T.G.I.F.

Happy Friday. Another week has passed and another Friday is among us. That can only mean one thing. Video Friday's. This weeks video is about a "Bullet Proof Weave Stops Bullet Saves Her Life In Kansas! Attempted Murder Miracle"

Enjoy!!!

Obama unveils first budget plan

NEW YORK (CNNMoney.com) -- President Obama on Thursday pulled back the curtain on his first detailed vision of the federal budget for the next 10 years.

His outline includes an ambitious plan to reform health care, half of which would be paid for by increasing the tax bite on high-income Americans.

Obama has said repeatedly that his first fiscal plan would have a two-pronged mission: to reduce the $1 trillion-plus deficit and make big investments in the future.

The administration estimates that the deficit for fiscal year 2009 will reach $1.75 trillion, or 12.3% of U.S. gross domestic product. That's a record in dollar terms and is the highest as a share of GDP since World War II.

Obama's promise: reduce the deficit he inherited to $533 billion by 2013.

"We will each and every one of us have to compromise on certain things we care about, but which we simply cannot afford right now. That's a sacrifice we're going to have to make," Obama said.

"What I won't do is sacrifice investments that will make America stronger, more competitive and more prosperous in the 21st century," he said.

Obama's outline also reveals how much more money he and his economic team are setting aside to stabilize the financial system. Their estimate: $250 billion. That would be on top of the $700 billion already authorized by Congress under the Troubled Asset Relief Program.

The document the White House delivered to Congress on Thursday is only a broad-stroke preview of the president's formal 2010 fiscal budget request, which is expected out in April. Lawmakers will spend the next several months debating and amending final legislation.

The Obama outline touches on the full scope of the federal government's spending and revenue collection efforts. Some of the highlights include:

Create a $634 billion health care reserve fund: The purpose of the fund would be "dedicated [to] financing reforms to our health care system," according to the budget outline. Among the fund's goals would be to aim for universality of coverage and reduce the growth in insurance premiums.

It would be paid for in two ways. The first, expected to raise $318 billion over 10 years, would limit how much of a deduction high-income taxpayers may take. Instead of reducing their tax liability by their top income tax rate, they wouldn't be allowed to reduce their bill by any more than 28%. So for every $100 in deductions, they would reduce their tax liability by $28.

The second way Obama proposes to pay for the fund is to achieve health care savings by, among other things, reducing payments to private insurance companies offering Medicare and reducing prescription drug prices. The administration estimates these efforts could save $316 billion over 10 years.

The budget outline also notes the $634 billion fund is "not sufficient to fully fund comprehensive reform" but is a first step in the process.

Let tax cuts expire for families making more than $250,000: The president's budget would allow the 2001 and 2003 tax cuts to expire for high income tax filers to help reduce the deficit. The White House estimates doing so could raise $640 billion over 10 years, although Obama's desire to extend those same cuts for lower and middle income families is estimated to increase the deficit by more than $900 billion during the same period.

Make permanent a number of tax breaks from stimulus: The president's budget seeks to make permanent the Making Work Pay credit worth up to $400 per worker ($800 per working family). It also seeks to make permanent the expansion of the child tax credit and the newly enlarged college credit now called the American Opportunity Tax Credit.

Commits more money for renewable energy efforts: Obama's budget will call on Congress to create a cap-and-trade program in which companies would have to pay for permission to emit greenhouse gases. Revenue from the program is intended to pay for a $150 billion renewable energy fund among other things.

Bernanke: Bail out bad borrowers, too

NEW YORK (CNNMoney.com) -- Federal Reserve Chairman Ben Bernanke said Wednesday that the embattled housing market has crippled the economy, and at-risk homeowners need a bailout - even if they knew they couldn't afford their home in the first place.

"Some borrowers presumably knew what they were getting into," Bernanke said before the House Financial Services Committee. "But from a public policy point of view, the large amount of foreclosures are detrimental not just to the borrower and lender but to the broader system."

"In many of these situations we have to trade off the moral hazard issue against the greater good," he added.

Bernanke's comments come after President Obama unveiled a $75 billion plan Feb. 18 to help up to 9 million borrowers suffering from falling home prices and unaffordable monthly payments. Borrowers with little or no equity will be able to refinance their mortgages at the current market rate, and monthly payments will be reduced for at-risk borrowers.

Committee Chairman Barney Frank, D-Mass., said he supported the president's actions, and agreed with Bernanke that moral hazard needs to take a back seat for the time being.

But Bernanke said it is critical that government continue to regulate the markets so a repeat of the mortgage meltdown does not happen again.

"Part of the issue was mortgages that should not have been made and lenders did not take sufficient responsibility," he said. "We must address how we can solve these problems for the future."

Frank said he is committed to introducing legislation before the April recess to increase mortgage lending regulation.

"When we talk about stopping this from repeating itself, we're not simply going on people having had a bad feeling about it," Frank said. "But we are talking about rules and laws that will make it impossible."

Some members of the committee took issue with previous efforts to fix the foreclosure crisis, arguing that the government should have been focused on helping at-risk borrowers instead of easing the credit markets.

"Instead of lifting up the situation of the borrower, federal policy lowered the standards of the lender," said Rep. Jeb Hensarling, R-Texas.

Furthermore, not every committee member was certain that bold, unprecedented action, which Bernanke and the Obama administration have touted, is the right way to go.

"I'm worried that the [government's] policies will only delay the inevitable -- a full correction of the market -- while saddling future generations with trillions of dollars in debt," said Rep. Scott Garrett, R-N.J.
Nationalization, stress tests

Bernanke's testimony comes a day after he cautioned the Senate Banking Committee that a full economic recovery will take "more than two or three years." He reiterated that outlook Wednesday.

The Fed chief also received a barrage of questions about whether the government should take a more active oversight role in financial institutions. Bernanke downplayed talk that the government might have to nationalize some of the country's most troubled banks.

"The debate over nationalization kind of misses the point," said Bernanke. "[The government can] use the already very substantial powers that we already have through supervisory powers, through TARP, to make sure that banks don't just sit there. There's no need to do any radical change."

The Treasury Department is expected to outline its plans to stress test the nation's biggest banks later Wednesday.

Bernanke said he did not believe any of the banks undergoing the stress test are teetering on the verge of collapse and in need of the government taking an active role. He also said that the point of the stress test is to determine if the Treasury needs to prop up banks' capital position so they can weather a worsening recession.

"The outcome of the stress test is not going to be fail or pass," he said. "The outcome of the stress test is how much capital does this bank need in order to meet ... the credit needs of borrowers in our economy."

Bernanke gave this forecast as part of his semi-annual update to Congress about the nation's economic condition.

Home prices in record drop

NEW YORK (CNNMoney.com) -- Home prices declined at a record pace around the nation in the final three months of 2008, according to an industry report released Tuesday.

The S&P Case-Shiller National Home Price Index reported that prices sank a record 18.2% during the last three months of 2008, compared with the same period in 2007.

Case-Shiller's index of 20 major metropolitan areas fell 18.5%, also a record.

"The broad downturn in the residential real estate market continues," said David Blitzer, chairman of the Index Committee at Standard & Poor's, in a statement. "There are very few, if any, pockets of turnaround that one can see in the data."

All 20 metro areas in the 20-city index recorded declines, with home prices falling more than 20% in eight of those cities. National home prices have dropped 26.7% since they peaked during the second quarter of 2006.

In a separate release from the government, the Federal Finance Housing Agency (FFHA) reported that prices on its home purchase index fell 8.2% during the quarter on a year-over-year basis, and 3.4% compared with the third quarter of 2008.

The government index, which used to be known as the OFHEO home price index, differs from the S&P Case-Shiller index in that it only compares sales of homes that are purchased with so-called "conforming loans", ones guaranteed or bought by mortgage giants Fannie Mae and Freddie Mac.

Homes purchased without financing or ones too expensive to qualify for a Fannie-Freddie loan are not counted in the FFHA statistics.
No slowdown

The decline does not seem to be slowing - just the opposite. The average home price dropped 2.5% between November and December in the 20 top metro areas. That was a larger increase than the 2.3% drop a month earlier.

