Helping the kids buy a first home is a time-honored tradition that has become even more significant as home prices rise and incomes flatten.
Here are three ways parents can help their children:
Cash. For parents with the means, cash is clean and easy. An individual can give $12,000 a year to a recipient without having to pay a tax on the gift. Therefore, a couple could give an adult child and the child's spouse a total of $48,000 in one year. To keep things simple, the gift is best given well in advance of the mortgage application.
Cosigning or otherwise jointly investing in the property. This can work for parents of more limited means or those who want to be paid back. The biggest risk is that the offspring will be unable to meet their obligations and it will affect the parent’s credit rating.
Knowledge and hard work are worth gold. Parents who can’t afford to help financially may be able to provide experience and even some sweat equity to help the kids make a smart housing choice.
Source: Market Watch (03/21/08)
Friday, March 28, 2008
Thursday, March 27, 2008
40 Tips for an Exceptional, Superb & Powerful Life
Frank, a valued member of the SCV Home Team, just sent me this list. What do you think? Do you have anything to add?
1. Take a 10-30 minute walk every day. And while you walk, smile. It is the ultimate anti-depressant.
2. Sit in silence for at least 10 minutes each day. Buy a lock if you have to.
3. Buy a Tivo (DVR), tape your late night shows and get more sleep.
4. When you wake up in the morning complete the following statement, 'My purpose is to________ today.'
5. Live with the 3 E's -- Energy, Enthusiasm, and Empathy.
6. Watch more movies, play more games and read more books than you did last year.
7. Always pray and make time to exercise.
8. Spend more time with people over the age of 70 and under the age of six.
9. Dream more while you are awake.
10. Eat more foods that grow on trees and plants and eat fewer foods that are manufactured in plants.
11. Drink green tea and plenty of water. Eat blueberries, wild Alaskan salmon, broccoli, almonds & walnuts.
12. Try to make at least three people smile each day.
13. Clear your clutter from your house, your car, your desk and let new and flowing energy into your life.
14. Don't waste your precious energy on gossip, energy vampires, issues of the past, negative thoughts or things you cannot control. Instead, invest your energy in the positive present moment.
15. Realize that life is a school and you are here to learn. Problems are simply part of the curriculum that appear and fade away like algebra class .....but the lessons you learn will last a lifetime.
16. Eat breakfast like a king, lunch like a prince and dinner like a college kid with a maxed out charge card.
17. Smile and laugh more. It will keep the energy vampires away.
18. Life isn't fair, but it's still good.
19. Life is too short to waste time hating anyone.
20. Don't take yourself so seriously. No one else does.
21. You don't have to win every argument. Agree to disagree.
22. Make peace with your past so it won't screw up the present.
23. Don't compare your life to others'. You have no idea what their journey is all about.
24. Ladies - Go on and burn those 'special' scented candles, use the 600 thread count sheets, the good china and wear our fancy lingerie now. Stop waiting for a special occasion. Everyday is special.
25. Guys: Go out and golf or fish or putter around the house or whatever it is that makes you happy. No one is in charge of your happiness except you.
26. Frame every so-called disaster with these words: 'In five years, will this matter?'
27. Forgive everyone for everything.
28. What other people think of you is none of your business. And if you knew how infrequently they thought of you, you certainly wouldn't care what they thought.
29. Time heals almost everything. Give time, time!
30. However good or bad a situation is it will change.
31. Your job won't take care of you when you are sick. Your friends will. Stay in touch with them.
32. Get rid of anything that isn't useful, beautiful or joyful.
33. Envy is a waste of time. You already have all you need. God provides, remember?!
34. The best is yet to come. (In Heaven)
35. No matter how you feel, get up, dress up and show up.
36. Do the right thing!
37. Call your family often.
38. Each night before you go to bed complete the Following statements:
'I am thankful for __________. Today I accomplished _________.'
39. Remember that you are too blessed to be stressed.
40. Enjoy the ride. Remember that this is not Disney World and you certainly don't want a fast pass. You only have one ride through life so make the most of it and enjoy the ride.
LIVE, LOVE, LAUGH. LIFE'S A GIFT ... UNWRAP IT!
Have a great day.
1. Take a 10-30 minute walk every day. And while you walk, smile. It is the ultimate anti-depressant.
2. Sit in silence for at least 10 minutes each day. Buy a lock if you have to.
3. Buy a Tivo (DVR), tape your late night shows and get more sleep.
4. When you wake up in the morning complete the following statement, 'My purpose is to________ today.'
5. Live with the 3 E's -- Energy, Enthusiasm, and Empathy.
6. Watch more movies, play more games and read more books than you did last year.
7. Always pray and make time to exercise.
8. Spend more time with people over the age of 70 and under the age of six.
9. Dream more while you are awake.
10. Eat more foods that grow on trees and plants and eat fewer foods that are manufactured in plants.
11. Drink green tea and plenty of water. Eat blueberries, wild Alaskan salmon, broccoli, almonds & walnuts.
12. Try to make at least three people smile each day.
13. Clear your clutter from your house, your car, your desk and let new and flowing energy into your life.
14. Don't waste your precious energy on gossip, energy vampires, issues of the past, negative thoughts or things you cannot control. Instead, invest your energy in the positive present moment.
15. Realize that life is a school and you are here to learn. Problems are simply part of the curriculum that appear and fade away like algebra class .....but the lessons you learn will last a lifetime.
16. Eat breakfast like a king, lunch like a prince and dinner like a college kid with a maxed out charge card.
17. Smile and laugh more. It will keep the energy vampires away.
18. Life isn't fair, but it's still good.
19. Life is too short to waste time hating anyone.
20. Don't take yourself so seriously. No one else does.
21. You don't have to win every argument. Agree to disagree.
22. Make peace with your past so it won't screw up the present.
23. Don't compare your life to others'. You have no idea what their journey is all about.
24. Ladies - Go on and burn those 'special' scented candles, use the 600 thread count sheets, the good china and wear our fancy lingerie now. Stop waiting for a special occasion. Everyday is special.
25. Guys: Go out and golf or fish or putter around the house or whatever it is that makes you happy. No one is in charge of your happiness except you.
26. Frame every so-called disaster with these words: 'In five years, will this matter?'
27. Forgive everyone for everything.
28. What other people think of you is none of your business. And if you knew how infrequently they thought of you, you certainly wouldn't care what they thought.
