HUD secretary, Congress debate foreclosure plans

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By Alan Zibel and Adrian Sainz, AP Real Estate Writers

Congress debates action on foreclosures, new home sales hit record low, Fannie Mae needs cash
WASHINGTON (AP) -- Against a backdrop of record-low new home sales and ballooning losses from foreclosures, Housing Secretary Shaun Donovan told lawmakers Thursday that the lending industry is set to launch the Obama administration's $75 billion foreclosure prevention program next week.

Final details will be released Wednesday, but Donovan said the plan will allow borrowers with big debts from car loans, credit cards and unaffordable mortgages to have their home loans modified to lower the monthly payment, even if they are not in default.

Borrowers who owe up to 5 percent more than their home's current value will be able to refinance, if their mortgages are held by mortgage finance companies Fannie Mae or Freddie Mac. At the same time, loan modifications will be available for borrowers who owe up to 50 percent more than their home's currently value, Donovan said.

Testifying before Senate lawmakers, Donovan said "we expect to see large numbers of modifications happen very quickly," and hopes it would cause foreclosure rates to drop as soon as April.

Hours later, Fannie Mae said it needs $15.2 billion in government aid -- though that figure is expected to grow -- because it lost nearly $59 billion last year as the foreclosure crisis mushroomed.

This is the first time Fannie Mae has asked for government money, but the Treasury Department last week said it is doubling the lifeline for the Fannie Mae and Freddie Mac to $200 billion each.

The two mortgage finance companies, which were seized by the government last September, own or back about half of the nation's mortgage loans.

Foreclosures also were an issue in the House, where an expected vote on a housing relief plan was delayed. Democrats were at a stalemate over a measure that would allow bankruptcy court judges to reduce the principal and interest rate on mortgages for homeowners saddled with heavy debt.

The vote was derailed after a group of moderate Democrats expressed concerns about how the bill would affect homeowners who are not facing bankruptcy but are still struggling to make their mortgage payments.

Consumer advocates and most Democrats regard the measure as crucial, claiming it's the only way to force loan servicers to take steps to help homeowners stay in their homes. Most of the mortgage industry remains ardently opposed, and has been fighting to block the proposal.

House leaders postponed a vote until Tuesday to give Democrats time to meet with Donovan about how the measure fits with the Obama administration's housing plan. The Senate is expected to take up the legislation within two weeks.

In the Senate, Democrats praised the Obama administration's plan to spend $75 billion from the $700 billion financial bailout fund to keep up to 4 million U.S. homeowners out of foreclosure.

But a prominent Republican, Sen. Richard Shelby of Alabama, was skeptical. He countered that subsidies will go to the same major lenders already receiving billions in taxpayer bailout money.

The administration's plans are "a further bailout to the very banks that helped us get into our current situation," Shelby said.

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The delayed House vote and Senate bickering came amid more disquieting news for the housing market.

The Commerce Department reported Thursday that new home sales fell 10.2 percent to a seasonally adjusted annual rate of 309,000, the worst showing on records going back to 1963. It also was weaker than economists expected, and shattered the previous all-time monthly low set in September 1981.

The median sales price fell to $201,100 in January, a record 9.9 percent drop from the previous month. The median price is the midpoint, where half sell for more and half for less.

Lower prices, coupled with low mortgage rates, have helped restore affordability in some once-heated markets, but potential homebuyers are still wary.

The average rate for 30-year fixed mortgages this week was 5.07 percent, up slightly from 5.04 percent last week, but still near historic lows, Freddie Mac reported Thursday.

"Lower house prices and affordable mortgage rates have yet to spur housing demand," Frank Nothaft, Freddie Mac's chief economist, said in a prepared statement.

Adrian Sainz reported from Miami. Associated Press writers Julie Hirschfeld Davis and Jeannine Aversa contributed from Washington.