"The deterioration in U.S. home prices continues apace, with the rate of decline picking up steam late last year," said Mike Larson, an analyst with Weiss Research."Rising foreclosure activity is putting pressure on prices, as lenders are increasingly pursuing a 'take what we can get' selling strategy."

Karl Case, the Wellesley economist who, with Yale economist Robert Shiller, co-developed the index, pointed out during a news conference following the index's release that the markets experiencing the steepest falls also enjoyed the biggest run-ups during the boom.

"Those markets were driven by subprime lending expansion from the summer of 2003 on," he said. "After the [Federal Reserve's lowered interest rates] to fight against the recession of 2001, subprime took off like gangbusters."

Sun Belt cities suffered the worst declines, with Phoenix down 34%, Las Vegas off 33% and San Francisco lower by 31.2%. Denver fared best, down 4%, while Dallas was lower by 4.3% and Cleveland slid 6.1%.

Of the nation's three largest housing markets, New York home prices dipped by 9.2%, prices in Los Angeles dropped by 26.4% and Chicago prices declined 14.3%.

Despite the drop in home prices, which has given affordability a big boost, the pace of home sales continues very weak. Existing homes have been selling at an annualized rate of fewer than 5 million, down more than 40% from the peak.

New home sales, at an annualized rate of about 331,000, are at their lowest level since the Census Bureau began keeping records back in 1963.

The worst may be yet to come, according to Peter Schiff, president of Euro Pacific Capital, an investment firm specializing in overseas investments and a noted bear on home prices.

"Prices are going to continue to fall," he said. "They have to reflect economic reality."

That reality includes stock prices down to their lowest level in nearly 12 years. "Where would real estate prices be if they went back to where they were 12 years ago?" said Schiff.

The index statistics do not contain a lot of good news for the future, according to Case.

"We'll learn more in the spring market," he said. "Sales should pick up and we'll begin to see how well the president's program is working. There's no evidence in the data to tell us that home prices will bottom out."

Who won't be helped by housing fix

NEW YORK (CNNMoney.com) -- Don't have a job?

Struggling to keep up with payments on a home worth less than half the mortgage?

Owe way more than your home's value, but can still afford the payments?

Sorry, but you likely aren't among the 9 million people who may get help under President Obama's $75 billion foreclosure prevention program.

The program, unveiled Wednesday, is being hailed as the most comprehensive fix for the foreclosure crisis plaguing the nation. The president says it helps both responsible homeowners suffering from falling home prices and borrowers either at risk of or already in default.

But not everyone will benefit. The program does virtually nothing for the unemployed, who often don't have enough income to make any reasonable monthly payment affordable. And, since it relies more heavily on lowering interest rates than on reducing principal, it does little for borrowers concerned their homes will never recoup their value.

Take Joe Martinez of Bristow, Va., who fits the profile of the "responsible" homeowner Obama cited in the plan. The government contractor and his wife thought they did everything right when they bought their brand new $600,000 house two years ago. They put 5% down and got a 30-year fixed-rate mortgage they could afford.

Others in their neighborhood, however, couldn't keep up with the payments. As foreclosure rose, the value of the couple's home plummeted to $450,000, leaving them doubtful they'd ever recover their investment.

Martinez called their lender to try to get into the Hope for Homeowners program, which would reduce their loan balance to 90% of the home's current value. But they were turned down because they weren't in default.

So two months ago, the couple stopped paying their mortgage, hoping they could then qualify. But even if they don't, they are willing to take the hit on their credit scores to stop throwing money down the drain.

"There's just no point to stay here," said Martinez, 29, adding he could rent the house across the street for half his monthly mortgage payment. "We don't want to give up our home, but it's never going to come back."
Foreclosures will continue

The administration's program isn't designed to help every homeowner, experts said. Nor should it.

"It's a mistake to think we can stop all foreclosures," said Edward Morrison, a professor at Columbia Law School. "Only about one-third of existing foreclosures can be stopped."

The plan calls for loan servicers to modify mortgages for those at risk of or already in default so that the monthly payment is no more than 31% of the borrower's income. This will be done primarily through interest rate reductions, which are more palatable to most servicers than principal write-downs. The federal government will subsidize the interest rate reductions, as well as provide a multitude of incentives for servicers, mortgage investors and borrowers.

Also, borrowers with little or no equity in their homes who are on time with their payments could be eligible to refinance to take advantage of the current low interest rates, which hover around 5%. The plan lifts the guideline that borrowers must have at least 20% equity to refinance, allowing those with loans as large as 105% of their home's value to qualify. This is designed to help people who have seen their equity eaten away by falling home prices.
No job? Out of luck

A growing number of people are falling behind in their payments because they've lost their jobs, ensuring the tidal wave of foreclosures will continue as long as unemployment keeps rising.

It's very tough, however, to help people who lose their income, experts said. Reducing monthly payments can only go so far since the loan's value after modification has to be worth more than it would be if the home were put into foreclosure. Those who lose their jobs often can't make payments large enough to overcome this hurdle.

For these people, the solution often is a short sale, in which the lender agrees to take forgive the loan balance above the home's sale price, experts said.

"In some cases, the homeowners can't stay in the home," said Marietta Rodriguez, director of the National Homeownership Program for NeighborWorks America.

The best way to help the unemployed facing foreclosure is to get them jobs, experts said. The Obama administration is addressing that in the $787 billion economic stimulus package the president signed into law on Tuesday. It is expected to create or save up to 3.5 million jobs.
Underwater borrowers

Many underwater borrowers -- those who owe more than their home is worth -- may find the plan falls short. Some estimates say up to 12 million homeowners may be underwater, with 4 million of them behind on their payments.

The danger is that some of these borrowers may decide it's just not worth it to continue paying if the home isn't likely to recoup its value. This is especially true of those finding it hard to make their payments.

Some struggling borrowers will qualify for lower monthly payments, but they will likely continue to be underwater. The government is offering to reduce their principal by $1,000 a year for five years, but that sum won't do much to bring them back into balance in most cases.

The only way to effectively help those with negative equity in their home is to forgive part of the loan balance, some experts say. They are disappointed that this measure is not given more emphasis in the program.

"Cutting principal is really what's needed to contain foreclosures," said Christian Menegatti, lead analyst for economic research firm RGE Monitor.

Other borrowers, however, are too far gone to get a modification.

"If you're so far underwater, more than about 150 percent loan-to-value, we think you're very unlikely to succeed -- those will not be eligible, as well," Housing Secretary Shaun Donovan said Wednesday.

As for those who can afford their payments, the program contains little to address their housing problems. Only those with loans worth 105% or less of their home's value can partake in the refinancing offer.

Martinez isn't interested in having his interest rate lowered. He would like to see some of his principal forgiven.

"Why would it be such a big deal for them to modify my loan?" he said, noting that his tax dollars are being used to finance the program. "Wouldn't that stabilize the economy?"

Some experts, however, say Martinez is the exception. Those who can make their payments aren't likely to walk away because still need a roof over their head, said Howard Glaser, a mortgage industry consultant.

"Homeowners aren't day traders in their homes," he said. "The investment value is not an issue."

The 2009 Oscars Winners

Good morning everyone,

The 2009 Oscars started with the “traditional” red carpet and showcase of Hollywood stars in their glamorous Academy Awards outfit.

Hugh Jackman probably did a great job hosting this year’s Oscars with his “singing” Oscars opening performance.

