE/MAX 2000 agents are independent contractors. They now have 30 days to find a new broker to work with. Watson says any sales or purchases already under way through RE/MAX 2000 will not be affected, and agents' listings will follow them.

Troubled year for housing in Valley

The Arizona Republic - December 2007

A year ago, Phoenix housing counselor Joann Hauger spent her days helping people buy their first home.

Now, the executive director of non-profit Community Housing Resources of Arizona is swamped with calls from homeowners about to lose their homes.

"So many people were in denial too long," said Hauger, referring to homeowners who took out loans they didn't understand or couldn't afford. "I am afraid the problem is much worse than many people think."

The Valley housing market went on a wild ride in 2007. Home sales slowed to half the pace of 2005's boom level. Listings soared to record highs, and prices dipped almost 10 percent as builders and sellers cut prices to make deals. Mortgage fraud and subprime loans propelled foreclosures to their highest rate since 1990.

Buyers, sellers, real-estate agents and analysts nervously watched and waited for the market to rebound. But by the end of this year, the market had some in Arizona talking about the chances of a recession.

Hauger was on the front lines, where she has stood since 1989 when Community Housing was launched to help people find homes they could afford. From her central Phoenix office, Hauger and her three housing counselors went from helping first-time buyers clean up their credit, find houses and pull together a down payment to fielding calls from people facing foreclosure. Today, the agency receives as many as five calls a day from homeowners about to lose their homes.

Analysts expect the market to turn around in late 2008 or early 2009. But for that to happen, foreclosures must stop climbing, buyers must be able to get loans to buy homes they can afford, and home building must continue to slow. Hauger hopes she's seen the worst.

"Work is not a lot of fun these days," she said. "There are some very sad stories, and there are some people who made bad decisions."


Further slowing

Last December, it was difficult for Hauger's group to find affordable homes for people.

Sales slowed and listings climbed across the Valley, but prices hadn't yet slipped much from the speculator-spurred run-up of 2004-05. Many sellers were still holding out for those inflated prices and the hope that the market would rebound in early 2007.

"People would come to us wanting help purchasing a new home somewhere in one of the Valley's outer suburbs, but they didn't have the income to do it," said Hauger, whose group counsels buyers, cities, lenders and churches, among other groups. "Many didn't like what they heard and went to a mortgage broker who would make the loan."

Lack of regulation among loan officers and loose lending guidelines opened the door for many of the Valley's bad loans, mortgage fraud and the current growing foreclosure rate. All helped drag down home prices.

Business dropped off during the housing boom, and the agency almost shut its doors.

People didn't want to go through counseling or be told they couldn't afford a home when a loan officer was offering them a mortgage with a low initial monthly payment, Hauger said. That angered her.

"We were appalled when we saw what kind of loans people were getting to buy homes last year and the year before," she said. "People would call looking for down-payment help to buy a $300,000 house. We would look at their monthly income and see they should only qualify for a $120,000 loan."

Fraud's fallout

By February, Community Housing began receiving calls for foreclosure help.

But those first calls were people "just fishing," looking for money to catch up on their mortgage instead of help fixing their loan or counseling, Hauger said. Some looking for help were investors who had more than one property in foreclosure but still believed if the market came back in a few months they could sell for a profit.

"When people found out we didn't have the cash to catch them up on their mortgage payments, they didn't call back or come in," Hauger said.

She worried those calls were just the beginning of a problem.

Hope of a quick rebound for the housing market was gone. Home builders offered even more incentives to sell houses already built but sitting empty, and investors began walking away from homes they couldn't rent or sell.

Regulators started to crack down on the Valley's growing mortgage-fraud problem, which involved many speculators. The biggest scam was "cash-back deals": people obtaining a mortgage for more than a home is worth and pocketing the extra cash.

Many were concerned that the fallout from fraud would leave homeowners with overpriced mortgages, neighborhoods with inflated values and too many foreclosures, and lenders with bad loans, all of which would hurt metro Phoenix's real-estate market.

To crack down on fraud, an Arizona mortgage-fraud task force was formed. Legislation was introduced to license as many as 15,000 mortgage originators or loan officers across the state. It didn't pass, but legislation to make mortgage fraud a felony did.

By March, complaints about bad loans flooded into regulators. A new ranking put Arizona at No. 7 among states with the greatest amount of mortgage fraud, blowing past the 23rd spot it held in 2006.

"Some people felt entitled that they should be able to buy even if they didn't have the income," Hauger said. "We saw people getting 'no doc' (no documentation) loans showing they had income that wasn't there. That's fraud, and those loans are bad and can't be fixed."

