Record drop in home price index

NEW YORK (CNNMoney.com) -- Housing prices in 20 major cities fell at record monthly and annual levels in January, according to a private report issued Tuesday, with prices down 2.8% from December and 19% from a year earlier.

The S&P Case-Shiller Home Price Index, a comparison of price changes recorded when homes are resold, is considered to be one of the most accurate gauges of market trends available. Its 20-city index has been down for 30 straight months.

Month-over-month home prices fell in all 20 markets during January and are now at late 2003 levels.

"There are very few bright spots that one can see in the data," said David Blitzer, chairman of the index committee at Standard and Poor's. "Most of the nation appears to remain on a downward path, with all of the 20 metro areas reporting annual declines, and nine of the MSAs (metropolitan statistical areas) falling more than 20% in the last year."

All told, prices have plunged 29.1% nationally since they peaked during the second quarter of 2006, according to Case-Shiller.
Where home prices will fall the most

Individual metro areas have fared far worse. In Phoenix, home prices have fallen 35% year-over-year, while Las Vegas has been down 32.5%, San Francisco has been down 32.4% and Miami has fallen 29.4%.

Phoenix has lost 48.5% from its peak, the most of any metro area. Other big losses were absorbed by: Las Vegas, Miami, Phoenix, San Francisco and San Diego; each has seen home prices decline more than 40% from their peaks.

All 20 index cities were in negative territory, with Dallas being the least affected at a loss of 4.9%. Others in single-digit losses were: Denver at 5.1%, and Cleveland at 5.2%.

The latest report confirms anecdotal information that has been streaming in from around the nation, according to Mike Larson, a real estate analyst with Weiss Research.

"The pace of decline has picked up recently," he said. "Arguably, that's just what we need to drive up sales activity and reduce inventory."

The nation is grappling with historically high foreclosure rates, which add to inventories of homes for sale and drive down prices. In many markets, a large percentage of the homes changing hands are what's known as "distressed properties," meaning they are either bank repossessions or short sales, deals in which owners sell their homes for less than what they owe on their mortgages.

Much of the sales traffic is in foreclosure inventory, which may be skewing price statistics downward because distressed properties are often in poor condition.

But Larson does not expect home prices to improve anytime soon as job losses mount. "The biggest risk going forward is the health of the overall economy," he said.

There has been a string of positive housing market reports over the past few weeks, pointed out Pat Newport, an analyst with IHS Global Insight. New home sales are rebounding, existing home sales are rising and low interest rates are sending mortgage applications up.

"Those reports are not reflected in the January Case-Shiller report," he said. They won't be until at least the February statistics and even the March statistics come out.

Foreclosures spike - so do mortgage-help plans

NEW YORK (CNNMoney.com) -- Lenders have helped an increasing number of mortgage borrowers to get current on payments and stay in their homes, but the tide of foreclosures is still rising.

In February, nearly 250,000 homeowners received either mortgage modifications or repayment plans from their lenders, according to Hope Now, the coalition of lenders, investors and community advocacy groups put together to combat the foreclosure plague.

About 134,000 of the workouts completed were mortgage modifications, which typically lower the interest rate on loans, lengthen mortgage terms or reduce principal owed to make loans more affordable. Modifications are considered more comprehensive and effective than repayment plans, which simply tack the late payments on to the end of the loan but don't reduce payments.

"The mortgage lending industry is responding to the needs of its customers and offering solutions that are appropriate to the current market and economic conditions," said Hope Now's director Faith Schwartz.

But in spite of these efforts, the number of foreclosures started in February rose to 243,000 from 217,000 in January. About 87,000 homes were repossessed by banks during February, a 28% jump from the 68,000 foreclosures completed in January. Since the mortgage meltdown hit in July 2007, 1,395,044 homes have been lost.

February was the second straight month of sharply higher foreclosures; prior to January, the problem appeared to be easing. Foreclosures declined to 69,000 in November from 77,000 in October and then dropped again to 56,000 in December.

But the report could have been much worse, considering the nation's deteriorating economic picture, Schwartz said. "We're shedding 650,000 jobs a week," she said. "But there's more flexibility [by the lenders]. They're offering more forbearance in response to job losses."

The Obama administration's foreclosure prevention initiative could send mortgage modification numbers higher in the coming months, but it will take time. "We won't see a spike right away," said Schwartz. "[Under the program] It takes 90 days to complete a modification. Over the next three months we'll start to see some pull-through."

April will be "the month to get all the implementation details done on the new plan so that everything is crystal clear when they start using it," she added.

T.G.I.F.

Good morning everyone,

This weeks video was passed along to me by a dear friend...I could not stop laughing at this video although I know I shouldn't have...Enjoy and Thank God It's Friday!!!!

Get out there and make it a GREAT day!!!

Mortgage rates are low. So are approval rates

NEW YORK (CNNMoney.com) -- Mortgage interest rates are already flirting with record lows and the Federal Reserve's move to buy up government debt will send those rates even lower. But it doesn't look like it will get any easier for borrowers - even those with good credit.