And, the 2009 Academy Awards winners are…
Performance by an actress in a supporting role

* Penélope Cruz in “Vicky Cristina Barcelona” (The Weinstein Company)

Adapted screenplay

* “Slumdog Millionaire” (Fox Searchlight), Screenplay by Simon Beaufoy

Original screenplay

* “Milk” (Focus Features), Written by Dustin Lance Black

Best animated feature film of the year

* “WALL-E” (Walt Disney), Andrew Stanton

Best animated short film

* “La Maison en Petits Cubes” A Robot Communications Production, Kunio Kato

Achievement in makeup

* “The Curious Case of Benjamin Button” (Paramount and Warner Bros.), Greg Cannom

Achievement in art direction

* “The Curious Case of Benjamin Button” (Paramount and Warner Bros.), Art Direction: Donald Graham Burt, Set Decoration: Victor J. Zolfo

Achievement in cinematography

* “Slumdog Millionaire” (Fox Searchlight), Anthony Dod Mantle

Achievement in costume design

* “The Duchess” (Paramount Vantage, Pathé and BBC Films), Michael O’Connor

Best live action short film

* “Spielzeugland (Toyland)” A Mephisto Film Production, Jochen Alexander Freydank

Performance by an actor in a supporting role

* Heath Ledger in “The Dark Knight” (Warner Bros.)

Best documentary feature

* “Man on Wire” (Magnolia Pictures), A Wall to Wall Production, James Marsh and Simon Chinn

Best documentary short subject

* “Smile Pinki” A Principe Production, Megan Mylan

Achievement in visual effects

* “The Curious Case of Benjamin Button” (Paramount and Warner Bros.), Eric Barba, Steve Preeg, Burt Dalton and Craig Barron

Achievement in sound editing

* “The Dark Knight” (Warner Bros.), Richard King

Achievement in sound mixing

* “Slumdog Millionaire” (Fox Searchlight), Ian Tapp, Richard Pryke and Resul Pookutty

Achievement in film editing

* “Slumdog Millionaire” (Fox Searchlight), Chris Dickens

Achievement in music written for motion pictures (Original score)

* “Slumdog Millionaire” (Fox Searchlight), A.R. Rahman

Achievement in music written for motion pictures (Original song)

* “Jai Ho” from “Slumdog Millionaire” (Fox Searchlight), Music by A.R. Rahman, Lyric by Gulzar

Best foreign language film of the year

* “Departures” (Regent Releasing), A Departures Film Partners Production, Japan

Achievement in directing

* “Slumdog Millionaire” (Fox Searchlight), Danny Boyle

Performance by an actress in a leading role

* Kate Winslet in “The Reader” (The Weinstein Company)

Performance by an actor in a leading role

* Sean Penn in “Milk” (Focus Features)

Best motion picture of the year

* “Slumdog Millionaire” (Fox Searchlight), A Celador Films Production, Christian Colson, Producer

T.G.I.F.

Good Morning Everyone,

This morning I was treated to waking up to this wonderful song by Coldplay. So, this weeks video is called "Viva La Vida". Enjoy the great weekend!

Most affordable city in the nation

NEW YORK (CNNMoney.com) -- Crashing home prices have led to the most affordable housing market in at least five years, according to the National Association of Home Builders/Wells Fargo Housing Opportunity Index released Thursday.

More than 60% of all U.S. homes sold during the last three months of 2008 were affordable - meaning that a family making the national median of $61,500 a year would pay 28% or less of their total income toward housing expenses.

At 62.4% affordable, the figure is up considerably from 56.1% in the previous quarter and 46.6% at the end of 2007, according to the report.

Topping the list of most affordable U.S. metro areas, which ranks areas with more than 500,000 in population, was Indianapolis. This is the city's 14th consecutive quarter in first place; it boasts a full 93% of all homes sold being affordable to median family households.

The least affordable was the New York City metro area, where only 13.9% of homes sold met the criteria.

In the fourth quarter, the national median home price fell to $190,000 from $205,700 in the previous-year period, according to a report issued last week by the National Association of Realtors. That combined with falling mortgage rates has made home buying the most affordable it has been since early 2002.

"Falling home prices and very favorable mortgage rates both contributed to the housing affordability gains we saw in the fourth quarter of 2008," NAHB Chairman Joe Robson, a homebuilder from Tulsa, Okla., said in a prepared statement.

That still wasn't enough to get moribund housing markets moving again. Existing homes sold at an annualized rate of 4.74 million in December, according to the National Association of Realtors, down from more than 7 million during the boom.

And a government report revealed that new home sales crashed to an annualized rate of 331,000 in December, the lowest since record keeping began in 1963.

"Worsening economic conditions, historically low consumer confidence and uncertainty about future home prices kept many qualified buyers on the sidelines," Robson said.
Still no buying push

That affordability has improved so much does not necessarily make people go house hunting, according to Mike Larson, a real estate analyst with Weiss Research.

"You could argue that house affordability indexes are improving but that may not be the best way of defining whether it's a good time to buy," he said. "Concerns about the economy and whether they're going to still have a job have kept many homebuyers from stepping up to the plate."

During the boom, when house affordability plunged, buyers came out in droves. They were confident in the economy and afraid that home prices would soar out of reach. Today, just the opposite applies.

"Affordability is going to get even better," said Larson. "Home prices are not done falling. Buyers recognize this. There's no sense of urgency, and rightly so."

Indeed, according to Nicholas Retsinas, director of Harvard University's Joint Center for Housing Studies, affordability, which was a major factor in homebuying during the boom, no longer matters very much. In most parts of the United States, affordability has returned to where it was in 2002 or 2003.

"The new barrier is willingness to buy," he said.

That's why one major goal of President Obama's housing-rescue plan involves slowing foreclosures to stabilize housing markets and foster consumer confidence.

"If that happens, maybe people will start thinking, 'Hey, maybe prices won't go down tomorrow,'" said Retsinas.
Most and least affordable

Affordability in Indianapolis, the 33rd largest metro area in the United States with 1.7 million people, was buoyed by fairly high median income of $65,100 and rock-bottom home prices. The median price for a home sold during the quarter was just $103,000, according to the National Association of Home Builders report.

Those prices, combined with reasonable mortgage interest rates, make home-buying in the area a snap. A buyer of a median-priced home putting 20% down would pay only about $450 a month in mortgage expenses.

But even though house buying costs are reasonable, the city's weakening economy meant it did not escape the foreclosure plague. More than 20,000 homes, representing nearly 3% of the city, received a foreclosure filing of some kind in 2008, the 26th highest rate in the nation.

Other most affordable towns were: Warren, Mich. (89.6%); Youngstown, Ohio (89.4%); and Detroit (89.3%).

In the New York City metro area, home prices took a steep dive during the quarter, to $455,000 from $500,000 three months earlier. But even that was not enough to dislodge the city from its rank as the most unaffordable metro area in the land.

Median income in the area is $63,000, less than in Indianapolis and, with home prices more than four times higher than in the Midwestern metropolis, only 13.9% of the homes sold there were affordable to median income families.

That was still a major improvement from two years ago, when only 5.1% of homes sold during the fourth quarter of 2006 were affordable. And New York households have been barely brushed by foreclosure so far with only 0.71% receiving some kind of foreclosure filing during 2008.

Other least-affordable metro areas included San Francisco at 20.6%, where affordability improved greatly from 5.7% during the second quarter of 2007; suburban Long Island, where 25.5% were affordable; and Los Angeles, where 26.9% were. To top of page

Obama: Aid 9 million homeowners

NEW YORK (CNNMoney.com) -- President Obama is unveiling a $75 billion multi-pronged plan Wednesday that seeks to help up to 9 million borrowers suffering from falling home prices and unaffordable monthly payments.

The long-awaited foreclosure fix marks a sharp departure from the Bush administration, which relied mainly on having servicers voluntarily modify troubled mortgages.

Obama, meanwhile, will make it easier homeowners to afford their monthly payments either by refinancing the mortgages or having their loans modified. The president is vastly broadening the scope of the government rescue by focusing on homeowners who are still current in their payments but at risk of default. And he puts billions of federal funds into enticing servicers to modify the loans of those who've already stopped paying.

While still voluntary, the program contains a mix of carrots and sticks for mortgage servicers and investors, both of whom have been seen as resistant to modifying loans. The program would not only give servicers $1,000 for each modification, but would give them another $1,000 a year for three years if the borrower stays current. It will also give $500 to servicers and $1,500 to mortgage holders if they modify at-risk loans before the borrower falls behind.