Hauger's agency worked with a man from California who was being transferred to Phoenix and wanted to buy a home. He couldn't afford it with his Arizona income, Hauger said. But a mortgage firm used his California income to work the deal.

"That's when we began to see what the housing market was in for," she said.

Concerns come true

By June, the Valley's growing foreclosure problem caught national attention. The Washington D.C.-based National Council of La Raza Housing hosted a town-hall meeting in Phoenix called "With Foreclosures on the Rise, What Is the Fate of Homeownership?"

Hauger, along with other local and national housing advocates, sat on the panel. The room was packed with people from the real-estate and mortgage industries, non-profits and government agencies. All were on the front lines of the problem, talking to struggling Arizona homeowners every day.

Questions from the audience focused on what could be done to help stem foreclosures before the problem exploded. Foreclosures had climbed tenfold in metro Phoenix, and fallout from those defaults and mortgage fraud was starting to hurt home values and the economy.

One mortgage broker said Hispanic homeowners were being preyed upon. A real-estate agent told a story about agents he knew who were losing their homes because of bad loans and fraud. Arizona's housing non-profits and municipal housing departments said they were becoming deluged with calls for help and they didn't know what to do because there was little help they could offer.

The week after the town-hall meeting, the Federal Reserve held a conference in Phoenix and invited lenders, housing-advocate groups and government officials to talk about Phoenix's growing foreclosure problems and how to work together on a solution. Hauger is also part of that group, which continues to meet.

At both meetings, there was little sympathy and mostly blame for speculators, who had begun to walk away from homes they couldn't sell, refinance or rent. In June, at least one-fourth of all Valley homes to fall into foreclosure were owned by investors, according to an Arizona Republic analysis of residential foreclosure records.

Hauger says there is still a disconnect about the foreclosure problem.

"Many people want to point blame at a certain group, and others don't understand how bad it really is because they and their friends and neighbors aren't experiencing it," she said. "Many people also don't realize the housing non-profit's role is not to make money or help them make money."

Hitting bottom

By September, calls and faxes from people facing foreclosure poured in. Hauger and her staff would pull up borrowers' loan documents and use zillow.com to check out values in their neighborhoods.

"Most are so upside down, there's almost nothing we can do," she said. "It makes me sad for the homeowners taken advantage of and mad about those who got greedy."

More than half of the neighborhoods in the Valley had seen their home values drop, and home sales had dropped to half what they were a few years ago.

Foreclosures hit a 15-year high and were poised to keep climbing. National figures showed Arizona along with the other states invaded by speculators -California, Nevada and Florida - were leading the nation for increases in foreclosures. And a meltdown in the mortgage industry made it more difficult to get a loan or refinance.

Market watchers were still waiting for the worst. Interest rates on the biggest block of subprime adjustable-rate mortgages started to climb. Arizona is second only to Nevada for subprime loans.

National legislation to either help struggling homeowners or prevent lending problems in the future became a topic of discussion. A plan for the Federal Housing Administration to help as many as 80,000 borrowers with subprime loans refinance was announced. And lenders began to set up hotlines to work with people facing foreclosure.

Hauger's Community Housing has been working with a teacher who has an interest-only loan on a home in Surprise she is about to lose. The interest-only term on her loan expired earlier this year, and she can't afford the higher payments.

Hauger knows some of the lender's managers and has been working with them to help the woman. Unlike many people facing foreclosure now, the teacher is not upside down - owing more than the home is worth - on her home. So far, the lender has offered to extend the interest-only part of her mortgage another two years.

But that might not help her, Hauger said.

"She still won't be paying principal on her loan, and home values aren't going to climb enough in two years for her to refinance or sell without taking a loss," she said.


'Foreclosure mess'

By late fall, Hauger's group began to see more lenders willing to work with it on foreclosures.

But, she said, so far it hasn't been able to stop a foreclosure and get a bad loan restructured. Hauger said she needs another counselor just to work with the agency's foreclosure clients, but there is no money for it. Her group might have been facing layoffs now if it weren't for a $200,000 housing grant it received a few years ago.

Earlier this month, national mortgage figures showed foreclosures at a record high. The same day, the White House announced a plan for a five-year freeze on interest rates for certain struggling homeowners with subprime loans. But it only will help people who took out loans between 2005 and last summer, and homeowners can't be more than a month behind on their payments.

The following week, 200 Valley homes that lenders foreclosed on were auctioned off at bargain prices. More foreclosure auctions are planned for early next year.

Then the week before Christmas, Arizona Gov. Janet Napolitano announced the first step in a plan to help homeowners with subprime loans who are facing foreclosure.