Bankrate.com reported Thursday that the average interest rate on a 30-year fixed mortgage fell to 5.29%, compared with 5.37% in the prior week. In January, rates fell as low as 5.28%.

This week's Bankrate.com data do not even reflect the Fed's Wednesday announcement that it will purchase $300 billion in long-term government debt.

"This is a big commitment made by the Fed," said Mike Larson, a real estate analyst for Weiss Research, "like going all in in poker. The Fed is buying anything and everything to drive down rates."

The 10-year Treasury yield is used to help calculate 10-year mortgage rates, so as the yield falls, the corresponding mortgage interest rate follows.

Larson said he would not be surprised to see mortgage rates drop into the 4.5% range soon. If they do, that would surpass the 4.7% loans available just after World War II, the cheapest mortgages in American history, according to Larson.

However, one expert cautioned that mortgage rates may not fall as quickly as Treasury yields.

"Mortgage interest rates no longer move in lockstep with Treasurys," said Keith Gumbinger of HSH Associates, a publisher of mortgage information. "A half-point drop in Treasury yields will not translate into a half-point drop in rates. But there will be a big downdraft on rates."

Even before the Fed's move, rates were low and many borrowers were trying to take advantage of them. Applications for mortgages jumped 21.2% last week compared with a week earlier, according to the Mortgage Bankers Association (MBA), with homeowners seeking to refinance their old, higher interest rate loans accounting for nearly 73% of all applicants.

Most people who apply for loans generally receive them, according to Gumbinger, who said the pull-through rate - the percentage of applicants whose loans are approved - has been running about 60%.

Still, that's significantly lower than the pull-through rate the MBA recorded during the height of the housing boom a time when lenders set the bar for mortgage borrowers very low. In 2005, for example, more than 66% of all applicants were approved. In 2003, nearly 79% got their loans.

It's not like borrowers back then were more qualified. They were not. Credit scores for those who actually receive mortgages have been on the rise during the past few years.

Borrowers with scores of 750 or above accounted for 38% of loans issued during the second quarter of 2008, compared with just 23% two years earlier, according to the MBA. Those with low credit scores of 650 or less represented only 15% of loans during the first three months of 2008, compared with 28% during the first quarter of 2006.

During the bubble years, many borrowers weren't asked to prove income or assets or demonstrate that they could afford to repay their loans. Indeed, in many cases, it was obvious that they could not. So, they were given low teaser rates they could manage for the first couple of years and, after that, the thinking was, they could refinance the loan and start the process over again.

The housing bust ended all that and the people applying for loans now are of much better credit quality. But underwriters are so tough today that they still reject four of every 10 loans.

Sharp underwriting

"The underwriters are being so careful," said Steve Habetz, a mortgage broker based in Connecticut. "The minutia they're asking applicants for is amazing."

He had a couple with a 750 credit score looking to refinance a loan, which would leave the clients with a 60% loan-to-value ratio; in other words, an excellent credit risk.

"It took weeks to get approval," said Habetz. "They kept asking for more and more detail about his assets."

For example, the underwriters insisted on seeing the detailed records of all the transactions of the client's bank accounts, not just the summary sheets he first provided.

Underwriting standards are so stringent, according to Gumbinger, many potential mortgage borrowers don't even bother considering buying a home because of all the hoops they have to jump through. "Borrowers understand they have to be better qualified to get a loan now so they don't even bother to try," he said.

They must repair their credit or come up with bigger down payments if they want to buy a home.

Habetz said, "A lot of people are listening to the media and not even coming in any more. As busy as we are, we should be a lot busier."

The increased underwriter scrutiny has forced him to screen his clients much more diligently. He weeds out all but the most credit-worthy borrowers before they get to the application stage.

"It costs applicants $600 plus for an application fee and appraisal and you don't want them to incur that expense if they don't have a good chance of getting the loans," he said.

One recent client purchased a home a couple of years ago for $260,000, did some work on it and wanted to refinance his loan based on a home value of $275,000.

But a similar house across the street was on the market for $219,000, said Habetz. He explained to the client that, while his house might be nicer, he would never get an appraisal high enough to make the refinancing work. It would just be a waste of money to try to get a loan.

"I never did fill out an application for him," he said.

HOPE 4 HOMEOWNERS prevents 1 foreclosure

NEW YORK (CNNMoney.com) -- If HOPE for Homeowners, the foreclosure-prevention plan passed last summer, was a soft drink, it would be New Coke. If it was an automobile, it would be an Edsel. A movie? Howard the Duck.

In the five months since it has been in effect, HOPE has helped exactly one homeowner to avoid foreclosure. This despite Congress having made $300 billion available to back these loans and estimating that the program would benefit as many as 400,000 families.

"As it stands now, we've only gotten 752 applications," said Federal Housing Authority spokesman Brian Sullivan. "And only insured one loan. Needless to say, the program isn't working terribly well."

Rep. Michael Castle (R - Del.), who sits on the House Financial Services Committee, agreed, calling HOPE "one of the most failed programs we've had in a long time."