But the administration is also wielding a big stick. It will work with Congress to amend bankruptcy laws to allow judges to modify mortgages, a step community advocates say is badly needed but that the financial industry abhors.

"In the end, all of us are paying a price for this home mortgage crisis," Obama was expected to say in a speech Wednesday. "And all of us will pay an even steeper price if we allow this crisis to deepen -- a crisis which is unraveling homeownership, the middle class, and the American Dream itself. But if we act boldly and swiftly to arrest this downward spiral, every American will benefit."
Falling home prices

Obama is venturing into new territory to deal with a serious problem plaguing millions of Americans, even those who remain current on their loans. The mortgage meltdown has prompted a steep decline in prices, leaving many homeowners owing more than their house is worth. Nationwide, prices have fallen 17.5%, back to the level they were at in fall 2004, according to Zillow.com.

The administration, which is marketing its plan as help for "responsible homeowners," estimates it can help up to 5 million people.

The plan would help borrowers who owe more than 80% of their home's value to refinance and reduce their monthly payments. Lenders generally won't refinance people who have less than 20% equity in their homes.

But only those who are current on their payments and whose loans are held or guaranteed by Fannie Mae and Freddie Mac are eligible. Also, the new mortgage, including refinancing costs, can't exceed 105% of the current market value of the property, excluding many of the hardest hit. So if your mortgage is $210,000, your property can't be worth less than $200,000.

The program, which begins March 4, allows borrowers to refinance into 15-year or 30-year fixed-rate mortgages at the current market rate, which hovers around 5%. This could benefit those whose mortgages carry higher rates or those in adjustable-rate or interest-only loans, groups of people who could see big rate spikes in the future. The plan, however, will not reduce the loan balance.

For instance, consider a family that took out a $207,000 mortgage at 6.5% on a home originally worth $260,000, but now valued at $221,000. If they refinance to a rate of 5.16%, they could reduce their annual payments by more than $2,300.
Homeowner stability initiative

The administration is also creating a $75 billion initiative to reduce monthly payments for at-risk borrowers by subsidizing interest rates. The goal would be to bring payments to no more than 31% of a borrower's income.

It estimates this program, dubbed the Homeowner Stability Initiative, would help up to 4 million people. It also argues that the measure helps stabilize home prices for all in the neighborhood, maintaining as much as $6,000 in value.

Many homeowners who pay their mortgages on time have railed against the government using taxpayer money to bail out borrowers they see as irresponsible. The administration is joining others in saying that foreclosures hurt everyone because they drag down home values.

"I also want to be very clear about what this plan will not do: It will not rescue the unscrupulous or irresponsible by throwing good taxpayer money after bad loans," Obama was scheduled to say Wednesday. "It will prevent the worst consequences of this crisis from wreaking even greater havoc on the economy. And by bringing down the foreclosure rate, it will help to shore up housing prices for everyone."

The effort would help borrowers -- both those current and delinquent -- who live in their homes lower their monthly payments for five years. The servicer would reduce interest rates so that the monthly obligation is no more than 38% of a borrower's income and then the government would kick in money to bring payments down to 31% of the homeowner's income.

Servicers can also reduce the loan balance to achieve these affordability levels. The government will share in the cost, up to the amount the servicer would have received if it had reduced the interest rates.

Obama's plan also addresses critics who say that some homeowners need extra help because they are carrying so much debt on top of their mortgages. Those with total debt -- including credit cards and auto loans -- equal to 55% of their monthly income must enter a debt counseling program to qualify for a modification.

In addition to providing incentives to servicers and investors, the administration will also reduce borrowers' loan balances by up to $1,000 a year for five years if they keep up with payments.

To entice servicers to modify mortgages in the wake of continuing home price declines, the administration and the Federal Deposit Insurance Corp. have developed a $10 billion insurance fund that will pay mortgage holders additional funds based on declines in a home price index.

The Treasury Department will also develop uniform guidelines for loan modifications, as well as require all financial institutions receiving government funds to participate in the program. Also, all federal agencies that own or guarantee loans will have to apply the guidelines where appropriate.

The Obama plan calls for legal changes to allow judges to modify mortgages during bankruptcy. Judges would be allowed to reduce the loan balance, a measure the financial industry fears because it would lower the value of the mortgage.

Community advocates say this step is required to aid homeowners who can't get help from their servicers. But, if Congress enacts this provision, they predict there will be fewer bankruptcies because servicers will be more diligent in helping homeowners outside of bankruptcy court.
Keeping mortgage rates low

The administration also plans to build on the Bush administration's use of mortgage financiers Fannie Mae (FNM, Fortune 500) and Freddie Mac (FRE, Fortune 500), which were taken over by the federal government in September. The agencies buy loans and securities backed by mortgages from financial institutions, giving them more money to make new loans.

The plan calls for Treasury to strengthen the companies by injecting another $100 billion into each. And it will allow them to buy more mortgages by increasing the size of their portfolios to $900 billion, up from $850 billion.

And, the government will continue to keep prevailing mortgage rates low by buying mortgage-backed securities issued by the agencies. This effort expands a $500 billion purchase plan announced in November that prompted mortgage rates to fall nearly a percentage point.

Citi, JPMorgan temporarily halt foreclosures

NEW YORK (CNNMoney.com) -- JPMorgan Chase and Citigroup Inc. announced plans Friday to temporarily halt foreclosures as the government works to finalize the details of a financial rescue package that could include billions of dollars in aid for struggling homeowners.

The announcements come as regulators and lawmakers have stepped up pressure on financial institutions to suspend foreclosures until the plan comes out.

Vikram Pandit, Citi's (C, Fortune 500) chief executive, and Jamie Dimon, JPMorgan's (JPM, Fortune 500) CEO, both indicated their willingness to suspend foreclosures during testimony before Congress Wednesday.

Citi said the moratorium is effective Feb. 12 and will remain in place until March 12, or until the Obama Administration finalizes the details of its loan modification program, whichever comes first, the bank said.

The suspension will apply to home loans on a borrower's principal residence and to loans serviced by Citi in cases where an understanding has been reached with the investor.

In a letter to Rep. Barney Frank, D-Mass., chair of the House Financial Services Committee, Dimon said JPMorgan has initiated a foreclosure moratorium through March 6, which would extend a program the bank announced last year.

"We believe three weeks is adequate time for the Treasury to announce - and for us to implement - a new plan," Dimon said.

Treasury Secretary Tim Geithner on Tuesday outlined the Administration's priorities for the second half of the $700 billion allocated under the Troubled Asset Relief Program, which includes spending $50 billion on foreclosure relief.

However, the details of that plan have yet to be worked out.

Geithner and Housing Secretary Shaun Donovan have been meeting with banks, housing advocates and trade organizations this week to listen to their foreclosure prevention proposals.

Among the proposals being discussed: requiring homeowners to take an affordability test and undergo a re-appraisal to see if they are eligible for a government subsidy. Regulators are also looking into more efficient ways to modify loans for borrowers already in default.

President Obama will elaborate on the Administration's foreclosure plan Wednesday, when he delivers a speech in Phoenix, White Hose Press Secretary Robert Gibbs told reporters Friday.

"We stand ready to work with you [Frank] to put the appropriate processes in place, including a national modification standard, to reduce the incidence of foreclosure and to encourage long-term, sustainable home mortgages," Dimon wrote.

In November, Citi announced a Homeownership Assistance Program, which was aimed at helping 500,000 Citi borrowers with mortgages worth about $20 billion stay in their homes.

Under that plan, borrowers needed to have "sufficient income" and be "making a good-faith effort" to repay their loans to qualify for assistance, said Steve Silverman, a Citi spokesman. The current moratorium lifts those restrictions, he said.

Separately, mortgage giant Fannie Mae said it will suspend all foreclosure sales and evictions of occupied properties through March 6 in anticipation of the government's mortgage assistance plan.