29. Time heals almost everything. Give time, time!
30. However good or bad a situation is it will change.
31. Your job won't take care of you when you are sick. Your friends will. Stay in touch with them.
32. Get rid of anything that isn't useful, beautiful or joyful.
33. Envy is a waste of time. You already have all you need. God provides, remember?!
34. The best is yet to come. (In Heaven)
35. No matter how you feel, get up, dress up and show up.
36. Do the right thing!
37. Call your family often.
38. Each night before you go to bed complete the Following statements:
'I am thankful for __________. Today I accomplished _________.'
39. Remember that you are too blessed to be stressed.
40. Enjoy the ride. Remember that this is not Disney World and you certainly don't want a fast pass. You only have one ride through life so make the most of it and enjoy the ride.
LIVE, LOVE, LAUGH. LIFE'S A GIFT ... UNWRAP IT!
Have a great day.
Lower Long Term Mortgage Rates Spur More Loan Applications
Long term mortgage rates fell dramatically during the week ended March 20 according to the Primary Mortgage Market Survey released by Freddie Mac. Short term rates remained relatively unchanged although fees and points bumped up to the highest levels we have seen in the three years we have been tracking the Freddie Mac report.
The 30-year fixed-rate mortgage (FRM) had an average rate of 5.87 percent with 0.5 point for the week compared to the previous week when it averaged 6.13 percent with 0.5 point. Last year at this time the 30-year averaged 6.16 percent.
The 15-year FRM dropped 33 basis points to 5.27 percent. Fees and points were unchanged at 0.5. One year ago the average rate for the 15-year was 5.90 percent.
Five-year Treasury-indexed hybrid adjustable-rate mortgages (ARMs) carried a mean rate of 5.56 percent, down from the previous week when rates averaged 5.58 percent. Fees and points, however, rose to an average of 0.9 point from 0.6 point. One year ago the 5-year ARM averaged 5.91 percent.
One-year Treasury-indexed ARMS averaged 5.15 percent, an increase of one basis point from the previous week and points increased from 0.7 to 0.8. This same week in 2007 the one-year ARM averaged 5.40 percent.
"Mortgage rates fell this week as various actions were taken to improve market liquidity," said Frank Nothaft, Freddie Mac vice president and chief economist. "In addition, the inflation report from the Consumer Price Index (CPI) reflected weaker price increases than consensus expectations. Unchanged in February both including and excluding food and energy costs, it is the first time the core CPI did not report a monthly increase since November 2006.
from Mortgage News Daily March 27, 2008
The 30-year fixed-rate mortgage (FRM) had an average rate of 5.87 percent with 0.5 point for the week compared to the previous week when it averaged 6.13 percent with 0.5 point. Last year at this time the 30-year averaged 6.16 percent.
The 15-year FRM dropped 33 basis points to 5.27 percent. Fees and points were unchanged at 0.5. One year ago the average rate for the 15-year was 5.90 percent.
Five-year Treasury-indexed hybrid adjustable-rate mortgages (ARMs) carried a mean rate of 5.56 percent, down from the previous week when rates averaged 5.58 percent. Fees and points, however, rose to an average of 0.9 point from 0.6 point. One year ago the 5-year ARM averaged 5.91 percent.
One-year Treasury-indexed ARMS averaged 5.15 percent, an increase of one basis point from the previous week and points increased from 0.7 to 0.8. This same week in 2007 the one-year ARM averaged 5.40 percent.
"Mortgage rates fell this week as various actions were taken to improve market liquidity," said Frank Nothaft, Freddie Mac vice president and chief economist. "In addition, the inflation report from the Consumer Price Index (CPI) reflected weaker price increases than consensus expectations. Unchanged in February both including and excluding food and energy costs, it is the first time the core CPI did not report a monthly increase since November 2006.
from Mortgage News Daily March 27, 2008
Tuesday, March 25, 2008
U.S. Officials Warn of Scams Targeting Homeowners
By EVAN PEREZ
March 25, 2008; Page A3
Wall Street Journal
Federal officials say a wave of opportunistic scams are targeting homeowners trying to avoid foreclosure in the current housing downturn.
Monday, prosecutors in California unsealed twin cases against 19 people who, according to agents from the Federal Bureau of Investigation and the Internal Revenue Service, skimmed nearly $13 million in equity from 115 homeowners coast to coast under the guise of a mortgage rescue.
Real-estate scammers "took advantage of the elevated market that peaked in 2005, and here now the vultures are waiting as the market goes down," said U.S. Attorney McGregor Scott of Sacramento.
Click for Full article
March 25, 2008; Page A3
Wall Street Journal
Federal officials say a wave of opportunistic scams are targeting homeowners trying to avoid foreclosure in the current housing downturn.
Monday, prosecutors in California unsealed twin cases against 19 people who, according to agents from the Federal Bureau of Investigation and the Internal Revenue Service, skimmed nearly $13 million in equity from 115 homeowners coast to coast under the guise of a mortgage rescue.
Real-estate scammers "took advantage of the elevated market that peaked in 2005, and here now the vultures are waiting as the market goes down," said U.S. Attorney McGregor Scott of Sacramento.
Click for Full article
Wednesday, March 19, 2008
Stratfor's take on Fed Rate Cut Decision
The U.S. Federal Reserve reduced its headline interest rates from 3 percent to 2.25 percent on Tuesday afternoon. The cut, which was a quarter point less than the consensus expectation of 1 percent, followed the Fed’s March 16 redefinition of the rules of borrowing. Nevertheless, the U.S. markets did not plummet in disappointment.
It is always difficult to understand the Fed’s reasoning. A guess would be that this actually was an attempt to instill confidence in markets. A full point cut might have been perceived as ongoing panic, while a smaller cut might have been seen as too much concern about inflation — not a trivial fear, but not good for the markets. A three-quarter point cut may have been an attempt to cut interest rates while still showing some confidence.
For the most part, the Federal Reserve prefers to ignore the financial markets along with all of the noise that is a regular feature in the world of Wall Street. It is not that there is no money or discussions of economic import occurring there — far from it — but that the Fed sees the financial markets as simply one aspect of the entire economy, and a rather erratic aspect at that. Better, goes the Fed’s thinking, to focus on the nuts and bolts of the “real” economy so that the entire thing can be kept on an even keel.
The Fed in this case is worried about the equity markets. The decline in housing prices already has taken a cut out of the net worth of individuals while hurting institutions holding mortgages of various sorts. A full-blown bear market on top of the decline in home values might have concerned the Fed more than a usual downturn would have. The double whammy of housing price declines and stock market crashes could have been devastating, even to an economy as large as the United States’. Therefore, the Fed appears to be exceedingly concerned about keeping the U.S. equity markets from tanking and is paying attention to its psychology as well as the fundamentals.