Hauger is working with other non-profits to try to help first-time buyers purchase foreclosure homes from lenders. The default rate among homeowners who work with housing non-profits and the state's Housing Department is only 1 percent. The national foreclosure rate is 8 percent.
"If lenders will work with us and make the homes affordable, it could mean at least something good comes out of the subprime/foreclosure mess," Hauger said. "It would mean more sales for the housing market."

Arizona foreclosures fall for 3rd month in a row

Tribune - December 2007

The number of new foreclosure filings reported in Arizona fell for the third month in a row in November. But will it last? A total of 5,767 foreclosure filings - including default notices, auction sale notices and bank repossessions -were reported statewide last month, according to national research firm RealtyTrac. That's a 9 percent drop from October, but still marks a nearly 90 percent increase from the same month last year.

Nationwide, there were 201,950 foreclosure filings in November, a 10 percent decrease from the previous month but a nearly 68 percent rise from a year ago.

The 10 percent drop was the first double-digit monthly decline since April 2006, according to RealtyTrac.

"This could indicate that foreclosure activity has topped out for the year, but the true test of whether this ceiling will hold will come at the beginning of next year - when we anticipate that a seasonal surge in foreclosure filings and another possible wave of resetting mortgages could place further pressure on the housing market," RealtyTrac CEO James Saccacio said in a statement.

Arizona ranked No. 8 on a list of the nation's highest foreclosure rates. The top 10 also included Nevada, Florida, Ohio, Colorado, California, Michigan, Georgia, Indiana and Illinois.

Fed unveils home mortgage plan

Asociated Press - December 2007

WASHINGTON - The Federal Reserve unveiled a proposal Tuesday that would give people taking out home mortgages new protections against shady lending practices.

The proposed rules, recommended by staff and expected to be endorsed by the Fed at its morning meeting, are especially geared to the riskiest "subprime" borrowers, already painfully stung by the housing and credit debacles. The proposal is expected to apply to new, or future, loans made by all types of lenders, including banks and brokers. The plan could be finalized next year.

The Fed, which has regulatory powers over the nation's banking system, is considering:

-restricting lenders from penalizing certain subprime borrowers - those with tarnished credit or low incomes - who pay off their loans early. The restriction would apply to loans that meet certain conditions, including that the penalty expire at least 60 days before any possible payment increase.

-forcing lenders to make sure that subprime borrowers set aside money to pay for taxes and insurance.

-barring lenders from making loans when they don't have proof, or verification, of a borrower's income.

-prohibiting lenders from engaging in a pattern or practice of lending without considering a borrower's ability to repay a home loan from sources other than the home's value.

"Unfair and deceptive acts and practices hurt not just borrowers and their families, but entire communities, and indeed, the economy as a whole," said Fed Chairman Ben Bernanke in prepared remarks. "They have no place in our mortgage system," he added.

Fed policymakers also are considering requiring financial disclosures to borrowers early enough to use while shopping for a mortgage. Lenders could not charge fees - except for a fee to obtain a credit report - until after the consumer receives the disclosures. The Fed also will consider prohibiting certain types of misleading or deceptive advertising for certain loans; It also would require that all applicable rates or payments be disclosed in ads with equal prominence as advertised introductory, or "teaser" rates.

In addition, the Fed is expected to propose barring lenders from paying mortgage brokers a fee that exceeds the amount the would-be borrower had agreed to in advance that the broker would receive.

And, the Fed would ban certain practices, such as failing to credit a mortgage payment to a borrower's account when the company servicing the mortgage receives it. The Fed also would prohibit a broker or other company from coercing or encouraging an appraiser to misrepresent the value of a home.

Before taking effect, the rules must be voted again following a period of public comment and possible revisions.

The Fed's response has taken on heightened importance given the meltdown in the housing and credit markets that has led to record numbers of home foreclosures. The crisis has raised the odds that the economy might fall into a recession, roiled Wall Street and given Democrats and Republicans much fodder to blame each other.

The plan, if ultimately adopted, offers Bernanke, who took over the helm in February 2006, an important opportunity to put his imprint on the Fed's regulatory powers. Some critics have complained that Bernanke's predecessor - Alan Greenspan, who ran the Fed for 18 1/2 years - failed to act as a forceful regulator especially during the 2001-2005 housing boom, where easy credit spurred lots of subprime home loans and many exotic types of mortgages.

When the housing market went bust, the carnage was the worst in subprime loans.

Of the nearly 3 million subprime adjustable-rate loans surveyed by the Mortgage Bankers Association from July through September, a record 4.72 percent entered the foreclosure process during those months. At the same time, a record 18.81 percent of the subprime adjustable-rate loans were past due.