The company also said it has adopted a national Real Estate Owned Rental Policy that allows renters in Fannie Mae-owned foreclosed properties to remain in their homes or receive financial assistance if they choose to seek new housing.

The company had previously frozen foreclosure sales through January and had ceased evictions through the end of February.

Fannie Mae (FNM, Fortune 500) and fellow government-sponsored lender Freddie Mac (FRE, Fortune 500) are the largest sources of funding for the U.S. housing market, with mortgage portfolios worth $1.7 trillion.

Both companies have suffered major losses as delinquencies rise amid the turmoil in the housing market. In September, Fannie and Freddie were placed into conservatorship by the federal government and have received billions of dollars in federal aid.

T.G.I.F.

Hey everyone,

This weeks video installment had me rolling on the floor laughing. Enjoy!!!

Foreclosures eased in January

NEW YORK (CNNMoney.com) -- The frantic pace of foreclosures eased in January, according to a monthly report released Thursday.

Foreclosure filings - default notices, auction sale notices and bank repossessions - were reported on 274,399 U.S. properties during January, down 10% from December, according to RealtyTrac, the online marketer of foreclosed homes. That was still 18% higher than January 2008.

Lenders repossessed 66,777 homes.

RealtyTrac attributed a large part of the decline to foreclosure moratoriums imposed by mortgage giants Fannie Mae (FNM, Fortune 500) and Freddie Mac (FRE, Fortune 500) as well as other lenders and some states.

"The extensive foreclosure efforts on the part of lenders and government agencies appear to have impacted the January numbers," RealtyTrac CEO James Saccacio said in a prepared statement.

The trend toward foreclosure moratoriums has gained considerable momentum lately.

On Wednesday, the government's Office of Thrift Supervision (OTS) urged OTS-regulated institutions to suspend foreclosures for the principal residences of borrowers until a home-loan modification program is agreed to as part of the Obama administration's Financial Stability Plan (formerly known as TARP).

The plan, which Treasury Secretary Timothy Geithner revealed on Tuesday, devotes $50 billion to foreclosure prevention efforts. Its aim is to reduce monthly payments for at-risk homeowners.

"OTS-regulated institutions would be supporting the national imperative to combat the economic crisis by suspending foreclosures until the new Plan takes hold," OTS Director John Reich said in a prepared statement.

And, during a House Financial Services Committee hearing on Wednesday, chairman Barney Frank voiced his hope that the bank CEOs testifying before the committee would put moratoriums in place that would prevent any unnecessary foreclosures to occur before the administration plan is implemented.

"I would ask all of you now to make sure that we have a moratorium in effect," he said. "Having someone suffer foreclosure because two weeks hadn't gone by for this program [to take effect] would be unacceptable."
Of questionable benefit

Many industry observers question, however, how effective moratoriums have been.

"I think that in some instances, the moratorium gets put to productive use," said Mike Larson, a real estate analyst for Weiss Research. "There are some circumstances - inability to reach borrowers, for example - that delaying foreclosures can help and result in cures for borrowers."

But for the most part, moratoriums just postpone the inevitable. California foreclosure filings dropped following a moratorium that took hold this past September. Total filings there fell from 101,724 in August to just 56,954 in October, a 44% decline.

But the California moratorium only required that lenders speak directly with defaulting borrowers before any foreclosure filings could be issued. That had the impact of delaying filings there by about three months, according to Kevin Stein of the California Reinvestment Coalition. After a few months, those delayed filings started to come back into play and foreclosure notices have been increasing ever since. In January they totaled 76,761.

"We haven't seen any of the moratoriums work on a state level," said Rick Sharga, spokesman for RealtyTrac. "What we see in a huge fall off in foreclosure activity for the length of the moratorium followed by a huge spike. Unless there's a really effective program put in place that will actually cure foreclosures, all moratoriums do is delay them. And that can prolong the housing crisis."

"In most cases, it's just kicking the can down the road," added Larson. "It also asks investors in mortgages to take an even bigger hit as delays just add to their losses. That just makes it more hazardous to the financial community."

Moratoriums do little good for homeowners battered by the economic crisis.

"Considering the staggering number of job losses, it is hard to imagine that there could be any sustainable long-term decline in the number of homes going into foreclosure," said Gail Cunnungham, a spokeswoman for the National Foundation for Credit Counseling.

"Even when they were employed, millions of homeowners struggled to make their mortgage payments, and now with household incomes either cut in half or nonexistent, the mortgage problems in this country are likely to escalate."
Hardest hit areas

Nevada once again recorded the highest foreclosure rate in the nation. One of every 76 households had a filing during January. California, with one for every 173, was second; Arizona, one for every 182, was third; and Florida rounded out the top four with one for every 214. Oregon finished a surprising fifth, with one filing for every 357 households.

"It shows the foreclosure problem is starting to creep up the coast," said Sharga.

The 10 worst-hit cities are located in the Sun Belt, with California metro areas leading the way. The Golden State accounted for six of the top 10, with Merced posting the highest rate. It saw a foreclosure filing for one in every 59 housing units - nearly eight times the national average.

Other poorly performing California cities included Riverside-San Bernardino, which was fourth with one in every 81 households; and Modesto, fifth with one in every 84.

Two Florida cities were in the top 10: Cape Coral-Fort Myers was number third, with a rate of one in 80, and Port St. Lucie was ninth, with one for every 123.

Las Vegas posted the second highest rate in January one in 63 and the Reno area was ninth with one in every 128 households.

How stimulus can help your wallet

NEW YORK (CNNMoney.com) -- Now it's time to make a deal on economic stimulus: Key members of the Senate and House are in talks to craft a final bill. They hope to reach an agreement ASAP.

Whatever they come up with, there's a good chance it will closely resemble the version passed Tuesday by the Senate.

The Senate provisions carry more weight because the Senate, unlike the House, cannot pass a final package without the support of a few Republicans. Only three Republicans voted for the Senate bill. Should the final package's cost or contents be substantially different, those Republican votes could be lost.

So using the Senate as a guide, we took a look at what the financial rescue package might mean for you.

Here's a rundown of many of the measures that would benefit individuals directly. It's likely that many, if not all, of these measures will make it into the final package. CNNMoney.com will update this list as negotiators hammer out a final deal.

Make Work Pay Credit: The bill provides a $500 credit per worker and a $1,000 credit per dual-earner couple. The full credit would be paid to people making $70,000 or less ($140,000 per dual-earner couple). It would also be refundable, which means that even very low-income families who don't make enough to owe income tax would be able to claim it. Estimated cost: $139.4 billion.

One-time payments to those who don't work: For seniors who don't work, as well as disabled veterans and retired railroad workers, the bill provides a one-time $300 payment. Estimated cost: $17 billion.

Break for higher income families: The bill includes a one-year provision to protect middle- and upper-middle-income families from having to pay the Alternative Minimum Tax. The AMT was intended primarily for high-income taxpayers but has in recent years threatened to engulf those lower down the income scale. Estimated cost: $70 billion.

Temporary credit for car buyers: The bill would let those who buy a car in 2009 deduct the interest they pay on their car loan as well as the sales tax charged in the purchase. The full deduction would be available to those earning less than $125,000 ($250,000 for joint filers). Estimated cost: $11 billion.

Temporary credit for home buyers: The bill doubles the size of an existing temporary home buyer credit to $15,000. It also would allow all home buyers to claim it. And it removes the requirement under current law that the credit be paid back. Estimated cost: $39 billion.

New college credit: The bill introduces the American Opportunity Tax Credit, a $2,500 credit for higher education expenses. The full credit would be available to those making less than $80,000 ($160,000 for joint filers). Estimated cost: $10.3 billion.

Pell Grants: The bill increases the maximum Pell Grant by $281 in the 2009-10 academic year and by $400 in the 2010-11 academic year. Estimated cost: $14 billion.

Child care credit: The bill increases eligibility for the child care tax credit by lowering the income threshold that must be met to $8,100. That will allow lower income families to claim more of the credit. Estimated cost: $7.2 billion.