Nonetheless, the House of Representatives recently approved an updated version of HOPE as part of the bankruptcy-reform bill that is a keystone to President Obama's Homeowner Affordability and Stabilization Plan. But it was no overhaul to the program; the changes are very subtle.

Castle is concerned that the new program will also be a waste of time and money. But Sen. Chris Dodd (D - Conn.), one of the chief architects of the earlier version of HOPE, supports keeping it in the bankruptcy bill, according to a source close to the negotiations. He hopes the changes will help convince more servicers to use the program.

The Senate is expected to vote on the bill in the next few weeks.
Dashed expectations

The original program called for lenders to voluntarily refinance delinquent mortgages by reducing the principal balance on loans to 90% of a home's current market value. The new 30-year, fixed-rate loans would then be backed by the FHA. Under the new plan, lenders would only have to write it down to 93%.

Borrowers who owed $220,000 on a house valued at $200,000, for example, would need their mortgage balances reduced to $180,000 to qualify for an original HOPE for Homeowners refi. That's a $40,000 write-off. Under the new plan, lenders would have to forgive $34,000.

Lenders simply won't do that very often. They prefer to use term extensions or interest rate reductions to help make mortgage payments affordable for at-risk homeowners. As a result, most of the big lenders refused to participate in the program, which was strictly voluntary though heavily encouraged by the Bush and Obama administrations.

"Writing down principal is the last thing you want to do because you have to realize the loss immediately," said Paul Leonard, a spokesman for the Housing Policy Council, a coalition of mortgage lenders.
No volunteers

The program has also failed, Leonard added, because of the conditions and limits the program imposed. Borrowers, for example, had to agree to pay the government 50% of any future profits they made from selling the property. Under the new version of HOPE, borrowers would no longer have to split any earnings with Uncle Sam.

Other changes include incentive payments to servicers of $1,000 to induce them to participate.

The Congressional Budget Office now projects that HOPE for Homeowners could help just 25,000 mortgage borrowers over the next 10 years at a cost of $675 million.

Despite those modest numbers, Leonard said that the members of Housing Policy Council want to keep HOPE for Homeowners on the table even though the administration's Homeowner Affordability and Stabilization Plan does much more than HOPE.

Besides reducing mortgage payments through interest rate reductions or term extensions, HASP provides for lowering mortgage principals - the only thing that HOPE offers.

Still, the tool would be in the box even if "the administration's plan would be the first thing [lenders] look at," Leonard said.

Existing home sales spike 5%

NEW YORK (CNNMoney.com) -- Sales of existing homes unexpectedly rose in February, recovering from a sharp drop in the previous month, according to an industry report released Monday.

The National Association of Realtors said that existing home sales rose last month to a seasonally adjusted annual rate of 4.72 million million units, up 5.1% from a rate of 4.49 million in January. February sales were down nearly 5% from year ago levels.

Economists surveyed by Briefing.com were expecting existing home sales to decline to 4.45 million.

The report said first-time buyers made up half of all purchases in February, and that sales of distressed properties accounted for about 45% of all transactions.

Sales were unexpectedly strong in the West, with activity increasing more than 30% over last year.

"February wasn't too shabby for the existing-home market," said Mike Larson, real estate analyst at Weiss Research. "The catch? The increase in sales activity is coming at the expense of pricing."

The national median existing-home price was $165,400 in February, down 15.5% from last year, when the median price was $195,800.

Prices were depressed by the large number of foreclosed properties on the market, said NAR chief economist Lawrence Yun in a statement.

"Our analysis shows that distressed homes typically are selling for 20% less than the normal market price, and this naturally is drawing down the overall median price."

Meanwhile, the total number of existing homes on the market at the end of February rose 5.2% to 3.80 million units. At the current sales pace, it would take an estimated 9.7 months to sell down that inventory of properties.

The report also said the total number of homes for sale has steadily declined over the past six months from a record level last July.

Ian Shepherdson, chief U.S. economist at High Frequency Economics, said there's a "good chance" the collapse in home sales that has been going on since September is "now over." "Though a sustained recovery is still a long way off," he added.

Mortgage Rates at 4.5%!!!

This is the million dollar question everyone is asking themselves right now… Will mortgage interest rates reach 4.5%, or possibly even lower? Presently homeowners are anxiously watching interest rates in a hope to refinance their loan at the most premium interest rate possible. I would like to share with you some critical information about the forecast of interest rates and how to set yourself up to achieve the best rate possible as you get ready to refinance.