When home values weakened, borrowers were left with loans balances that eclipsed the value of their homes. They also were clobbered when their loans reset with much higher interest rates.

Canadians snap up American homes

Associated Press December 2007

CHANDLER, Ariz. (AP) - Two hours after his flight landed in Phoenix, Calgary resident Doug Farley already was cruising the city's vast stuccoed suburbs in search of the one attraction Canadians can't seem to get enough of these days, cheap homes.

There are thousands of them here: almost new, unoccupied and dropping in value. The mortgage meltdown, combined with a surging Canadian currency, has Farley - and many of his countrymen - dreaming of winter golf on grass that's always green.

"My dollar's the same as your dollar, finally," Farley said, grinning as he peered through a pool fence at a sparsely populated condominium complex in Chandler, a Phoenix suburb.

For moderate-income Canadians like Farley, the race is on to take advantage of the "loonie," which in September reached parity with the U.S. dollar for the first time since 1976. Many are combing the Internet for anxious American home sellers and looking with an investor's eye at the condos they rented while on vacation in sunbelt states.

"Now it's more than just the snowbird coming down and staying in a condo. It's people looking for business opportunity," said Frank Nero, president of the Beacon Council, Miami-Dade County's economic development arm in south Florida.

Canadian condo-builder Solterra Group of Companies also is riding the surge in the Canadian economy as it plans to snatch large chunks of land in Las Vegas. Michael Bosa, the company's vice president for development and acquisition, said the loonie has bolstered his company's bids.
"We're looking now aggressively," Bosa said. "We think we'll see more opportunities in the next six to eight months."

In Arizona, Jason Sirockman of Edmonton, Alberta, said he watched as home owners flooded the market with 58,000 homes, more than twice the amount in 2005 when home values peaked.

Now's the time to buy, he said. Alberta, a three-and-a-half-hour flight from Phoenix, is experiencing a modern-day gold rush from booming work in its vast oil sands.

"Fifteen of my friends are on buying trips down here, and we're all cheap," Sirockman said. He brought his family to Scottsdale this month while he submitted a lowball all-cash offer for a three-bedroom home.

"I don't want to take advantage of a guy who's having trouble in the market and is losing his shorts," Sirockman said. "But I have no problem with a guy from California who bought on spec and has five houses in Arizona and never lived in them."

Single family homes and condos in the Phoenix metro area now sit an average of 99 days before getting sold. That's three times the wait for homes and four times the wait for condos compared with two years ago, according to the Arizona Regional Multiple Listing Service.

The market has shifted totally in the buyer's favor, especially those offering cash, said Jeff Russell of Alberta. Last month, Russell snapped up a patio home next to a golf course in Scottsdale with a $299,000 check. It was listed at $463,000.

"I was actually going to come down here and buy a seven-series BMW because cars are ridiculously cheap here," he said. "But I discovered that, forget cars, houses are on deep discount. I could never get anything on a golf course as nice in Canada for this type of money."

Real estate agents in Phoenix, especially those with Canadian ties, are hustling to reach potential buyers up north while the American housing market and the U.S. dollar continue to slump.

Rick Morielli, a former real estate broker from Toronto, received his green card in November, posted a Canadian realty Web site, took out some newspaper ads in Canada, and already he has about a dozen clients looking for homes.

"There's a real Wow' factor here for Canadians," said Morielli, who now lives in Phoenix.

"When I take them to a brand new subdivision, and for $210,000 can get them four bedrooms, 2,000 square feet, all appliances, brand new, that's something they haven't been able to buy in Canada for 10 or 15 years. In my opinion, everyone should be buying now."

Mark Dziedzic, a former financial planner from Toronto, now sells homes full time in Arizona and holds seminars in Canada to push the American housing market on fellow Canucks. Dziedzic said he's had to hire more staff at his office to keep up with the influx of Canadian investors.

"When (the Canadian dollar) hit a dollar ten, it really created a real buzz for Canadians, not only those looking to buy second homes but we're also seeing it from buying purely from an investment standpoint," Dziedzic said.

Still, with so many homes on the market, the interest by Canadians isn't about to fix the housing slump in Arizona, real estate consultant Elliott D. Pollack said.

"You have a massive oversupply in the face of a lower demand," Pollack said. "And you're going to have to work off those excess units. And to do that you'll need two or three years."

That's fine with investors like Farley, who are still learning the neighborhoods.

As he searched for his new winter home, Farley kept an eye out for condos near a pool. When it got cold in Calgary, that's where his family would be.
"I just want the ability to go outside, you know, the ability to go for a walk," Farley said. He left for Calgary with a few strong choices, but he didn't bid on anything.