Earned income tax credit: The credit will be temporarily increased from 40% to 45% of qualifying earnings for low-income families with three or more children. It also includes a marriage penalty relief provision for couples who qualify for at least a portion of the credit. Estimated cost: $4.6 billion.
Direct lifeline benefits

Health insurance help for the jobless: The bill includes provisions to help eligible jobless workers pay for health insurance under Cobra. Cobra coverage allows newly laid off workers to keep health insurance provided by their former employers for a period of time.

One of the provisions offers a government subsidy -- 50% of premiums for 12 months -- to help out-of-work Americans pay for healthcare. Estimated cost: $20 billion.

Another provides states funding to help pay for expanded Medicaid rolls for workers who've lost their jobs and can't afford health care on their own or can't get Cobra coverage because their former employer doesn't offer a health care plan. Estimated cost: $87 billion.

Unemployment benefits: The bill provides jobless workers with an additional 20 weeks in unemployment benefits, and 13 weeks on top of that if they live in what's deemed a high unemployment state, of which there are about 30 currently. Estimated cost: $27 billion.

In addition, the weekly unemployment benefit will temporarily increase by $25 on top of the roughly $300 jobless workers currently receive. Estimated cost: $8.8 billion

Plus, the first $2,400 of benefits in 2009 would be exempt from federal income taxes. Estimated cost: $4.7 billion.

Also included in the bill is an incentive for states to provide unemployment insurance coverage for part-time workers and for workers who quit their jobs for compelling family reasons. Estimated cost: up to $2.6 billion.

Food stamp payments: The bill includes a provision would increase food stamp payments by 12%, so a family of four would see an additional $71 on top of the $588 per month they receive currently. Estimated cost: $16.5 billion.

Help for needy families: The bill provides $2.3 billion to states to create a contingency fund through 2010 for the welfare program called Temporary Assistance for Needy Families, which provides cash assistance to the needy. Estimated cost: $2.3 billion.

The $15,000 Home Buying Tax Credit: 6 Things to Know

A number of readers have written in asking for details about the home buyer tax credit amendment that was recently added to the Senate version of the economic stimulus package. The provision, introduced by Sen. Johnny Isakson, a Republican from Georgia, would provide a tax credit of as much as $15,000--or 10 percent of the home's price tag, whichever is less--to anyone buying a primary residence during a one-year period beginning on the date of enactment. After reading through your questions, here's a list of six things to know about the amendment.

1. I recently bought a home and qualified for the $7,500 new home buyer tax credit. Should this provision become law, would I qualify for it well? The short answer is no, says Rob Dietz, an economist for the National Association of Home Builders. "The effective date of the…amendment is the date of enactment," Dietz says. "So if you've already completed a purchase, you would not be qualified for the new program."

2. Isakson's press release reads: "The amendment would sunset the current $7,500 housing tax credit on the date of enactment." What does the term "sunset" mean there? In this context, the term "sunset" means that the $7,500 new home buyer tax credit would be supplanted by the proposed $15,000 credit, which applies to all home purchases--not just new homes. "If you are operating under the $7,500 [credit], that's the one you [have]," says Joan Kirchner, Sen. Isakson's Deputy Chief of Staff. "Then, from the date of enactment forward, the new one takes over and nobody else gets the old $7,500 [credit]."

3. What are the odds of this provision becoming law? The $15,000 home-buying provision is a component of the massive--and increasingly controversial--economic stimulus package. The House of Representatives has already passed its version of the stimulus bill, and the White House is putting pressure on the Senate to do the same. However, the size of the package--which now totals more than $900 billion--has prompted some Republic Senators to try and slash provisions to lower the tab. Still, Kirchner argues that the $15,000 tax credit enjoys strong support from the National Association of Realtors and the National Association of Home Builders, and will remain in the stimulus bill that is signed into law. "Because of the way that it was adopted--unanimously, they didn't call a roll call vote because both sides agreed to accept it--this provision is in," Kirchner says. Scott Talbott, senior vice president of government affairs at the Financial Services Roundtable, also predicted that the amendment would make it into the final package. "It’s a targeted solution that will address housing as well as taxpayers--both of which need help," he said.

4. Does this tax credit need to be paid back? Nope. That's a key distinction from the $7,500 first-time home buyer credit, which was "actually a 17-year repayment, which translates into a no-interest loan," Dietz says.

5. Is there an income limit or any other restrictions on participation? The tax credit would be limited to primary residences and does not come with an income restriction, Kirchner says. "You must occupy [the property] for at least two years as your primary residence," she says. It applies to "any home, meaning a condo, a house, foreclosed, new, [or] previously owned."

6. Can I take the credit during tax year 2008? Yes, says Chris Cook, a legislative assistant to Sen. Isakson. Even if you buy a home in 2009, the provision would enable you "to file your taxes as if you purchased your home on December 31 of 2008," he says.

Foreclosure fix: Obama's options

NEW YORK (CNNMoney.com) -- This much we know -- the Obama administration wants to set aside between $50 billion and $100 billion to address the foreclosure crisis.

But how exactly officials plan to address this bear of a problem remains to be seen.

Treasury Secretary Timothy Geithner is expected to lay out plans for the $350 billion remaining in the financial industry bailout package on Tuesday.

Geithner was originally scheduled to unveil the program Monday, but the Treasury Department announced Sunday that it was pushing back the plan by a day to allow Geithner and others in the Obama administration to focus on getting the stimulus bill passed in Congress.

It is unclear if Geithner will unveil a specific plan for tackling foreclosures Tuesday. But the administration has said for weeks that it will devote more resources to helping homeowners than its predecessor.

"We will implement smart, aggressive policies to reduce the number of preventable foreclosures by helping to reduce mortgage payments for economically stressed but responsible homeowners, while also reforming our bankruptcy laws and strengthening existing housing initiatives like Hope for Homeowners," wrote Larry Summers, director of Obama's National Economic Council, to congressional leaders last month.

Finding a foreclosure fix is daunting, experts said. It eluded the Bush administration, which preferred to try to entice mortgage services to voluntarily modify loans without committing government funds.

Obama faces similar hurdles.

"It's been a real challenge," said Scott Talbott, senior vice president for government affairs for the Financial Services Roundtable. "To come up with a widespread approach is very difficult."
Potential plans

Obama's plan may expand on the Federal Deposit Insurance Corp.'s streamlined loan modification program, which serves as a model for workouts being conducted by several banks and by Fannie Mae and Freddie Mac.

The FDIC's program, which is underway at failed lender IndyMac, calls for making monthly payments more affordable by reducing interest rates, lengthening loan terms or deferring principal. Servicers aim to reduce payments to no more than 31% of a borrower's monthly income. So far, more than 10,000 delinquent loans have been modified, and offers have been made to another 20,000 borrowers.

Summers has said that banks that receive bailout funds will be required to implement foreclosure prevention programs.

The Obama administration is expected to put some money behind the modification efforts. It's likely any modification plan will come with incentives for servicers and with some type of backstop in case the borrower defaults again. FDIC Chairman Sheila Bair unveiled a $24.4 billion plan in November that offered servicers $1,000 and provided a guarantee to cover 50% of any losses in case of redefault. The proposal, which she estimates will help 1.5 million people avoid foreclosure, has gone nowhere so far.

Congressional lawmakers would require the president to develop a loan modification plan under the stimulus bill currently under debate in the Senate.

"Stemming the tide of foreclosures, which are at the heart of this economic crisis, must be one of our top priorities," said Senator Chris Dodd, D-CT, in a statement late Friday night after the Senate approved his amendment to the stimulus plan that would require the Treasury Department to spend at least $50 billion in funds from the bank bailout on a loan modification program.

"By providing the Treasury with the authority and funds to design and implement a loan modification program, we can help nearly 2 million families nationwide...avoid losing their home," Dodd added.

A major problem confronting the Obama administration, however, is what to do with the rising number of foreclosures stemming from unemployment. Loan modifications don't work for these borrowers.

The only viable solution for these delinquent homeowners is to get the economy moving again so they can get jobs, experts said.