Forecasting Interest Rates

Currently we are in a market where mortgage interest rates are extremely volatile. Some days we are seeing interest rates change as much as three to four times per day, meaning if you miss out on a targeted rate in the morning; it might not be there in the afternoon! The Obama Administration is doing everything in their power to decrease interest rates by injecting stimulus into the economy, purchasing stock in Fannie Mae and Freddie Mac, and most importantly the Federal Reserve is purchasing mortgage backed security bonds at an alarming rate. However, the banks and lenders are resisting and fighting the reduction of interest rates for a couple of reasons. First, there is concern as interest rates decrease more and more people will refinance their existing mortgage and the Investors who purchased the bonds securing their loan will lose out on any profits as these loans are paid back well before their expected term is fulfilled. Additionally, banks and lenders are concerned the majority of homeowners will not be able to refinance at these lower interest rates due to extenuating circumstances, such as qualifying their income, appraisal values, and borrower’s holding out for even lower rates. This thought pattern is reflected by the number of loan applicants who missed out on locking a premium interest rate a few months ago as they were gambling rates would continue to fall. Second, there is a concern banks and lenders will need to increase staff and support due to the new loan modification program presented through the Homeownership Affordability and Stability Plan. There will be an obvious influx of calls, questions, and mortgage reviews as a result of this program and banks/lenders might increase interest rates as a way of curtailing new applications as well as helping to afford any additional staffing at this time.

How Can You Set Yourself Up to Refinance at the Best Time?

It is my professional opinion interest rates will fall again. In fact, mortgage interest rates have greatly improved in the past couple of days. In order for you to have the ability to take advantage of the best rates there is a simple process you must follow! Below is a three step process I am recommending we follow which will ensure your success:

Get Your Docs In:

In order to lock in an interest rate once the targeted rate is met, I need to make sure we can get you approved for a new loan. The only way I can do this is to review the required information necessary for underwriting your loan. Let’s get the busy work out of the way upfront and put your family in a position where you are approved for a loan and the only thing we need to do is monitor interest rates. Additionally, this will permit us time to make sure all the necessary documentation is prepared and ready to submit. This will decrease the amount of time your file waits in underwriting and further allows us to avoid extending any interest rate locks.

Communication is Paramount:

We need to talk about the goals your family is looking to achieve through refinancing your home. As we evaluate your goals we can set aggressive targets to monitor so we are ready to act once these interest rate targets are met. I would be happy to meet with you and review all possible loan scenarios and answer all of your questions so you have the greatest amount of information necessary to make the most educated decision.

Pull the Trigger:

If I have received and reviewed all the necessary documentation in order to approve your loan, and we have communicated with one another the goals you are looking to achieve through refinancing your mortgage; there is only one step left. We monitor interest rates and pull the trigger and lock in a rate once your goal is achieved. I pledge to you to be in consistent communication throughout this period so you are constantly aware of the fluctuation of rates and what to expect next.

Here are a couple of last thoughts to keep in mind. I want you to be successful, remember that I am working for you! Do not get caught in the trap where if rates fall and meet the 4.5% mark, you decide to hold out for 4.0% or even 3.5%. If there is savings on the table it is my advice to take them while they are available. We are in a period of historically low interest rates and we most likely will not see mortgage rates at these levels for quite some time. It would be unfortunate if you missed out on a premium interest rate only because you were waiting for another decrease of .25% or .50%. Keep in mind; markets today are shifting and behaving in odd ways. We have seen rates gradually decrease, but have been jumping back up in a matter of days, if not minutes.

This is a pivotal time in the financial markets throughout the world, it is imperative you work with a banker who understands the economy and can help guide you through this process. Please contact me at calvinbui@gmail.com so we can begin this simple three step process and get you on a path to success. It is not a time to reinvent the wheel, do not make this harder on yourself than it needs to be!

T.G.I.F.

Good morning everyone,

Quick blurb about this weeks mortgage rates. The Federal Reserve launched a bold $1.2 trillion effort yesterday to lower rates on mortgages and other consumer debt, spur spending and revive the economy. To do so, the Fed will spend up to $300 billion to buy long-term government bonds and an additional $750 billion in mortgage-backed securities guaranteed by Fannie Mae and Freddie Mac.

Enjoy this weeks video on President Barack Obama chat's with Jay Leno!!!

Obama housing fix: Banks not ready

NEW YORK (CNNMoney.com) -- As loan servicers scramble to implement President Obama's foreclosure prevention plan, the administration on Thursday unveiled a Web site to assist homeowners in determining whether they are eligible for help.

Obama rolled out his $75 billion foreclosure prevention program on Feb. 18, saying it would begin two weeks later when financial institutions received the guidelines.

The two-part Obama plan calls for servicers to reduce monthly payments to no more than 31% of eligible borrowers' pre-tax income or to refinance eligible mortgages even if the homeowner has little or no equity. It also provides thousands of dollars in incentives for servicers and borrowers to participate.
0:00 /02:50The $75 billion housing fix

Servicers, however, are still updating their systems to process modification and refinancing applications. And they are waiting for clarification on a few points of the president's plan.

It could be weeks before borrowers learn whether they qualify for either program. Many have complained about being turned away by their servicers.

Administration officials reiterated the need for borrowers to be patient as the servicers work to implement the program. The nation's four major servicers -- Citigroup (C, Fortune 500), Bank of America (BAC, Fortune 500), JPMorgan Chase (JPM, Fortune 500) and Wells Fargo (WFC, Fortune 500) -- have said they would participate.

"They are moving as fast as humanly possible," a senior administration official said Wednesday in a discussion about the government's new Web site.

The site can be found at makinghomeaffordable.gov.
Contact your servicer

Some financial institutions, while still not processing applications, are encouraging borrowers to contact them and submit their paperwork. That way homeowners can learn whether they qualify soon after the systems are in place.