In reality, the housing correction is rather mild by historical standards, and the stock markets — only down by roughly 15-20 percent since the start of the subprime problems — are not exactly terrifying compared to previous stock crashes. But tell that to the people on Wall Street who live and breathe on the day-to-day deltas in both worlds. Their panic — and the place they occupy between the Fed, the housing market and the stock markets — is forcing the Fed to take actions that it would prefer not to.
The last time the Federal Reserve felt it necessary to enact sharp cuts when the danger to the real economy was this nebulous was during the Alan Greenspan era in the early weeks after the 9/11 attacks. Then, a cascade of rate cuts — one for a full percentage point — pared rates to the bone. In retrospect, the Federal Reserve probably overreacted. The benefit of hindsight tells us that the American recovery — not recession — began in October 2001. But the perception at the time was that the system itself might have been in danger, so there was no reason to spare the horses.
Now, as in 2001, the actual threat probably is not as bad as it seems. Now, as in 2001, the Fed’s goal is to assuage panic. But now, unlike in 2001, the panic is largely constrained to Wall Street.
That distinction provides the Federal Reserve with the opportunity to draw a line between Wall Street’s expectations and reality. The Street was expecting a rate cut of 1 percent or even more. The Fed ultimately gave up “only” three-quarters of a percent. The subtext is that the Fed is not as concerned as the Street about what is going on out there. It is a subtle difference, but one that is required to prevent the likes of Enron from being more than a footnote in American corporate history.
Click Here to Send Stratfor Your Comments
It is always difficult to understand the Fed’s reasoning. A guess would be that this actually was an attempt to instill confidence in markets. A full point cut might have been perceived as ongoing panic, while a smaller cut might have been seen as too much concern about inflation — not a trivial fear, but not good for the markets. A three-quarter point cut may have been an attempt to cut interest rates while still showing some confidence.
For the most part, the Federal Reserve prefers to ignore the financial markets along with all of the noise that is a regular feature in the world of Wall Street. It is not that there is no money or discussions of economic import occurring there — far from it — but that the Fed sees the financial markets as simply one aspect of the entire economy, and a rather erratic aspect at that. Better, goes the Fed’s thinking, to focus on the nuts and bolts of the “real” economy so that the entire thing can be kept on an even keel.
The Fed in this case is worried about the equity markets. The decline in housing prices already has taken a cut out of the net worth of individuals while hurting institutions holding mortgages of various sorts. A full-blown bear market on top of the decline in home values might have concerned the Fed more than a usual downturn would have. The double whammy of housing price declines and stock market crashes could have been devastating, even to an economy as large as the United States’. Therefore, the Fed appears to be exceedingly concerned about keeping the U.S. equity markets from tanking and is paying attention to its psychology as well as the fundamentals.
In reality, the housing correction is rather mild by historical standards, and the stock markets — only down by roughly 15-20 percent since the start of the subprime problems — are not exactly terrifying compared to previous stock crashes. But tell that to the people on Wall Street who live and breathe on the day-to-day deltas in both worlds. Their panic — and the place they occupy between the Fed, the housing market and the stock markets — is forcing the Fed to take actions that it would prefer not to.
The last time the Federal Reserve felt it necessary to enact sharp cuts when the danger to the real economy was this nebulous was during the Alan Greenspan era in the early weeks after the 9/11 attacks. Then, a cascade of rate cuts — one for a full percentage point — pared rates to the bone. In retrospect, the Federal Reserve probably overreacted. The benefit of hindsight tells us that the American recovery — not recession — began in October 2001. But the perception at the time was that the system itself might have been in danger, so there was no reason to spare the horses.
Now, as in 2001, the actual threat probably is not as bad as it seems. Now, as in 2001, the Fed’s goal is to assuage panic. But now, unlike in 2001, the panic is largely constrained to Wall Street.
That distinction provides the Federal Reserve with the opportunity to draw a line between Wall Street’s expectations and reality. The Street was expecting a rate cut of 1 percent or even more. The Fed ultimately gave up “only” three-quarters of a percent. The subtext is that the Fed is not as concerned as the Street about what is going on out there. It is a subtle difference, but one that is required to prevent the likes of Enron from being more than a footnote in American corporate history.
Click Here to Send Stratfor Your Comments
Why do mortgage rates go up when the Federal Reserve cuts rates?
from Brian Woolley
Countryridge Financial, a subsidiary of Metrocities Mortgage
The Federal Open Market Committee lowered the Fed Funds Rate to 2.250 percent yesterday while leaving the door open for future rate cuts.
Stock markets cheered the Fed's move; the Dow Jones Industrial Average rallied 400 points in the wake of the announcement.
Meanwhile, the cash that fueled the stock gains had to come from somewhere and one of those places was the bond market. It's no surprise, therefore, that following the FOMC's press release, 30-year fixed rate mortgages spiked by 0.250%.
Stated more clearly: The Fed cut the Fed Funds Rate and mortgage rates went up.
Every time that the Federal Reserve cuts the Fed Funds Rate, it's an explicit signal the economy needs a trickle-down jumpstart.
When the Fed Funds Rate is lower, doing business is cheaper for banks, who in turn make it cheaper for businesses to do business, who in turn make it cheaper for consumers to live life.
This process can take up to a year for each rate cut or rate hike.
Meanwhile, as the changes to the Fed Funds Rate trickle their way through the economy, carrying on ordinary, day-to-day activities gets "cheaper" for everyone in the country. There's more money left for discretionary items, or investment in capital items, or whatever.
For example, the Federal Reserve has cut the Fed Funds Rate by 3.000 percent since September.
American consumers borrow $2.5 trillion on their credit cards so the 3-point reduction equates to $75,000,000,000 in interest payment savings.
You can only imagine what the reduction can do for businesses because businesses borrow far more money than consumers.
So, when the Fed cuts rates, its hope is that most of these "savings" get pumped back into the economy somehow. This is how rate cuts can lead to economic growth .
Sometimes, though, the growth is uncontrolled.
The fancy word for this situation is "inflation" and inflation is the enemy of mortgage bonds; it erodes the value of U.S. dollars and that's the currency in which mortgage bond payments are made.
So, it makes sense that mortgage rates rise when the Fed cuts the Fed Funds Rate. By stimulating the economy, the Federal Reserve is making long-term inflation much more likely.
Some people think the Federal Reserve is foolish right now but the FOMC voters don't seem to care. They are more concerned with relieving short-term pressures on the economy and will deal with what comes later, later.
Even if it's runaway inflation.
Brian Woolley is one of our favorite lenders
Knowledgeable, Experienced, Trusted
661-290-3700
Countryridge Financial is associated with Keller Williams VIP Properties in Santa Clarita
Countryridge Financial, a subsidiary of Metrocities Mortgage
The Federal Open Market Committee lowered the Fed Funds Rate to 2.250 percent yesterday while leaving the door open for future rate cuts.