Along those lines, Shaun Donovan, the Secretary of the Department of Housing and Urban Development, said in an interview on CNN Saturday morning that creating jobs was the top way to address the foreclosure problem.

"What is really driving the foreclosure crisis right now is that people are losing their jobs. And so job number one is to pass a recovery bill that will add three to four million jobs in this country," Donovan said.
Beyond bailout

To be sure, the administration's efforts will go beyond the bailout package. Already, it's likely the massive stimulus package will contain measures to spur homebuying, including a $15,000 tax credit for those purchasing a home. On deck is controversial legislation to allow bankruptcy judges to modify loans on primary residences.

Congressional Democrats are also looking to revamp the troubled Hope for Homeowners program, which was designed to refinance struggling borrowers into government-backed Federal Housing Administration loans. Few borrowers have signed up for the program, in part because of its high fees. Lawmakers hope to make it more attractive by easing the terms and providing incentives for servicers to participate.

In his statement late Friday, Dodd said his amendment would reform the program by reducing the upfront and annual premiums for borrowers, lowering the percentage of future equity that homeowners must share with the government and adding incentive payments to servicers.

Whatever the administration chooses to do, it should implement it quickly, experts said. Foreclosures continue to rise, with a new one started every 13 seconds, according to the Center for Responsible Lending.

"Every minute they delay someone is going to lose their home," said Kathleen Day, the center's spokeswoman. "The government has waited too long to act."

T.G.I.F.

Hello to all of you loyal blog readers. I decided to take a more fun approach to Friday's. Each week we're going to find some of the funniest video's to post to get you ready for the weekend.

Please send your thoughts and comments to CalvinBui@gmail.com. And again, thank you for making this site the #1 real estate blog in Long Beach.

The new rules of mortgage lending

NEW YORK (CNNMoney.com) -- If you're shopping for a mortgage these days, it's a whole new world out there.

"There have been a huge number of changes over the past few years in mortgage borrowing," said Gibran Nicholas, founder of the CMPS Institute, which trains and certifies mortgage advisors.

Of course, many of the subprime loans that helped fuel the housing boom - those that didn't require borrowers to show any proof of income, or that let homeowners make minimum payments - are are simply no longer available.

But even buyers looking for a traditional mortgage are now faced with different factors to consider.

Here is what you need to know:

Paying up-front points. Borrowers can pay points - one-time, up-front fees - in order to reduce their mortgage's interest rate over the life of the loan. One point represents 1% of the mortgage value.

But they often assume that they should never pay points, according to Alan Rosenbaum, founder of mortgage broker Guardhill Financial. That's a mistake, in his opinion.

When interest rates were high, paying points didn't make sense because borrowers were very likely to refinance after rates dropped. They wouldn't hold their original loans long enough to recoup their up-front costs.

But now borrowers can get a lot more bang for their buck. The old rule of thumb was that paying one point at closing could lower their mortgage's interest rate by a quarter percentage point or so.

"Today the spread is worth a half point to a full point on the rate," said Rosenbaum.

It means paying $2,000 on a $200,000 mortgage at closing can shave as much as a whole percentage point off the loan's interest rate, changing a 6% loan to 5%.

That would save $126 a month, and pay for itself in 16 months. Even if the rate were only lowered to 5.5%, that would still save $64 a month, paying for itself in 32 months.

Still, not everyone is convinced. Rosenbaum recently had a client who chose a 15-year fixed rate loan at 5.875% with zero up-front points on a $800,000 loan, instead of paying a point to get a 5.375% loan.

Had the borrower chosen to pay that point, he would have recouped that cost in about three years, and then gone on to save more than $200 a month for the remaining 12 years of the loan.

Of course, there are caveats. Buyers who are planning to refinance or sell within a few years shouldn't pay points, since the strategy simply doesn't pay in the short term.

Making more than the minimum down payment. If you can afford to put 25%, 30% or more down, should you do it?

Most lenders require a minimum down payment of 20%; anything less and borrowers will need to obtain private mortgage insurance.

And if a buyer could afford to put more than 20% down, it was generally assumed that they should.

The traditional thinking was, "If you have the capital to commit, why not?" said Keith Gumbinger of mortgage research firm HSH Associates. "It will give you a smaller balance to pay off. But now, in light of declining home markets, not everyone would agree with that."

High down payments can be wiped out in severely declining markets.

Nicholas said he knows of a couple in Arizona who put a whopping $400,000 down on a million dollar house a couple of years ago. That gave them, they thought, a nice home equity cushion should they run into financial trouble.

"But prices are down so much, the couple still fell underwater," he said. "It would have been better to conserve that cash in case home prices continue to decline."

Locking in the mortgage rate. Many borrowers choose not to lock in when rates are falling, as they have been, since they assume that the deals will only get better.

But that's often a mistake.

"We almost always recommend that if you have the numbers that make your deal work, then lock it in," said Gumbinger.

His reason: Interest rates tend to jump up much faster than they inch down, meaning that buyers are much more likely to get stuck with a higher mortgage rate than they are to get lower one because they waited.

Besides, locking in at the currently very affordable rates can give borrowers peace of mind, which is no small matter when you're trying to buy a house.

"You'll sleep better at night," said Gumbinger.

Mortgage applications rise

NEW YORK (Reuters) -- U.S. mortgage applications rose in the last week of January, reflecting a jump in demand for home refinancing loans even as interest rates rose to their highest levels since early December, data from an industry group showed Wednesday.

The Mortgage Bankers Association said its seasonally adjusted index of mortgage applications, which includes both purchase and refinance loans, for the week ended Jan. 30 increased 8.6% to 795.4 after slumping 38.8% during the previous week.

Borrowing costs on 30-year fixed-rate mortgages, excluding fees, averaged 5.28%, up 0.06 percentage point from the previous week. Three weeks earlier, mortgage rates were 4.89%, the lowest level recorded since the MBA survey began in 1990.

John Lonski, chief economist at Moody's Investors Service in New York, said the recent trend higher in mortgage rates is a setback for the U.S. housing market and not what the economy needs right now.

"In this environment, we cannot afford to have mortgage rates going up, especially because of how critical the stabilization of housing is to any steadying of the overall economy," Lonski said on Tuesday.

"We cannot have a bottoming of the macro economy without first stabilizing home sales," he said.

Indeed, enticing mortgage rates impacts demand. The National Association of Realtors said on Tuesday its Pending Home Sales Index, based on contracts signed in December, surged 6.3% to 87.7 in December, the first increase since August.

The index, a key gauge of future home sales activity, tracks signed, not closed, contracts, so it is influenced by changes in mortgage rates.

The MBA's seasonally adjusted purchase index fell 11.2% to 261.4 in the latest week. The four-week moving average of mortgage applications, which smooths the volatile weekly figures, was down 9.2%.

The Mortgage Bankers seasonally adjusted index of refinancing applications, meanwhile, jumped 15.8% to 3,906.3.
Mortgage rates up with Treasury yields

The U.S. housing market is in the worst downturn since the Great Depression and its impact has rippled through the recession-hit economy, as well as the rest of the world. Economists contend that the economy might not emerge from its slump unless the housing market stabilizes.

"Extraordinarily low mortgage yields are absolutely necessary to compensate potential home buyers for home price deflation risk and heightened unemployment risk," Lonski said. "That will probably require more intervention from the government."

The recent rise in mortgage rates can be tied to U.S. Treasury yields, which are linked to mortgage rates. Treasury yields have risen sharply on fears over surging debt issuance to fund a ballooning budget gap and an array of government rescue programs.

Before the recent rise, 30-year mortgage rates had mostly been on a downward trend ever since the Federal Reserve unveiled a plan in late November to buy as much as $500 billion of mortgage securities backed by Fannie Mae, Freddie Mac and Ginnie Mae. The program also entails buying up to $100 billion of debt issued by Fannie Mae, Freddie Mac and the Federal Home Loan Banks.

The adjustable-rate mortgage share of activity decreased to 2.1% in the latest week, down from 2.4% the previous week.