Bank of America, for instance, is collecting borrowers' information. If it's clear they aren't eligible for the Obama plan, the bank looks to help them through one of the other loan modification programs already underway. If they might qualify for the president's program, Bank of America is compiling taking down names for future follow-up.

"As soon as we're ready, we'll make calls to the people who've already contacted us," said Rick Simon, a Bank of America spokesman.

Citigroup, meanwhile, is already modifying mortgage payments to no more than 31% of borrowers' monthly income, as part of its November bailout from the federal government.

"We anticipate that the modifications we are making will qualify under the Obama plan once the details are finalized," said Mark Rodgers, a Citigroup spokesman.

Servicers are encouraging borrowers to collect the financial information needed to determine eligibility.

"We're also asking our customers to gather the necessary documents so that when our systems are up and running, we can begin quickly to help those who will likely qualify," said a Wells Fargo spokeswoman.
Determining eligibility

The administration's new Web site helps homeowners determine whether they might qualify for either a loan modification or refinancing. It also provides links to finding government-approved housing counselors and warns people to avoid foreclosure rescue scams.

Borrowers can answer a set of questions to learn whether they could benefit from either the Obama modification or refinancing programs. The loan modification interactive tool, for instance, asks whether the borrower lives in the home, has a mortgage of less than $729,500 that was originated before Jan. 1 and is having trouble making payments.

The site also helps homeowners determine whether their monthly payments are more than 31% of their pre-tax income. And it gives an estimate of how low their new payment might go under the plan. For example, if you earn $4,000 a month and pay $1,400 a month, you could see your payments drop to $1,240 under the modification plan.

The refinancing tool, meanwhile, provides links to Fannie Mae (FNM, Fortune 500) and Freddie Mac (FRE, Fortune 500) that let borrowers determine whether they have loans held by either mortgage finance company, a key eligibility criteria.

Borrowers will also find a checklist of financial documents -- including pay stubs, tax returns and credit card statements -- that they will need to present when applying for the program.

The administration estimates that its foreclosure prevention fix will help up to nine million homeowners.

"We want to encourage as many eligible borrowers as possible to take advantage of our program," said a senior administration official. "This site encourages borrowers to investigate if they are eligible for one or both programs."

Mortgage applications spike

NEW YORK (Reuters) -- U.S. mortgage applications surged in the latest week, driven by a spike in demand for refinancing as the average rate on 30-year fixed-rate home loans fell, the Mortgage Bankers Association said on Wednesday.

Refinancing applications jumped 30% in the week ended March 13 as the borrowing rate dipped 0.07 percentage point to 4.89%, tying the record low reached in early January in a survey that dates to 1990.

The MBA's market index, which includes both purchase and refinance loans, jumped 21.2% to 876.9, the highest since mid-January.

But purchase applications rose just 1.5% last week to 257.1, a one-month high.

The Mortgage Bankers Association said its seasonally adjusted refinancing applications index jumped 29.6% in the week ended March 13 to 4,497.6, also the highest level since mid-January.

Home loan rates have fallen as the government has purchased more than $250 billion of mortgage-related assets and announced unprecedented steps to stabilize the deepest housing slump since the Great Depression.

A year ago, the average rate on a 30-year mortgage was closer to 6%.

The Federal Reserve purchases of mortgage-related assets is nearing the half-way mark targeted by the end of June to help cut mortgage costs and revive housing. The programs are widely expected to be expanded to bring borrowing costs down, stimulate purchases and help struggling homeowners to refinance and avert foreclosure.

Demand for purchases has been lagging refinancing applications. While homeowners are often compelled to cut current costs, worries about job loss or hopes that prices will cheapen further have keep many potential buyers at bay.

Refinancing requests represented about 73% of all mortgage applications last week.

Housing starts unexpectedly surge

NEW YORK (CNNMoney.com) -- Initial construction of U.S. homes unexpectedly surged in February, after falling for eight months, according to a government report released Tuesday.

Housing starts rose to a seasonally adjusted annual rate of 583,000 last month, up 22% from a revised 477,000 in January, according to the Commerce Department. It was the first time housing starts increased since June, when they rose 11%.

Economists were expecting housing starts to decline to 450,000, according to consensus estimates compiled by Briefing.com. Still, starts are down more than 47% from February 2008, when over 1.1 million new homes broke ground.

New construction of single-family homes, considered the core of the housing market, increased 1.1% to an annual rate of 357,000 versus 353,000 in January.

February's increase was driven by a nearly 80% increase in construction of multi-family homes. New construction of buildings with 5 or more units increased surged 80% to 212,000 from 118,000 in January.

Applications for building permits, considered a reliable sign of future construction activity, rose 3% to a seasonally adjusted annual rate of 547,000 last month. Economists were expecting permits to fall to 500,000.

While the surge in new construction was a welcome sign for the nation's battered housing market, analysts warned that the increase could be short lived.