Stock markets cheered the Fed's move; the Dow Jones Industrial Average rallied 400 points in the wake of the announcement.
Meanwhile, the cash that fueled the stock gains had to come from somewhere and one of those places was the bond market. It's no surprise, therefore, that following the FOMC's press release, 30-year fixed rate mortgages spiked by 0.250%.
Stated more clearly: The Fed cut the Fed Funds Rate and mortgage rates went up.
Every time that the Federal Reserve cuts the Fed Funds Rate, it's an explicit signal the economy needs a trickle-down jumpstart.
When the Fed Funds Rate is lower, doing business is cheaper for banks, who in turn make it cheaper for businesses to do business, who in turn make it cheaper for consumers to live life.
This process can take up to a year for each rate cut or rate hike.
Meanwhile, as the changes to the Fed Funds Rate trickle their way through the economy, carrying on ordinary, day-to-day activities gets "cheaper" for everyone in the country. There's more money left for discretionary items, or investment in capital items, or whatever.
For example, the Federal Reserve has cut the Fed Funds Rate by 3.000 percent since September.
American consumers borrow $2.5 trillion on their credit cards so the 3-point reduction equates to $75,000,000,000 in interest payment savings.
You can only imagine what the reduction can do for businesses because businesses borrow far more money than consumers.
So, when the Fed cuts rates, its hope is that most of these "savings" get pumped back into the economy somehow. This is how rate cuts can lead to economic growth .
Sometimes, though, the growth is uncontrolled.
The fancy word for this situation is "inflation" and inflation is the enemy of mortgage bonds; it erodes the value of U.S. dollars and that's the currency in which mortgage bond payments are made.
So, it makes sense that mortgage rates rise when the Fed cuts the Fed Funds Rate. By stimulating the economy, the Federal Reserve is making long-term inflation much more likely.
Some people think the Federal Reserve is foolish right now but the FOMC voters don't seem to care. They are more concerned with relieving short-term pressures on the economy and will deal with what comes later, later.
Even if it's runaway inflation.
Brian Woolley is one of our favorite lenders
Knowledgeable, Experienced, Trusted
661-290-3700
Countryridge Financial is associated with Keller Williams VIP Properties in Santa Clarita
OFHEO opens floodgates of liquidity for Fannie and Freddie
Fannie and Freddie's regulator unveiled a reduction of the capital the firms must hold to 20% from 30% previously. Ofheo said the move could provide up to $200 billion in immediate liquidity to the troubled mortgage-backed securities market. "We believe they can play an even more positive role in providing the stability and liquidity the markets need right now," Ofheo Director James Lockhart said in a statement.
This reduction combined with the increase of the portfolio caps announced last month should allow Freddie and Fannie to purchase or guarantee about $2 trillion in mortgages this year. This capacity should allow them to assist in subprime refinancing and loan modifications and do more in the jumbo mortgage market which they have been granted temporary permission to enter.
Treasury Secretary Paulson lauded the move. "Additional capital will enable the companies to help more homeowners and will strengthen the underlying fundamentals of the mortgage market," he said.
For more information see: http://online.wsj.com/article/SB120593069669648325.html?mod=djemalertNEWS
This reduction combined with the increase of the portfolio caps announced last month should allow Freddie and Fannie to purchase or guarantee about $2 trillion in mortgages this year. This capacity should allow them to assist in subprime refinancing and loan modifications and do more in the jumbo mortgage market which they have been granted temporary permission to enter.
Treasury Secretary Paulson lauded the move. "Additional capital will enable the companies to help more homeowners and will strengthen the underlying fundamentals of the mortgage market," he said.
For more information see: http://online.wsj.com/article/SB120593069669648325.html?mod=djemalertNEWS
No Good Options, but Better than Doing Nothing
We live in interesting times!
The week has been historic in the financial and housing markets with all of the moves by the Federal Reserve, the Treasury, and the regulatory agencies to soften the decline in housing prices and the increase in the foreclosure rate.
Excesses in housing with cheap money and lax lending standards, as well as enough fingers of blame for all parties to make it look like a circular firing squad, has led to where we are. As I have recently written in a column titled "I'm from the Government, and I'm here to help you", all of the policy options are pretty bad, and usually when the government gets involved in markets, the pain goes deeper and lasts longer. Time will tell as to whether this will hold true. After all, Congress has not made any impact on the situation yet, other than the usual hot air of promises and more promises. They still have plenty of time during this election year to make really bad policy decisions in legislation. Given the anti-mania in the housing market, some of it will actually get passed in all likelihood. Lenders will have money to lend, and the interest rates are attractive for right now.
The brief take-away is: all of the mucky-mucks will ensure that housing and the financial markets do not collapse right before the election.
For now 'le crisis de jour' has been averted, there's lots of activity and adjustments, panic has abated, and it's OK to buy and sell property.
Give me a call at 661-287-9164 if you want to buy or sell residential real estate in our market area.
The week has been historic in the financial and housing markets with all of the moves by the Federal Reserve, the Treasury, and the regulatory agencies to soften the decline in housing prices and the increase in the foreclosure rate.
Excesses in housing with cheap money and lax lending standards, as well as enough fingers of blame for all parties to make it look like a circular firing squad, has led to where we are. As I have recently written in a column titled "I'm from the Government, and I'm here to help you", all of the policy options are pretty bad, and usually when the government gets involved in markets, the pain goes deeper and lasts longer. Time will tell as to whether this will hold true. After all, Congress has not made any impact on the situation yet, other than the usual hot air of promises and more promises. They still have plenty of time during this election year to make really bad policy decisions in legislation. Given the anti-mania in the housing market, some of it will actually get passed in all likelihood. Lenders will have money to lend, and the interest rates are attractive for right now.
The brief take-away is: all of the mucky-mucks will ensure that housing and the financial markets do not collapse right before the election.
For now 'le crisis de jour' has been averted, there's lots of activity and adjustments, panic has abated, and it's OK to buy and sell property.
Give me a call at 661-287-9164 if you want to buy or sell residential real estate in our market area.
Sunday, March 16, 2008
Seminar on how to avoid your own Mortgage Meltdown
Residents are invited to a free informational session at City Hall.
On Monday, March 17th, whether your house is in foreclosure or not, you can come down to City Hall and get some advice on how to avoid a mortgage meltdown. At the seminar, which will begin at 6 p.m., you will get a chance to talk with credit counselors, learn about your rights, and get tips on how to avoid fraud and scams.