Fixed 15-year mortgage rates averaged 5.15%, up from 4.98% the previous week. Rates on one-year ARMs increased to 6.09% from 5.96%.

Foreclosures dominate home sales

NEW YORK (CNNMoney.com) -- Real estate values around the nation have collapsed, and sales of foreclosed and "underwater" homes now dominate many housing markets, according to a report released Tuesday.

The report, from Zillow.com, a real estate Web site, revealed that with foreclosures soaring, nearly 20% of the nation's home sales in 2008 were of bank-repossessed properties. Another 11% were short sales, in which homeowners owed more in mortgage debt than their homes were worth.

Madera, Calif., had the highest percentage of these distressed sales: 54.6% of all transactions there were foreclosed homes, and another 3.4% were short sales.

In Merced, Calif., 53.4% of sales were foreclosures and 4.8% were short sales. In nearby Stockton, 51.1% were foreclosures and 5.4% were short sales.

"As more markets turn down and markets that were already down go deeper, the pace at which value is being erased from the U.S. housing stock is rapidly increasing," said Stan Humphries, Zillow's vice president in charge of data and analytics.

"More value [was] wiped out in the fourth quarter of 2008 than was eliminated in all of 2007," Humphries said.

About $3.3 trillion in home equity was erased in 2008, with $1.4 trillion of that wipeout coming in the fourth quarter alone, according to Humphries. More than $6 trillion in value has been lost since the market peaked in 2005.

Those equity losses have put many homeowners underwater, where they're extremely vulnerable to foreclosure. These owners can't tap home equity for the cash they need to pay bills when they run into rough financial patches, and they often find it impossible to refinance - lenders will not loan more than the property is worth.

In the United States, 17.6% of all homes are now underwater, according to Zillow, as are 41.2% of all mortgages for homes bought in the past five years.

The worst-hit cities are in the once-booming Sun Belt. In Las Vegas, 61.4% of all homes are underwater.

Because so many homes are worth less than their mortgage balances, an increasing number have to be sold short. But short sale transactions can take a long time to complete, because lenders have been having trouble keeping up with the flood of requests.

"The speed of short sales is a function of the resources being allocated to them by lenders, and those resources are being stretched to the limit," Humphries said.

That means lenders may not act on approving short sales for months. The deals cannot go forward without their approval, because the banks must agree to forgive the difference between what they're owed and what the sale brings in.

As the time it takes to arrange short sales lengthens, they become harder to complete.
Time and money wasted

One example of how price declines can doom a short sale occurred recently in Phoenix. Curtis Johnson, a real estate broker there, worked with a health care worker whose hours were being cut and who could no longer afford her mortgage. She fell behind and decided to sell.

Johnson was able to find a buyer willing to pay $183,000, and got an approval form the lender. The owner confidently moved out, got a new place and started a new life. But the lender folded and the mortgage went to a new servicer, who took six weeks to approve the deal.

"Unfortunately, the buyers who were approved were no longer interested because the real estate market had dropped significantly," Johnson said. "They wrote a new offer, considerably lower then the first, and it was time to start over."

Two more offers eventually fell through before a new buyer was found and the owner's bank approved the price, this time at $163,000. On the day of that closing, however, the parties discovered that the buyer's lender had run out of funds and dropped out of the deal. The home went to foreclosure auction before another sale could be arranged.

The house is now on the market for $139,900.

"[The house is] listed for less than what would have been received had the bank been willing to work with us, and still has not yet sold," Johnson said.

Distressed sales like that depress the market for all homeowners. Regular sellers in cities dominated by foreclosures have to adjust their prices downward to compete.

The percentage of homes sold for less than what their owners originally paid has leaped up in the past couple of years. In the United States as a whole, 34.6% of the sales made in 2008 were done at a loss. In Merced, 71.6% of all sales last year were for less than the seller paid. Stockton, Modesto and Las Vegas all had in excess of 68% of all homes being sold at a loss.

Foreclosures beget more foreclosures by adding inventory to the market, which depresses prices, which increases foreclosures, according to Humphries.

"The vicious cycle continues," he said.

Stimulus: Senate's housing hopes

NEW YORK (CNNMoney.com) -- As the economic stimulus package moves to the Senate, the drumbeat is growing louder for new provisions that directly address the housing crisis.

Key senators from both parties said they will push for measures intended to spur sales and help homeowners at risk of foreclosure.

"We need to go right at the housing problem. That's what started all of this," Senate minority leader Mitch McConnell, R-Ky., told CNN.

The Senate floor debate is set to begin on Monday. Here are three ideas likely to show up in amendments:

Create a 4% mortgage: Senate Republicans are likely to introduce a provision that would encourage lenders to offer a 30-year fixed rate mortgage at 4% for a limited period of time. The loans would only be available to credit-worthy home buyers and homeowners seeking to refinance.

The government would guarantee the loan for a number of years, an aide to McConnell told CNNMoney.com.

Senate Republican Conference Chairman Lamar Alexander, R-Tenn., said on the Senate floor Friday that the measure could involve not only a government guarantee but a subsidy as well.

"If today's prevailing rate were 5.2 or 5.3 percent ... the government would make up the difference."

The cost of such a provision hasn't been determined yet, but the aide said Senate Republicans would seek to structure the proposal in a fiscally responsible way, without specifying exactly what that meant.

Offering government-backed low-rate mortgages "could be very popular politically as it tries to fix the banks by fixing consumers," financial services analyst Jaret Seiberg of the Stanford Group wrote in a research note.

But using government funds to force rates lower "could be very expensive," Seiberg said.

And as mortgage rates rise, which they have in recent weeks, such a proposal could grow even more expensive.

Expand home buyer credit: Senate Budget Committee Chairman Kent Conrad, D-N.D., said last week he would propose an expansion of a temporary $7,500 first-time home buyer credit so that it applies to all purchases of primary residences.

Some Republican senators have called for an increase in the credit to $15,000.

On "Face the Nation," Sen. Charles Schumer, D-N.Y., said Sunday that lawmakers "can do more for housing." The proposal to increase the home buyer credit to $15,000 and make it available to all home buyers is "something that we look favorably upon," he said.

The Senate recovery package as it stands now removes the requirement under current law that the credit be repaid by buyers over time, assuming they don't sell their home for three years after claiming the credit.

The credit phases out for individuals making more than $75,000 ($150,000 for joint filers).

Hold off on foreclosures: Senate Banking Committee Chairman Christopher Dodd, D-Conn., told reporters last week that he would like a provision in the stimulus package that would impose a 90-day moratorium on foreclosures. Dodd may consider other housing measures as well.

Postponing a foreclosure for three months might allow some troubled borrowers to keep their homes by buying them time to work out a new loan agreement with their mortgage servicer.
Obama housing proposals on deck

Advocacy in the Senate for more housing measures in the stimulus bill comes while President Obama is expected to release a comprehensive plan to fix the financial system within the next two weeks.

Obama has been promising for the past month that he would soon propose a foreclosure prevention program, and many believe that could be part of a plan he announces in the coming week. Indeed, he said Saturday that his plan will include a proposal to lower mortgage costs.

Last month, Obama's economic team promised lawmakers they would use $50 billion to $100 billion of the remaining money from the Troubled Asset Relief Program to prevent foreclosures.

Whether the housing measures proposed by Republicans on the Senate floor are intended to be in addition to Obama's proposals or as replacements isn't clear yet.

One of the ideas likely to influence Obama's plan is a loan modification program put forth by FDIC Chairman Sheila Bair that has garnered support from lawmakers. That plan would require that lenders reduce housing payments for delinquent borrowers to 31% of gross monthly income.

Lenders could achieve that by lowering mortgage rates to as low as 3% for five years, before increasing at an annual rate of 1 percentage point until they hit the prevailing market rate. Loan terms could be extended as long as 40 years.

In exchange, Bair proposed the government would share up to 50% of the losses if a borrower who gets a modified loan ends up defaulting anyway. And it would help foot some of the servicers' loan modification costs.