"With new home sales still falling and the months' supply at a record, there is no reason for homebuilding to rise," wrote Ian Sheperdson, chief U.S. economist at High Frequency Economics in a research note. "This is a temporary rebound, not a recovery."

New home construction surged in the Northeast, jumping nearly 89% last month. Starts also increased in the Midwest and the South.

In the West, where the housing market was overbuilt in the boom years and where there is a glut of foreclosed homes, starts declined nearly 25% versus the previous month.

One reason you can't get a mortgage

NEW YORK (CNNMoney.com) -- For real estate appraisers, determining what a house is worth has become increasingly difficult, which is making it even harder for buyers to purchase homes or for homeowners to refinance.

The main tool in the appraiser's kit is the sale prices of homes in the area. If they can find similar houses nearby in similar condition that sold recently for, say, $300,000, they can assume that the home they are appraising is worth a comparable amount.

But with sales volume falling, there are fewer homes with which to compare. In fact, sales of new homes crashed in January to the lowest level in 45 years, and existing home sales fell to a 12-year low.

And even when there are recent sales figures, they often don't hold up as a reliable baseline. Appraisals are estimates of market value at a given time, and with prices in free fall, values "age" quickly.

"We just don't have a flow of transactions to be able to come up with credible values," said Jonathan Miller, president of Miller Samuel, a noted New York appraisal firm. "Closed sales are now largely irrelevant because they're so far behind the market."

In fact, Marc Savitt, president of the National Association of Mortgage Brokers, recently had a bank underwriter object that none of the appraiser's comparable homes were near enough.

"They told him they wanted comps within a mile," said Savitt. "But, the market the way it is, there haven't been many sales and there were no recent comps within a mile."

Other options

So in lieu of good sales figures, appraisers often consider contract prices, the ones first agreed to between buyers and sellers. But those are not much better because many sales don't close.

And listing prices are "hit or miss," Miller said, because most sellers overestimate the value of their homes. Columbia business professor Eric Johnson calls that the "endowment effect," which causes people to place higher values on properties once they own them.

Sellers set their listing prices far too high, as a result, and that leads to a big chasm between list and sale price. In the New York region, for example, there's a 16% gap, on average.

During the boom, pressure was put on appraisers to inflate values so that sales would go through. Sellers, buyers, real estate agents, loan officers and mortgage brokers all had a vested interest in getting the sale completed. So if appraisers weren't cooperative and raise their values, they often got frozen out of deals.

Now, there's pressure on appraisers to be too conservative, so many homeowners are finding themselves unable to purchase a new home or refinance their existing mortgage.

"Lenders want the appraisal at the lower end of the range," said Joni Herndon, a Tampa, Fla.-based appraiser. "The lender may want it at $100,000 and the appraiser thinks it's worth closer to the high end of his or her range, say $115,000."

If the lender does reject the appraisal, one of three things usually happens. "Lenders can order a second appraisal, the seller can lower the price on the house or the buyer can come up with more cash," according to Jim Amorin, president of the Appraisal Institute, the industry's professional standards organization. "In some cases, none of those happens and the loan doesn't go through."

Making adjustments

One way appraisers are addressing stale comps is by using a "negative time adjustment." If a comparable property sold for $200,000 three months ago in a market where prices are falling at a 12% annualized pace, the comp can be reduced in value by 3% to reflect the market.

In some areas more than half the appraisals come in with these adjustments, according to David Adamo the CEO of mortgage broker Luxury Mortgage,

Another option is an "automated valuation model," which uses a mathematical formula to set home values. They establish a baseline home price by examining sales prices and the square footage of recently sold homes in the neighborhood. So if a house is 1,500 square feet in a community where the average home sells for $200 a square foot, the AVM puts the appraisal value at $300,000 and increases or decreases it as new sales data is recorded.

However, these valuations don't take into consideration a home's condition or appearance - or even verify the square footage - so the results can be very far off.

Plus, "those AVMs can have trouble keeping up with the market, too," said Nanette Traylor, an underwriter with Salt lake City-based mortgage lender Castle & Cooke Mortgage.

Impact on Obama's plan

But finding accurate appraisals is more important than ever now that the Obama administration has announced its Homeowner Affordability and Stability Plan. The first prong of this program allows homeowners with Freddie Mac or Fannie Mae loans to refinance into current record-low rates even if they are slightly underwater, meaning they owe more on their mortgages than their homes are worth.

However, eligibility will directly hinge on appraisals: Anyone who owes more than 105% of the value of the home won't qualify. That adds to the pressure appraisers may feel to "hit the number" so people on the bubble can slide in and refinance.

"There's clearly a heightened sensibility among lenders today," said the Appraisal Institute's Amorin. "They're saying, 'We better take a really good look at the collateral."

T.G.I.F.

Hello everyone,

This weeks Friday video is on Kobe Bryant..Enjoy!!!

Rise in foreclosures 'a shock'

NEW YORK (CNNMoney.com) -- The foreclosure picture suddenly darkened again in February. More than 74,000 homes were lost to bank repossessions during the month, up from 67,000 in January, according to a regular monthly report from RealtyTrac, the online marketer of foreclosed properties. Nearly 1.2 million have been lost since the foreclosure crisis hit in August 2007.