There will be no sales pitches or come-ons, only information from experts so you can make informed decisions and avoid foreclosure. U.S. Congressman Howard “Buck” McKeon said that he hopes the session will help residents get answers to their questions. “We encourage anyone that has any questions at all about their mortgage or other things that might put them in jeopardy of foreclosure, to come down to City Hall on Monday the 17th, and hopefully they will find help there.”
Space is limited, so to reserve your spot, call (661) 298-1220.
On Monday, March 17th, whether your house is in foreclosure or not, you can come down to City Hall and get some advice on how to avoid a mortgage meltdown. At the seminar, which will begin at 6 p.m., you will get a chance to talk with credit counselors, learn about your rights, and get tips on how to avoid fraud and scams.
There will be no sales pitches or come-ons, only information from experts so you can make informed decisions and avoid foreclosure. U.S. Congressman Howard “Buck” McKeon said that he hopes the session will help residents get answers to their questions. “We encourage anyone that has any questions at all about their mortgage or other things that might put them in jeopardy of foreclosure, to come down to City Hall on Monday the 17th, and hopefully they will find help there.”
Space is limited, so to reserve your spot, call (661) 298-1220.
Thursday, March 13, 2008
U.S. to Revamp Credit Rules
from The Wall Street Journal
March 12, 2008
Top economic policy makers plan to release Thursday their broadest plan yet for avoiding a recurrence of the current credit crunch. Treasury Secretary Paulson said that recommendations, which extend to nearly every niche in the credit markets, include strengthening oversight of mortgage lenders and brokers and requiring more disclosure by ratings firms.
http://online.wsj.com/article/SB120535743939031491.html?mod=djemalertNEWS
March 12, 2008
Top economic policy makers plan to release Thursday their broadest plan yet for avoiding a recurrence of the current credit crunch. Treasury Secretary Paulson said that recommendations, which extend to nearly every niche in the credit markets, include strengthening oversight of mortgage lenders and brokers and requiring more disclosure by ratings firms.
http://online.wsj.com/article/SB120535743939031491.html?mod=djemalertNEWS
Monday, March 10, 2008
Neither a Borrower nor a Lender Be?
Ever have a friend or family member ask for a loan? It can be awkward, and for many the knee-jerk reaction is to just pull out the checkbook. But having the funds available to extend a loan is often not the point when it comes to lending money... it's knowing when or if you will ever receive your hard earned funds back.
According to a Federal Reserve survey, over 8% of Americans have loans that have been extended to friends and family. By some estimates, these loans total a whopping $89 billion and an eyebrow-raising default rate of 14%, versus just 1% for those who borrow from a bank. So before you decide to play banker with your friends and family, consider these steps to help avoid a potentially ugly situation.
Don't Commit Right Away. When asked for a personal loan, don't say yes right away, especially if the sum of money is large. It has been said that "quick to borrow is always slow to pay." So while you want to show compassion for the friend or family member and tell them you would like to help, explain that you need a few days to review your financial situation and make a decision. Perhaps another solution will come to them in the meantime.
Just Say No. If possible, try to avoid lending the money. Statistics suggest that the risk of not getting repaid is very high, which could be damaging to your relationship. HOWEVER... before you blurt out a blunt "NO," consider the amount requested, provide an explanation that will not hurt your relationship, and offer to help in a non-financial way. Or consider giving a smaller amount as a gift, with no expectations of repayment. This allows you to be generous on your own terms, and removes the potentially heated issue of non-repayment.
Be Specific. If you do decide to extend a loan, sit down with your friend or family member and set expectations. And don't beat around the bush... be very specific about the term of the loan, interest rate, payment plan, even the penalty that will be incurred should a payment be missed.
Get It In Writing. Always put the terms in writing. Seven out of ten personal loans are not put in writing... but again, consider the markedly higher default rate of non-documented loans. A written agreement reinforces that you are serious about the repayment terms discussed, and it prevents any potential misunderstandings. Promissory notes can be purchased online at www.nolo.com for a reasonable price. If the loan is large or complex it may be most beneficial to have an attorney draw up an agreement. Make sure the loan papers are filed away in a safe location, and then keep good records.
One important note, if the loan is in excess of $10,000 or the money will finance income-producing activities, the IRS expects you to charge a certain amount of interest...and claim it as taxable income, of course. To find the current rates, visit www.irs.gov and search for AFR (Applicable Federal Rates). You can also contact your trusted CPA for advice--or if you don't have one, ask me--I may be able to provide a referral.
According to a Federal Reserve survey, over 8% of Americans have loans that have been extended to friends and family. By some estimates, these loans total a whopping $89 billion and an eyebrow-raising default rate of 14%, versus just 1% for those who borrow from a bank. So before you decide to play banker with your friends and family, consider these steps to help avoid a potentially ugly situation.
Don't Commit Right Away. When asked for a personal loan, don't say yes right away, especially if the sum of money is large. It has been said that "quick to borrow is always slow to pay." So while you want to show compassion for the friend or family member and tell them you would like to help, explain that you need a few days to review your financial situation and make a decision. Perhaps another solution will come to them in the meantime.
Just Say No. If possible, try to avoid lending the money. Statistics suggest that the risk of not getting repaid is very high, which could be damaging to your relationship. HOWEVER... before you blurt out a blunt "NO," consider the amount requested, provide an explanation that will not hurt your relationship, and offer to help in a non-financial way. Or consider giving a smaller amount as a gift, with no expectations of repayment. This allows you to be generous on your own terms, and removes the potentially heated issue of non-repayment.
Be Specific. If you do decide to extend a loan, sit down with your friend or family member and set expectations. And don't beat around the bush... be very specific about the term of the loan, interest rate, payment plan, even the penalty that will be incurred should a payment be missed.
Get It In Writing. Always put the terms in writing. Seven out of ten personal loans are not put in writing... but again, consider the markedly higher default rate of non-documented loans. A written agreement reinforces that you are serious about the repayment terms discussed, and it prevents any potential misunderstandings. Promissory notes can be purchased online at www.nolo.com for a reasonable price. If the loan is large or complex it may be most beneficial to have an attorney draw up an agreement. Make sure the loan papers are filed away in a safe location, and then keep good records.
One important note, if the loan is in excess of $10,000 or the money will finance income-producing activities, the IRS expects you to charge a certain amount of interest...and claim it as taxable income, of course. To find the current rates, visit www.irs.gov and search for AFR (Applicable Federal Rates). You can also contact your trusted CPA for advice--or if you don't have one, ask me--I may be able to provide a referral.