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Fannie Mae seeks $15.2B in US aid after 4Q loss

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By Alan Zibel, AP Real Estate Writer

Fannie Mae seeks $15.2 billion in government aid after posting $25.2 billion 4th-quarter loss

WASHINGTON (AP) -- Fannie Mae said Thursday it needs $15.2 billion in government aid -- though that figure is expected to grow -- because it lost nearly $59 billion last year as the foreclosure crisis mushroomed.

The Washington-based mortgage finance company hemorrhaged $25.2 billion, or $4.47 per share, in the fourth quarter. That compares with a loss of $3.6 billion, or $3.80 a share, in the year-ago period.

Fannie's net worth -- the value of its assets minus the value of its liabilities -- fell below zero at the end of the quarter, forcing the company to request funding from the government for the first time.

The government seized control of Fannie Mae and its sibling Freddie Mac in September and last week doubled their lifelines to $200 billion each to guarantee they would never fail.

Treasury Secretary Timothy Geithner said the increase in cash is "not a judgment about the expected losses ahead. It's just a way to make sure people understand that they will be able to play this role going forward."

But the year-end results were just "the same sources of bad news, just with bigger numbers," to debt analyst Jim Vogel of FTN Financial in Memphis, Tenn., who still doubts Fannie will exceed the new $200 billion safety net.

Fannie Mae said its fourth-quarter loss was driven by $12 billion in credit losses due to declining housing market conditions, $12.3 billion in losses on derivatives and $4.6 billion in writedowns of the value of its mortgage-backed securities.

"We expect economic conditions and falling home prices to continue to negatively affect our credit performance in 2009, which will cause our credit losses to increase," Fannie Mae said in a Securities and Exchange Commission filing.

If the recession deepens, the company said, "more borrowers will be unable to make their monthly mortgage payments, resulting in increased delinquencies and defaults, sharper declines in home prices and higher credit losses."

Freddie Mac has said it's likely to require as much as $35 billion in federal support on top of the $13.8 billion it received last year.

Taken together, Fannie and Freddie own or guarantee almost 31 million home loans worth about $5.5 trillion. That's more than half of all U.S home mortgages.

Delinquent loans rose to 2.4 percent of all single-family loans -- more than double the level of a year earlier. Fannie Mae owned more than 63,500 foreclosed properties at the end of December, up from nearly 34,000 a year earlier.

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Home sales sink unexpectedly, lowest since 1997

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Wednesday February 25, 4:43 pm ET

By Alan Zibel, AP Real Estate Writer

Home sales sink unexpectedly in Jan. to lowest level since 1997; rebound hinges on jobs, banks

WASHINGTON (AP) -- Sales of existing homes sank unexpectedly last month to the lowest level in nearly 12 years as potential buyers worried about their jobs and awaited details of President Barack Obama's plans to stabilize the housing market.

But the banking industry's teetering fortunes and mounting job losses could stall any recovery. Falling prices and low mortgage rates don't make much of a difference for people who are out of work -- or fearful of losing their jobs.

The most optimistic outlook is for a spring revival as home prices plummet. Government officials, hoping to spur demand, on Wednesday rolled out the details of a new $8,000 tax credit for first-time buyers. About 40 percent of all home sales last year were from first-time buyers.

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Treasury Secretary Timothy Geithner said the tax credit should help provide an "immediate response to the current crisis."

The government response may help, but many consumers are still in wait-and-see mode.

"Buyers are sitting back," said real estate agent Sandra Lipmann of Prudential Centennial Realty in Westchester County, N.Y., home to the upscale properties of many Wall Street workers. "They don't have the full story of what's going to happen in this economy."

Sales of existing homes fell 5.3 percent to an annual rate of 4.49 million last month, from 4.74 million in December, the National Association of Realtors said Wednesday. It was the weakest showing since July 1997. And some analysts don't see sales bottoming out until later this year as prices sink further. Economists had expected sales to rise to an annual pace of 4.79 million homes.
Without adjusting for seasonal factors, sales nationwide fell 7.6 percent from a year earlier. The West was the only region to show increased sales.

The median sales price in January plunged to $170,300, from $199,800 a year earlier and $175,700 in December. It was the lowest price since March 2003 and the second-largest drop on record.