Sirockman also returned to Canada without a house after the owner of the Scottsdale home turned down his offer. No worries. Sirockman told the seller there were a thousand other homes like his on the market, and someone was going to deal.

As he was about to get on the flight back to Edmonton, Sirockman called his friends, and they told him it's 28 below zero back home.

"That's what I'm flying into," he said with a sigh. "I brought a big down-filled jacket with me. I'm looking like an idiot getting onto the plane."

Trade group lifts outlook for 2008 home sales

Associated Press - December 2007

Bucking conventional wisdom, a trade group for real estate agents on Monday said the battered housing market is on the verge of stabilizing and inched up its outlook for 2007 and 2008 home sales. The revised monthly forecast from the National Association of Realtors, which followed nine straight months of downward revisions, calls for U.S. existing home sales to fall 12.5 percent this year to 5.67 million - the lowest level since 2002. Last month, the association predicted 5.66 million existing homes would be sold this year, down from 6.48 million last year.

The group also forecast sales will rise slightly in 2008 to 5.7 million, up from last month's prediction of 5.69 million. Numerous other economists, however, are far less optimistic than the trade group.

They predict weak sales and falling prices through next year and beyond and emphasize that those problems could worsen if the economy sinks into a recession.

Patrick Newport, an economist at Global Insight, forecasts that home sales will drop from 5.66 million this year to 4.7 million in 2008 - 1 million fewer home sales than the real estate group's forecast.

"With the economy and job growth slowing ... it is hard to believe that we have hit bottom," Newport said in a note to clients Monday. "Our view is that prices need to drop further, and that housing activity will hit bottom about the middle of 2008."

Joel Naroff, chief economist for Commerce Bank, said the U.S. is 12 to 18 months away from a "normal housing market" in which sales are growing and prices are rising or stable.

Furthermore, he said the trade group's 0.2 percent revision to its sales forecast should be taken with a grain of salt, given the difficulty of projecting with any certainty.

Nevertheless, the trade group's chief economist, Lawrence Yun, gave a positive outlook for job growth and the replacement of subprime lenders to borrowers with weak credit with government-backed loans as reasons for the improved outlook. "Despite overexaggerated negative coverage on the housing conditions, many local markets are actually seeing price increases," Yun said. While Yun acknowledged that housing prices soared relative to buyers' availability to afford homes in places like Miami and San Diego, he said housing "remains affordable in vast parts of the country" - particularly in the Midwest.

The trade group also said its index that forecasts near-term home sales inched upward in October. The trade group's seasonally adjusted index of pending sales for existing homes rose 0.6 percent to 87.2 from an upwardly revised September index of 86.7, but was down 18.4 percent from a year ago - the third-largest year-over year decline on record.

The Realtors group also forecast the median price for U.S. existing homes - the point at which half sold for more and half for less - will sink by 1.9 percent to $217,600 this year and rise 0.3 percent next year to $218,300. If median prices fall this year, it will be the first price decline in the nearly 40 years that the trade group has tracked that data.

Other ways to measure national housing prices, such as the S&P/Case-Shiller index, have already shown price declines. In addition, a government index of national home prices in the fourth quarter marked a quarterly decline for the first time in 13 years in the third quarter.

Subprime rate deal reached

Associated Press - December 2007

President Bush announced on Thursday a plan to freeze interest rates for five years for hundreds of thousands of strapped homeowners whose mortgages are scheduled to rise in the coming months.

“There is no perfect solution,” he said. “The homeowners deserve our help.

The steps I've outlined today are a sensible response to a serious challenge.”

Seeking to counter criticism he is violating his free-market principles, Bush said the private-sector plan does not represent the imposition of a government solution to the mortgage crisis.

“We should not bail out lenders, real estate speculators or those who made the reckless decision to buy a home they knew they could not afford,” he said.

Bush said that 1.2 million people could be eligible for help under the plan, developed in negotiations with the mortgage industry led by Treasury Secretary Henry Paulson. But only a small fraction of that number will be subject to the rate freeze. Others would get assistance in refinancing with their lenders and moving into loans secured by the Federal Housing Administration, Bush said.

And the help only comes to those who ask for it, he said. Thousands of borrowers who are falling behind on their payments have been sent letters about the options, and Bush also urged people to call a new hot line: 1-888-995-HOPE.

Five-Year Mortgage Rate Freeze Looms

Bush Mortgage Plan Will Freeze Certain Subprime Interest Rates for 5 Years

Associated Press - December 2007

The Bush administration has hammered out an agreement to freeze interest rates for certain subprime mortgages for five years to combat a soaring tide of foreclosures, congressional aides said Wednesday.