Thursday, March 06, 2008
Home Equity in U.S. Hits New Low
from Mortgage News Daily March 6, 2008
The Federal Reserve on Thursday announced that, in 2007, American ownership in their homes as measured by equity fell below 50 percent for the first time since records were first kept in 1945.
During the 2nd quarter of 2007 the central bank reported that homeowners' equity slipped to a downwardly revised 49.6 percent and slipped further to 47.9 percent in the fourth quarter. This was the third straight quarter that equity was under 50 percent.
Home equity is a measure of the market value of the home minus the mortgage-related debt. Because Americans have repeatedly cashed out the equity in their homes through cash out refinancing, home equity loans and high loan to value mortgages, equity has steadily declined even in the midst of the surging prices of the housing bubble.
The total value of equity also fell for the third straight quarter to $9.65 trillion from a downwardly revised $9.93 trillion in the third quarter.
In related news, the Mortgage Bankers Association released its fourth quarter delinquency report which showed the home foreclosures and the number of homes entering the foreclosure process both rose to record highs.
Most of the foreclosures and delinquencies could be tied to subprime loans where the delinquency rate (usually loan payments 60 or more days late) was up 1 percent from the third quarter to 17.31 percent of all outstanding loans. The delinquency rate for all loans was 5.82 percent, up from 4.95 percent one year earlier and the highest since 1985. In addition, 0.83 percent of loans entered the foreclosure process during the fourth quarter. This surpassed the previous record of 0.78 percent during the third quarter. One year earlier the rate was 0.54 percent.
Late payments, those 30 or more days overdue, also set a new record of 20.02 percent of all loans in the fourth quarter. The previous record was set in the third quarter at 18.81 percent.
The Federal Reserve on Thursday announced that, in 2007, American ownership in their homes as measured by equity fell below 50 percent for the first time since records were first kept in 1945.
During the 2nd quarter of 2007 the central bank reported that homeowners' equity slipped to a downwardly revised 49.6 percent and slipped further to 47.9 percent in the fourth quarter. This was the third straight quarter that equity was under 50 percent.
Home equity is a measure of the market value of the home minus the mortgage-related debt. Because Americans have repeatedly cashed out the equity in their homes through cash out refinancing, home equity loans and high loan to value mortgages, equity has steadily declined even in the midst of the surging prices of the housing bubble.
The total value of equity also fell for the third straight quarter to $9.65 trillion from a downwardly revised $9.93 trillion in the third quarter.
In related news, the Mortgage Bankers Association released its fourth quarter delinquency report which showed the home foreclosures and the number of homes entering the foreclosure process both rose to record highs.
Most of the foreclosures and delinquencies could be tied to subprime loans where the delinquency rate (usually loan payments 60 or more days late) was up 1 percent from the third quarter to 17.31 percent of all outstanding loans. The delinquency rate for all loans was 5.82 percent, up from 4.95 percent one year earlier and the highest since 1985. In addition, 0.83 percent of loans entered the foreclosure process during the fourth quarter. This surpassed the previous record of 0.78 percent during the third quarter. One year earlier the rate was 0.54 percent.
Late payments, those 30 or more days overdue, also set a new record of 20.02 percent of all loans in the fourth quarter. The previous record was set in the third quarter at 18.81 percent.
New loan limits are $729,750 for both FHA and Conforming loans!
This is good news for our housing market!!
New loan limits are $729,750 for both FHA and Conforming loans!
As expected, the Department of Housing and Urban Development (HUD), announced higher loan limits yesterday for both FHA and Conventional loans. Loan limits are calculated County-by-County, based on median housing prices. These new limits are applicable to loans Los Angeles, Ventura and Orange Counties. The jump in FHA and Conventional loan limits is quite large as they were previously $362,790 and $417,000 respectively. This should mean lower interest rates for loan amounts that previously fell into the Jumbo category!
New loan limits are $729,750 for both FHA and Conforming loans!
As expected, the Department of Housing and Urban Development (HUD), announced higher loan limits yesterday for both FHA and Conventional loans. Loan limits are calculated County-by-County, based on median housing prices. These new limits are applicable to loans Los Angeles, Ventura and Orange Counties. The jump in FHA and Conventional loan limits is quite large as they were previously $362,790 and $417,000 respectively. This should mean lower interest rates for loan amounts that previously fell into the Jumbo category!
The Death Of The HELOC...Millions Of Homeowners Feeling Fear And Panic
by Tim and Julie Harris
Most major lenders are freezing access to Home Equity Lines of Credit (HELOCs) . Millions of Americans use their HELOCs as their families security blanket to weather any unplanned financial storms. If you were planning on using your HELOC for spring home improvements, medical bills or college tuition, chances are the money has been, or will be shut off.
Most major lenders have been working together in collusion. Behind closed doors, these lenders have created a secret plan to cut off access to your home equity lines of credit.
You must be aware that the lender retains the right to cut off or reduce your line of credit at their sole discretion. Lenders are now arbitrarily reassessing properties and then locking out access for homeowners when the lenders believe the property has negative equity.
What can you do about this when you are affected?
Nothing.
From Countrywide, (this is part of a letter sent to home owners):
'Important message about your loan: At Countrywide Home Loans we are committed to helping customers sustain homeownership. As part of the commitment, and in keeping with its sound risk-management and responsible lending practices, Countrywide Home Loan is reviewing and analyzing home equity lines of credit in its servicing portfolio.
As you know, home values in many areas of the country have declined. We believe that the decline in the value of your property, from its original appraised value at the time your loan was made is significant. In accordance with the terms of your Home Equity Credit Line Agreement and Disclosure Statement (Agreement), we have elected to suspend further draws against your account as of the Effective Date above.'
More Than 122,000 Have Already Lost The Right To Borrow From Their Credit Lines And We Are Just Getting Started.
On Friday, the Los Angeles Times reported that Countrywide notified many homeowners they've lost their right to borrow against their credit lines:
'Tens of thousands of homeowners with home equity lines of credit are getting a rude surprise: They've been told by their lender that they can no longer take money out on their credit lines because sinking home prices have left them with little or no equity.
Among the lenders taking such action is Countrywide Financial Corp., which sent 122,000 letters to customers last week telling them they could no longer borrow against their credit lines. In some cases, according to the company, the borrowers are now "upside down"—the total debt on the home exceeds the market value of the property.
Calabasas-based Countrywide, the nation's largest mortgage lender, says it uses computer modeling that factors in changes in home prices to determine which customers will have their money tap shut off.'
Countrywide is not alone. This is a partial list of the Mortgage Lenders who are sending HELOC freeze letters now.