The number of foreclosure filings rose 6% during the month after falling 10% in January. Worse, filings leaped nearly 30% compared with February 2008. And the results confounded expectations: A downtrend had been expected due to the numerous foreclosure moratoriums in effect during the month.
"We were very surprised," said RealtyTrac spokesman Rick Sharga. "The moratorium were led by big players like Fannie and Freddie and all the major banks. It was supposed to cover the whole waterfront. The fact that foreclosures still went up was a shock."

A particularly troubling aspect of the report was that, for many borrowers, once they go into default, they never get out despite moratorium efforts. That's borne out by comparing bank repossessions - homes actually lost by borrowers - with total foreclosure filings: Nationally, repossessions increased 11% for the month, almost double the 6% rise for filings.

The same holds true for year-over-year figures: February filings jumped 30% compared with last year but repossessions rang up a 60% gain.

The reason so many people lose their homes once they are in default is partially attributed to the severe home price drops recorded in many of the worst-hit areas. When borrowers are severely underwater, owing more than their homes are worth, it removes an incentive to keep up with mortgage payments. Some simply walk away.
The worst hit states

Many states that had previously escaped the worst ravages of the foreclosure plague have started to feel the effects. In South Carolina, foreclosure filings, which include notices of default, notices of foreclosure sale and bank repossessions, skyrocketed 254% compared with last February. The state recorded a filing for every 818 households, the 20th highest rate among the states.

As foreclosures soared, so did South Carolina's unemployment. By January, that had reached 10.4%, the second highest rate, after Michigan, in the nation. It rose 1.6 percentage points higher than December, the biggest increase in any state, and it jumped 4.7 percentage points over the past 12 months, also more than anywhere else.

According to the Neighborhood Assistance Corporation of America CEO, Bruce Marks, poorly underwritten mortgages is still the main source of foreclosures in the state. "It continues to be problem mortgages," he said, "loans that were unaffordable from the start. But unemployment is adding to that."

NACA, which counsels at-risk borrowers and refinances many into low-cost mortgages, is throwing a counseling event in Columbia, S.C., this weekend. The agency expects to host more than 20,000 attendees and has already pre-registered more than 7,500 homeowners.

The dubious honor of worst foreclosure state still belongs to Nevada, where one of every 70 households had a filing. Foreclosures are up 156% from last February and 9% from January. More than 2,800 homes were repossessed by banks during the month.

Second was Arizona, with one filing for every 147 households, up 88% year-over-year and 23% from January. California, with nearly 81,000 filings, had more than any other state, with a rate of one for every 165 households. Florida had more than 46,000, one for every 188 households.

Other hard hit states were Idaho (one in 358), Michigan (one in 360) and Illinois (one in 369).
Worst hit cities

Among metro areas, Las Vegas, where one in every 60 housing units received a foreclosure filing in February, led all other cities with populations of 200,000 or more. Another Nevada city, Reno, had one for every 108 hosueholds, the eighth highest rate in the nation.

The Cape Coral, Fla., metro area had the second highest foreclosure rate in February, with one in 65 housing units.

The rest of the top 10 consisted of six California cities: Stockton (one in 67), Modesto (one in 68), Merced (one in 74), Riverside-San Bernardino (one in 80), Bakersfield (one in 85) and Vallejo-Fairfield (one in 111).

Phoenix rounded out the top 10, with one in every 110 housing units receiving a foreclosure filing. The Phoenix metro area posted the ninth highest foreclosure rate in February.

Mortgage applications jump 11%

NEW YORK (Reuters) -- U.S. mortgage applications rose for the first time in three weeks as near record-low interest rates spurred demand for home refinancing and purchase loans, data from an industry group showed on Wednesday.

The jump in demand came several weeks after the unveiling of the strongest government action yet to aid homeowners since the housing market's meltdown began and may help gauge what is in store this spring, the peak home-buying season.

The Mortgage Bankers Association said its seasonally adjusted index of mortgage applications, which includes both purchase and refinance loans, for the week ended March 6 increased 11.3% to 723.4.

U.S. President Obama last month announced the Homeowner Affordability and Stability Plan, which is designed to provide much-needed support to the housing market. The goals of the housing plan are to support refinancing for good quality borrowers; help distressed borrowers avoid foreclosure; and stimulate new housing demand through the expansion of Fannie Mae and Freddie Mac , the top two U.S. home funding companies.

Mark Goldman, lecturer of real estate at San Diego State University, said interest rates on mortgages are at enticing levels that could lift demand in the months ahead.

"It does not really matter if interest rates on mortgages move up one week or move down another, they are still at historically low levels," he said.

"What is important right now is that home affordability has improved and low interest rates help more people afford to buy a home," he said.

Borrowing costs on 30-year fixed-rate mortgages, excluding fees, averaged 4.96%, down 0.18 percentage point from the previous week and the second lowest rate since the weekly MBA survey began in 1990. The record low was 4.89% for the week ended Jan. 9, 2009.