And the Mortgage Bankers Association said Wednesday that applications for new loans and refinances both fell last week as rates inched up.

Sinking home prices and soaring foreclosures have forced major banks like Citigroup Inc. and Bank of America Corp. to record huge losses on the value of their mortgage-related assets.

On Capitol Hill for a second day, Federal Reserve Chairman Ben Bernanke warned lawmakers that the big glut of unsold homes could "put us in real danger" of even sharper declines in home prices.

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The Fed chief fielded tough questions about bank-rescue efforts and again spurned speculation that the government may seize control of Citigroup or other large financial institutions.

Asked about Citigroup Inc., Bernanke said nationalization "is when the government seizes the bank and zeros out its shareholders ... we don't plan anything like that."

Wall Street ended an erratic session with a loss. The Dow Jones industrial average fell about 80 points, and the Standard & Poor's 500 index and the Nasdaq composite index also declined.

Some hopes for the long-awaited housing market rebound had returned last month after the Realtors group reported a surge in sales for December. But economic fears are now paramount in the minds of many consumers, and lending standards remain tight.

John Seidensticker, 37, has been trying to sell a two bedroom, roughly 1,100 square foot condominium north of Miami's downtown. He started out asking for $279,000 and has lowered his price by $90,000 but still hasn't found a buyer.

"I can't buy until I sell this one," Seidensticker said. "Half the buyers can't qualify, and there aren't that many buyers out there."

The number of unsold homes on the market fell almost 3 percent last month to 3.6 million, the lowest inventory level in two years, the Realtors group said. But due to the slumping sales pace, it would still take 9.6 months to rid the market of all of those properties, up from 9.4 months in December.

The number of properties languishing on the market likely would be even higher if sellers weren't so reluctant to list their properties as prices sink rapidly, Joshua Shapiro, chief U.S. economist with MFR Inc., wrote in a note Wednesday.

"With supply overhang still huge and mortgage financing difficult to obtain, home prices are likely to decline considerably further in the quarters ahead," he wrote.

Prices have been falling as thousands of Americans lose their jobs every week. Employers took an especially large ax to their payrolls last month, the Labor Department said Wednesday, and the cuts are likely to get worse over the next few months.

Mass layoffs, or job cuts of 50 or more by a single employer, increased to 2,227 in January, up almost 50 percent from the same month last year. More than 235,000 workers were fired in last month's cuts.

The labor market pain persists this week. The NFL said Wednesday that commissioner Roger Goodell has taken a 20 percent pay cut and the league dropped 169 jobs through buyouts, layoffs and other reductions. Spartanburg, S.C.-based textile maker Milliken & Co. said it would cut 650 jobs at facilities worldwide, and jeweler Zale Corp. said it will close 115 stores and eliminate 245 positions.

As layoffs mount, foreclosures have swamped the housing market -- especially in particularly distressed states like California, Florida, Nevada and Arizona. About 45 percent of sales nationwide are foreclosures or other distressed properties.

Joel Rodriguez, owner of Global Investments Realty in Miami, estimates that 70 percent of his business comes from foreclosures, but says sales are picking up. "The banks have finally gotten realistic and started accepting some of the offers," he said.

Lawrence Yun, chief economist for the Realtors, predicted that the new tax credit would help boost home sales by late spring or early summer. Buyers "did not want to jump into the market until they were certain" what the government would do to resuscitate the housing market and that clearly dampened January sales, he said.

But other analysts say the government's actions will provide a far more modest boost, largely because the economic picture remains so gloomy.

Patrick Newport, an economist with IHS Global Insight, said sales are likely to sink further and not stabilize until the summer. Prices aren't likely to hit bottom until the first quarter of 2010 and should remain flat for another year, he said.

"At some point, prices will drop so much that sales will start to pick up," Newport wrote in a note Wednesday. "So far, this has yet to happen."

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AP Business Writers J.W. Elphinstone, Adrian Sainz, Martin Crutsinger, Christopher S. Rugaber and Jeannine Aversa contributed to this report.

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