Bank of America - HELOC Freeze
Countrywide - HELOC Freeze
Chase - HELOC Freezes
CitiGroup - HELOC Freeze under review
National City - HELOC Freeze
Suntrust - HELOC Freeze
USAA Federal Savings - HELOC Feeeze
Washington Mutual - HELOC Freeze
If there was any question that consumers were feeling the financial pinch before...just wait until they are told that their homes are worth LESS than what they owe. In the words of Countrywide..."Significantly Less." What effect will this have on the economy...think this will make consumers feel more confident about housing?
Most major lenders are freezing access to Home Equity Lines of Credit (HELOCs) . Millions of Americans use their HELOCs as their families security blanket to weather any unplanned financial storms. If you were planning on using your HELOC for spring home improvements, medical bills or college tuition, chances are the money has been, or will be shut off.
Most major lenders have been working together in collusion. Behind closed doors, these lenders have created a secret plan to cut off access to your home equity lines of credit.
You must be aware that the lender retains the right to cut off or reduce your line of credit at their sole discretion. Lenders are now arbitrarily reassessing properties and then locking out access for homeowners when the lenders believe the property has negative equity.
What can you do about this when you are affected?
Nothing.
From Countrywide, (this is part of a letter sent to home owners):
'Important message about your loan: At Countrywide Home Loans we are committed to helping customers sustain homeownership. As part of the commitment, and in keeping with its sound risk-management and responsible lending practices, Countrywide Home Loan is reviewing and analyzing home equity lines of credit in its servicing portfolio.
As you know, home values in many areas of the country have declined. We believe that the decline in the value of your property, from its original appraised value at the time your loan was made is significant. In accordance with the terms of your Home Equity Credit Line Agreement and Disclosure Statement (Agreement), we have elected to suspend further draws against your account as of the Effective Date above.'
More Than 122,000 Have Already Lost The Right To Borrow From Their Credit Lines And We Are Just Getting Started.
On Friday, the Los Angeles Times reported that Countrywide notified many homeowners they've lost their right to borrow against their credit lines:
'Tens of thousands of homeowners with home equity lines of credit are getting a rude surprise: They've been told by their lender that they can no longer take money out on their credit lines because sinking home prices have left them with little or no equity.
Among the lenders taking such action is Countrywide Financial Corp., which sent 122,000 letters to customers last week telling them they could no longer borrow against their credit lines. In some cases, according to the company, the borrowers are now "upside down"—the total debt on the home exceeds the market value of the property.
Calabasas-based Countrywide, the nation's largest mortgage lender, says it uses computer modeling that factors in changes in home prices to determine which customers will have their money tap shut off.'
Countrywide is not alone. This is a partial list of the Mortgage Lenders who are sending HELOC freeze letters now.
Bank of America - HELOC Freeze
Countrywide - HELOC Freeze
Chase - HELOC Freezes
CitiGroup - HELOC Freeze under review
National City - HELOC Freeze
Suntrust - HELOC Freeze
USAA Federal Savings - HELOC Feeeze
Washington Mutual - HELOC Freeze
If there was any question that consumers were feeling the financial pinch before...just wait until they are told that their homes are worth LESS than what they owe. In the words of Countrywide..."Significantly Less." What effect will this have on the economy...think this will make consumers feel more confident about housing?
Wednesday, March 05, 2008
Bernanke's Call: Aid Homeowners
Fed Chief Asks Lenders To Take Aggressive Steps To Address Housing Crisis
By GREG IP
March 5, 2008; Page A3
from the Wall Street Journal
Federal Reserve Chairman Ben Bernanke, raising the level of urgency in dealing with the nation's housing crisis, called on lenders to aid struggling homeowners by reducing their principal -- the sum of money they borrowed -- to lessen the likelihood of foreclosure, and endorsed a bigger role for the federal government in backing such mortgages.
Mr. Bernanke's call, in a speech to bankers, is an acknowledgement the current focus on reducing homeowner's monthly payments by modifying their mortgage rates doesn't solve the underlying problem: the increasing number of American homes now worth less than their mortgages. It also suggests Mr. Bernanke is willing to advocate more aggressive measures to address the deepening housing crisis than the Bush administration has endorsed.
"The current housing difficulties differ from those in the past, largely because of the pervasiveness of negative equity positions," Mr. Bernanke told the Independent Community Bankers of America in Orlando yesterday. With negative equity, which means a home is worth less than its mortgage, "a stressed borrower has less ability...and less financial incentive to try to remain in the home.
"In this environment, principal reductions that restore some equity for the homeowner may be a relatively more effective means of avoiding delinquency and foreclosure" than reducing the interest rate," he said.
A "potentially important step" to make this happen, he said, is to expand the ability of the Federal Housing Administration to guarantee larger mortgages and mortgages on which the borrower is, or is about to be, delinquent, in effect having the federal government backstop many loans that would otherwise go into default.
Mr. Bernanke has taken an increasingly activist stance on multiple fronts in battling the housing crisis. He has slashed interest rates, backed fiscal stimulus and has positioned himself between congressional Democrats, who want more government resources committed to preventing foreclosures, and the Treasury, which has focused on voluntary steps by lenders such as modifying interest rates on mortgages.
House Financial Services Committee Chairman Barney Frank (D., Mass.) called the speech an endorsement of his own proposal. "It begins with [lenders] recognizing they've lost money," he said. "Once they've done that we think the FHA should facilitate the refinancing."
During the housing boom, many homes were bought with little or no money down because both buyers and lenders bet on additional home-price appreciation to create equity.
Home prices have been declining nationwide for the last year. At the end of 2006, 7% of mortgage borrowers had negative equity, according to First American CoreLogic, a research firm. A report by economists from Goldman Sachs Group Inc. and Morgan Stanley and two academics estimates that proportion will rise to 21%, or 10.5 million households, if home prices fall 15%, as they expect. Assuming an average mortgage balance of $250,000, that would put $2.6 trillion of mortgage debt "under water," the report said.
The centerpiece of the Bush administration's efforts to stem foreclosures is Hope Now, a program under which mortgage servicers and lenders voluntarily reduce or freeze the interest rates of certain subprime borrowers. Mr. Bernanke said as a result, "workouts" of subprime mortgages rose from about 250,000 in the third quarter of 2007 to 300,000 in the fourth quarter, while workouts of prime mortgages rose from 150,000 to 175,000 in the same period. That pace picked up in January, he said.
Robert Steel, Treasury under secretary for domestic finance, declined to specifically endorse Mr. Bernanke's proposal but said it is "one of the tools" for trying to reduce foreclosures. In an interview with The Wall Street Journal, Mr. Steel said the problems posed by the housing crisis are "hard, new things" with no single, obvious solution.