The aides, who spoke on condition of anonymity because the details have not yet been released, said the five-year moratorium represented a compromise between desires by banking regulators for a longer time frame of up to seven years and mortgage industry arguments that the freeze should last only one or two years.

Another person familiar with the matter said the rate-freeze plan would apply to borrowers with loans made at the start of 2005 through July 30 of this year with rates that are scheduled to rise between Jan. 1, 2008, and July 31, 2010.

The administration said President Bush will speak on the agreement at the White House on Thursday and the Treasury Department announced that Treasury Secretary Henry Paulson and Housing and Urban Development Secretary Alphonso Jackson would hold a joint news conference Thursday afternoon with mortgage industry officials.

Treasury also announced there would be a technical briefing to explain more of the proposal's details.

Paulson, who has been leading the effort to craft a plan, said on Monday that the program would only be available for owner-occupied homes -- to ensure the break is not given to real estate speculators.

The plan emerged from talks between Paulson and other banking regulators and banks, mortgage investors and consumer groups trying to address an avalanche of foreclosures feared as an estimated 2 million subprime mortgages reset from lower introductory rates to higher rates.

In many cases, the higher rates will boost monthly payments by as much as 30 percent, making it very difficult for many people to keep current with their loans.

The plan is aimed at homeowners who are making payments on time at lower introductory mortgage rates but cannot afford a higher adjusted rate.
Through October, there were about 1.8 million foreclosure filings nationwide, compared with about 1.3 million in all of 2006, according to Irvine, Calif.-based RealtyTrac Inc. With home loan defaults still rising, the trend is expected to worsen next year.

The plan represents an about-face for Paulson, who until recently had insisted the mortgage crisis could be handled on a case-by-case basis.
However, he and other administration officials became convinced the tide of foreclosures threatened by the mortgage resets represented such a severe threat that a more sweeping approach was needed. They opted for a proposal that was along the lines of a plan put forward in October by Sheila Bair, head of the Federal Deposit Insurance Corp.

Paulson and other federal regulators began holding talks with some of the country's biggest mortgage lenders, mortgage service companies, investors who hold mortgage-backed securities and nonprofit groups that provide counseling for at-risk homeowners.

Under the typical subprime loan -- those offered to borrowers with spotty credit histories -- the rates for the first two years were at levels around 7 percent to 8 percent. But after two years, those rates were scheduled to reset to levels around 9 percent to 11 percent.

For a typical $1,200 monthly mortgage payment, the reset could add another $350 to the monthly payment, greatly raising the risks of loan defaults by homeowners struggling with the current payment.

The wave of mortgage foreclosures threatened to make the most severe slump in housing even worse by dumping more foreclosed properties onto an already glutted market, further depressing home prices and shaking consumer confidence.

The deepening housing slump has already roiled financial markets, starting in August, as investors grew increasingly concerned about billions of dollars of losses being suffered by banks, hedge funds and other investors.

The administration plan is designed to deal with the crisis by letting subprime borrowers who are living in their homes and are current on their payments to avoid a costly reset for five years. The hope is that by that time the housing downturn will have stabilized, clearing out the glut of unsold homes and halting the steep slide in prices that is hitting many parts of the country.

With sales and prices once again rising, the expectation is that homeowners will be able to renegotiate their current adjustable rate mortgages into a more affordable fixed-rate plan.

The housing crisis has become an issue in the presidential race with Democrats Hillary Rodham Clinton and John Edwards putting forward their own proposals this week that would go further than the administration.

Clinton said her own proposal that would impose a 90-day moratorium on foreclosures and freeze the rates for five years or until they had been converted to fixed-rate loans was a better approach that would help more people.

"Although the administration is finally giving the foreclosure crisis the attention it deserves, it seems that President Bush is going to give struggling homeowners far less than they need," she said in a statement.

Mark Zandi, chief economist for Moody's Economy.com, called the administration plan a good first step, but said the government eventually will have to go further given the problem's size and the threat to the economy.

"This is the most serious housing downturn we have seen in the post World War II period," Zandi said. "It is a threat to the broader economy. The risks of a recession are very high."

US Nears Deal on Mortgage Defaults

Paulson Says Agreement Near on Industrywide Effort to Freeze Mortgage Rates

Associated Press - December 2007

Treasury Secretary Henry Paulson said Monday an agreement was near on a proposal to help thousands of at-risk homeowners avoid foreclosures by temporarily freezing their mortgage rates.One of the last remaining issues to be resolved, officials said, was the exact length of time the low-teaser rates will be frozen.

Speaking at a national housing conference and in later interviews, Paulson expressed optimism that an agreement could be reached very soon, possibly before the end of this week.