He noted since the Hope Now initiative was announced last fall, the scale of the rate-reset problem has been diminished by Fed rate cuts, which means many mortgages will reset to lower rates than had previously been assumed.
Many outside experts also believe the focus on resets has been misplaced, given that most subprime defaults occurred even before lower teaser rates reset to higher levels.
Reducing the principal rather than the interest rate is a "very different framework for thinking about the problem," said Andy Laperriere, an analyst at ISI Group, a brokerage firm. He said with so many borrowers under water, "any proposal that helps them will be very expensive for either the financial institution or the taxpayer," and a large program would potentially sweep in millions of borrowers who weren't going to default anyway.
Industry reacted coolly to Mr. Bernanke's proposal. The American Securitization Forum, which represents participants in the market for mortgage-backed securities -- pools of mortgages originated and sold by banks and other lenders -- said it had already developed procedures for modifying loans, including through principal reduction. To reduce principal, firms that service MBS pools on behalf of the end investors need "a clear basis for concluding that the related borrower is unable...rather than simply being unwilling" to repay.
Steve O'Connor, senior vice-president of government affairs at the Mortgage Bankers Association, said lenders should consider principal reduction as one way of helping borrowers as long as it is "consistent with obligations" to MBS investors.
Mr. Bernanke said a principal reduction on a mortgage that's greater than the home's underlying value may make the mortgage's actual value greater by "reducing the risk of default and foreclosure."
J.P. Morgan Chase & Co. said in a statement it has "begun to review the feasibility of principal reductions for pooled loans." Any such reduction "must balance the interests of investors...and the borrowers' needs," it said.
--Damian Paletta and Robin Sidel contributed to this article
By GREG IP
March 5, 2008; Page A3
from the Wall Street Journal
Federal Reserve Chairman Ben Bernanke, raising the level of urgency in dealing with the nation's housing crisis, called on lenders to aid struggling homeowners by reducing their principal -- the sum of money they borrowed -- to lessen the likelihood of foreclosure, and endorsed a bigger role for the federal government in backing such mortgages.
Mr. Bernanke's call, in a speech to bankers, is an acknowledgement the current focus on reducing homeowner's monthly payments by modifying their mortgage rates doesn't solve the underlying problem: the increasing number of American homes now worth less than their mortgages. It also suggests Mr. Bernanke is willing to advocate more aggressive measures to address the deepening housing crisis than the Bush administration has endorsed.
"The current housing difficulties differ from those in the past, largely because of the pervasiveness of negative equity positions," Mr. Bernanke told the Independent Community Bankers of America in Orlando yesterday. With negative equity, which means a home is worth less than its mortgage, "a stressed borrower has less ability...and less financial incentive to try to remain in the home.
"In this environment, principal reductions that restore some equity for the homeowner may be a relatively more effective means of avoiding delinquency and foreclosure" than reducing the interest rate," he said.
A "potentially important step" to make this happen, he said, is to expand the ability of the Federal Housing Administration to guarantee larger mortgages and mortgages on which the borrower is, or is about to be, delinquent, in effect having the federal government backstop many loans that would otherwise go into default.
Mr. Bernanke has taken an increasingly activist stance on multiple fronts in battling the housing crisis. He has slashed interest rates, backed fiscal stimulus and has positioned himself between congressional Democrats, who want more government resources committed to preventing foreclosures, and the Treasury, which has focused on voluntary steps by lenders such as modifying interest rates on mortgages.
House Financial Services Committee Chairman Barney Frank (D., Mass.) called the speech an endorsement of his own proposal. "It begins with [lenders] recognizing they've lost money," he said. "Once they've done that we think the FHA should facilitate the refinancing."
During the housing boom, many homes were bought with little or no money down because both buyers and lenders bet on additional home-price appreciation to create equity.
Home prices have been declining nationwide for the last year. At the end of 2006, 7% of mortgage borrowers had negative equity, according to First American CoreLogic, a research firm. A report by economists from Goldman Sachs Group Inc. and Morgan Stanley and two academics estimates that proportion will rise to 21%, or 10.5 million households, if home prices fall 15%, as they expect. Assuming an average mortgage balance of $250,000, that would put $2.6 trillion of mortgage debt "under water," the report said.
The centerpiece of the Bush administration's efforts to stem foreclosures is Hope Now, a program under which mortgage servicers and lenders voluntarily reduce or freeze the interest rates of certain subprime borrowers. Mr. Bernanke said as a result, "workouts" of subprime mortgages rose from about 250,000 in the third quarter of 2007 to 300,000 in the fourth quarter, while workouts of prime mortgages rose from 150,000 to 175,000 in the same period. That pace picked up in January, he said.
Robert Steel, Treasury under secretary for domestic finance, declined to specifically endorse Mr. Bernanke's proposal but said it is "one of the tools" for trying to reduce foreclosures. In an interview with The Wall Street Journal, Mr. Steel said the problems posed by the housing crisis are "hard, new things" with no single, obvious solution.
He noted since the Hope Now initiative was announced last fall, the scale of the rate-reset problem has been diminished by Fed rate cuts, which means many mortgages will reset to lower rates than had previously been assumed.
Many outside experts also believe the focus on resets has been misplaced, given that most subprime defaults occurred even before lower teaser rates reset to higher levels.
Reducing the principal rather than the interest rate is a "very different framework for thinking about the problem," said Andy Laperriere, an analyst at ISI Group, a brokerage firm. He said with so many borrowers under water, "any proposal that helps them will be very expensive for either the financial institution or the taxpayer," and a large program would potentially sweep in millions of borrowers who weren't going to default anyway.
Industry reacted coolly to Mr. Bernanke's proposal. The American Securitization Forum, which represents participants in the market for mortgage-backed securities -- pools of mortgages originated and sold by banks and other lenders -- said it had already developed procedures for modifying loans, including through principal reduction. To reduce principal, firms that service MBS pools on behalf of the end investors need "a clear basis for concluding that the related borrower is unable...rather than simply being unwilling" to repay.
Steve O'Connor, senior vice-president of government affairs at the Mortgage Bankers Association, said lenders should consider principal reduction as one way of helping borrowers as long as it is "consistent with obligations" to MBS investors.
Mr. Bernanke said a principal reduction on a mortgage that's greater than the home's underlying value may make the mortgage's actual value greater by "reducing the risk of default and foreclosure."
J.P. Morgan Chase & Co. said in a statement it has "begun to review the feasibility of principal reductions for pooled loans." Any such reduction "must balance the interests of investors...and the borrowers' needs," it said.
--Damian Paletta and Robin Sidel contributed to this article
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