Paulson and federal regulators have been holding talks with some of the country's biggest banks, mortgage investors and consumer groups trying to strike a deal in an effort to prevent an avalanche of threatened foreclosures in the coming year from sinking the overall economy.

"We are working aggressively and quickly, utilizing available tools and creating new ones, to help financially responsible but struggling homeowners," Paulson said in a speech to a national housing conference sponsored by the Office of Thrift Supervision.

An estimated 2 million subprime mortgages, loans offered to borrowers with spotty credit histories, are scheduled to reset to much higher levels by the end of 2008. Those resets will push the payment on a typical mortgage up by $350 per month, taking it from $1,200 currently to $1,550.

Some government regulators are pushing for the low "teaser" rates to remain in place for five to seven years, arguing that a longer period of time is needed to allow the depressed housing market to begin recovering and for home prices to stabilize, which will allow homeowners to finance under better terms. But investors, who will see lower payments on the loans, are arguing for a shorter period of time.

Regulators indicated that the rate freezes will only be available for owner-occupied homes to avoid granting the break to real estate speculators although the exact way that determination will be made was still being worked out.

"How you structure (the rate freeze), who gets it and for how long, I think, is what people are struggling with," Comptroller of the Currency John C. Dugan, told reporters at the conference.

Sheila Bair, chairman of the Federal Deposit Insurance Corp., said details of the plan are likely to be announced later this week with other officials predicting the unveiling could come on Thursday.

In his speech, Paulson said he believed the mortgage industry would move to implement the new program quickly and would also adopt benchmarks to measure progress going forward. "As a result, what was a fragmented, cumbersome process can be a coordinated effort which more quickly helps able homeowners," Paulson said.

Banking industry executives generally praised the initiative. Daniel Mudd, chief executive at Fannie Mae, the nation's largest provider of home mortgages, called the proposal a "positive step" that would allow many borrowers to avoid foreclosure.

The new program is being aimed at homeowners who have steady incomes and relatively clean repayment histories who could afford the lower introductory mortgage rates but cannot afford the higher adjusted rate.
The rate freeze is part of an administration program that is also emphasizing increased efforts to contact at-risk homeowners and congressional action.

Paulson said the administration was asking Congress to pass legislation that would give state and local governments more authority to temporarily broaden their tax-exempt bond programs to include mortgage refinancing.

Currently, such programs are limited to new homeowners but do not include the use of tax-exempt bonds to refinance existing mortgages.

Paulson also called on Congress to pass a number of pending bills that would address the housing crisis in such ways as expanding the availability of Federal Housing Administration insured loans and boosting government oversight of mortgage giants Fannie Mae and Freddie Mac.

The administration has come under criticism from Democrats who have complained that the proposals put forward so far have been too modest in light of the crisis facing the housing industry and the threat that the housing slump could trigger a full-blown recession.

John Taylor, the president of the National Community Reinvestment Coalition, said he was concerned the government was moving too slowly to deal with the problem when what was needed was the major effort used to deal with the savings and loan crisis of the early 1990s.

"This is a major problem that is pushing us towards a recession," Taylor said.

7 signs to signal a market recovery

The Arizona Republic - December 2007

How close is the Valley's housing market to rebounding?

National housing analyst Tim Sullivan of the Sullivan Group has put together a seven-point test to track the market's recovery. Check out metropolitan Phoenix's report card.

• The number of resales on the market falls below a seven-month supply.
The Valley has 55,000 existing homes for sale, a 14-month supply.
• Home sales need to stop slowing.

Resales rebounded slightly in October, according to the realty-studies group at Arizona State University. New home sales have held steady since summer, according to RL Brown's Phoenix Housing Market Letter.

• New-home permits must fall.

Permits fell in September to their lowest level in 15 years. October's numbers were similar.

• Mortgage purchase applications increase.

Not yet.

• Thirty-year mortgage rates drop to 6 percent.

The average 30-year rate is 6.10 this week, according to Freddie Mac. Pretty close.

• Affordability improves dramatically.

The median Valley home price fell to $242,000, its lowest level since 2005. That's definitely an improvement for fledging home buyers, though most homeowners are still cringing at the drop.

• At least one major home builder goes away.

This hasn't happened yet, though market watchers say some builders are about to consolidate.

So far the Valley has at least four out of the seven going for it. Sullivan said the market's turnaround could start late next year.

The Valley's housing market held steady in October, according to analyst Brown's latest Housing Market Letter. Home-building permits, resales and new-home sales are all down from last year, but pretty even with figures from September.

There were 1,325 new-home permits issued Valley-wide in October. Resales came in at 3,533, and there were 3,159 new-home sales.

Agent accused of stealing The Arizona Department of Real Estate is alleging that a Peoria agent stole more than $365,000 from clients.

The state agency has issued a cease-and-desist order against Russell Bosworth of Arizona High Performance Realty. The complaint accuses Bosworth of stealing, commingling his personal funds with clients' money, illegally transferring property to other entities, employing and paying commissions to unlicensed agents and other illegal real-estate activities.

Bosworth and Arizona High Performance Realty have been ordered to pay back the $365,186 to former clients and cease all real-estate operations. He has been a licensed real-estate agent in Arizona since 2002.

In the past year, the Department of Real Estate has received 90 complaints from former Arizona High Performance customers. The state agency is asking people who have had problems with Bosworth and Arizona High Performance to contact Dave Lewis, an investigator at the Department of Real Estate, at dlewis@azre.gov.

Mortgage inquiries swamping Arizona

The Arizona Republic - December 2007

Arizona's mortgage regulator has shut down a handful of Valley firms for fraud and other illegal lending practices this year, but at least 40 other investigations are stalled because there is no money to fund them.

A wave of mortgage fraud and other bad lending practices that spread across metro Phoenix led to a record number of consumer complaints against mortgage brokers, originators and lenders.

The Arizona Department of Financial Institutions has only two consumer investigators to keep up with those complaints, more than 800 of them this year. Five years ago, the state agency received fewer than a few hundred mortgage complaints a year.

To tackle the flood of complaints this year, the regulator hired independent investigators. But a plan to keep paying those contractors stalled during the last legislative session because some lawmakers said the mortgage industry should self-regulate.

Now, dozens of investigations into mortgage fraud and other bad loans are waiting until the agency's investigators can get to them. A typical mortgage investigation takes months or more to track because of extensive paper trails and the many people involved.

"We were shorthanded to begin with, but now we have run out of money," said Felecia Rotellini, superintendent of the Department of Financial Institutions.

So far this year, the department has ordered five mortgage firms to close. It has fined some of those firms as well as a handful of others that were allowed to keep operating but were ordered to end illegal actions. It's the biggest crackdown in the state's lending industry since the real-estate recession and savings-and-loan debacle of the late 1980s.

Firms ordered to close

The firms ordered to close are Tempe-based SJJ Corp. Inc., also known as Home One Mortgage Services; Phoenix-based Pacific Gold Mortgage; Phoenix-based Allegro Financial; Mesa-based Eagle First Mortgage; and Mesa-based Freedom Financial & Mortgage Services, which is appealing the order. Combined, the firms had more than 100 branches.

The Department of Financial Institutions alleged that the firms misled lenders about borrowers' incomes, charged hidden fees and high interest rates to consumers, and operated unlicensed branches at swap meets.
Firms that were fined but remain open include Goodyear-based Mortgage Pro U.S.A., Glendale-based Professional Mortgage Associates and Scottsdale-based Family Home Lending.

"It's just the tip of the iceberg," Rotellini said about the firms the agency has been able to stop from operating illegally.

Mortgage fraud and other bad loans from many of the firms recently shut down or under investigation are contributing to the Valley's 15-year foreclosure high that is dragging down the housing market.

Arizona now ranks No. 7 among states with the greatest amount of mortgage fraud, blowing past the 23rd spot it held in 2006. This is the highest Arizona has placed on the Mortgage Asset Research Institute's annual fraud survey.

"People came into the mortgage business and did some bad and ugly things," said Amy Swaney, a mortgage banker at Scottsdale-based Premier Financial and past president of the Arizona Mortgage Lenders Association. "It's been a tough time for the mortgage industry, but there are many good people left who are trying to clean it up and keep making good loans."

Search for funding

Legislation to make mortgage fraud a felony and cut down on bad lending in Arizona was passed this year and became law in September.

But legislation to license the almost 15,000 mortgage officers and originators in Arizona stalled with the bill that would have given the Department of Financial Institutions more resources for investigations. Now, the agency is trying to get more money either through a budget increase or permission to tap more of its own funds.

New licensing legislation is in the works.

The number of mortgage brokers and branches that the Department of Financial Institutions regulates has more than tripled since 2001, while its budget has remained almost flat.

Many in the mortgage business don't understand why the department wasn't given more resources to not only keep up with the tremendous growth in the industry but to be part of a national registry that tracks mortgage brokers as they move from state to state.

"Mortgage fraud can be traced to a lack of oversight and honesty in Arizona," said Sen. Jay Tibshraeny, R-Chandler, who backed the mortgage-fraud legislation. "We have to license the people taking borrowers' personal information and working with them to make one of their biggest financial decisions, getting a mortgage. Real-estate agents have to be licensed, and no one says that's a bad thing."