Loan workouts outpace foreclosures statewide

The California Department of Corporations today released a survey of state-licensed loan servicers, showing the monthly pace of loan workouts increased 94% to 31,451 in December from January 2008 and surpassed foreclosures in the final months of last year.

Servicers completed workouts on 85,422 loans in the fourth quarter, helping borrowers keep their homes. That’s 85% more than the 46,183 houses and condos foreclosed upon during the quarter. DataQuick previously reported banks foreclosed on fewer properties than in Q3 because of a state law enacted in September requiring them to talk to borrowers at least 30 days before filing a notice of default and discuss options to avoid foreclosure.

In the third quarter, servicers finished 74,122 workouts, a few less than the 79,511 foreclosures that period.

However, the Department of Corporations does not track the number of workouts that redefault. Nationwide government data has shown some 50% to 60% of borrowers who got a break on their loan early last year defaulted again within six months.

Some experts say the best way to prevent redefaults is to lower the amount, or principal, that borrowers owe at or below market value. But state data, as shown in the table, reveal servicers almost never reduce principal. It’s easy to understand why. That means taking a loss on a loan without gaining control of the collateral. (Note: table totals do not add up to 100% because I left off some categories.)

The survey covers more than half of outstanding loans in the state, but most nationally licensed servicers, such as Wells Fargo, are not included. The biggest servicer of all, Countrywide, continues to participate in the survey even though it is now part of Bank of America.

Since the survey doesn’t cover all mortgages, total workouts are likely outpacing foreclosures by a larger percentage than the survey suggests, and may have outpaced foreclosures in Q3.

A few more survey highlights:

* Short sales, when a bank lets a borrower sell his home for less than he owes, doubled on a monthly basis over 2008 to 13% — still a small percentage overall.
* Forebearance, when a borrower makes up late payments without getting a break in interest or debt, decreased from 20% in January ‘08 to 12% in December.
* Paid-in-full, meaning the borrower paid all missing payments and all other debt owed, dropped from 23% to 7%. I assume this is because few people who are in trouble financially have enough equity left in their home to sell it and walk away unharmed

Obama's Mortgage Relief Plan: The Details

The Obama administration's plan for a housing rescue helps two groups of homeowners largely left out of previous efforts and also aims to deny benefits to those who have been unwise or greedy, according to details released last week.

President Barack Obama's plan would greatly expand mortgage relief to those who haven't missed payments and those whose homes are worth less than their mortgage.

In Connecticut, 14 percent of all single-family houses and condominiums have mortgages larger than what the properties are worth, according to new data from the Warren Group, which tracks real estate in New England. In Hartford, 45 percent of homes have mortgages that exceed their value. In Meriden, the figure exceeds 33 percent.

What the housing rescue program will not do, administration officials said, is reward the unwise or the greedy. Nor will it provide much help to those in the highest-priced areas, though it does reinstate last year's higher loan limits for refinanced or modified mortgages to $729,750 in more expensive areas.

"The plan is not intended to prevent every foreclosure or help every homeowner," said a senior Treasury official, who briefed reporters on condition of anonymity. "It is targeted at responsible homeowners. It will do nothing for speculators or flippers."

Lenders and brokers said that reinstating higher caps for eligible loans would help certain borrowers whose mortgages were purchased or backed by Fannie Mae and Freddie Mac. The higher cap had expired in December. The higher limits the Obama stimulus plan reinstated last month expire at the end of this year.

The idea is not to prevent all foreclosures, but to curb those the government deems "unnecessary," loans to responsible borrowers doing their best to stay in their home during rough economic times.

The administration has dubbed this the "Making Home Affordable" initiative and it has two main parts. One is aimed at prudent but "underwater" homeowners who would like to refinance into a lower rate, and the other at borrowers facing financial hardship who are seeking a way to lower their monthly mortgage payments.

Both programs are limited to borrowers who live in their homes, owe no more than $729,750 and fully document their incomes. The programs are effective immediately.

Details of the eligibility requirements for both programs has been posted on www.financialstability.gov.

The first part, called "Home Affordable Refinance," is aimed at homeowners whose property has lost value. It would be open only to borrowers with so-called conforming loans backed by Fannie Mae and Freddie Mac, and it would waive the usual conforming requirement that the borrower have 20 percent equity in the home.

The program would not reduce the principal of the loan, but it would allow the borrower to refinance that principal up to 105 percent of the home's current value.

Loans made with the support of other government agencies, including the Federal Housing Administration, the Department of Veterans Affairs or the Department of Agriculture, are not eligible.

The second program, called "Home Affordable Modification," is aimed at borrowers whose payments have become unaffordable, because of a hardship such as job loss or illness, or because the interest rate has been reset higher on an adjustable-rate mortgage. The government would provide cash payments and financial subsidies to help the lender lower the monthly payment to as much as 31 percent of the borrower's gross monthly income.

In most cases, the lender would reduce the interest rate to as low as 2 percent for five years. If that did not bring down the payment, the lender also could extend the term of the loan to 40 years or temporarily reduce the principal.

The 31 percent target income level would apply only to the borrower's primary mortgage payment; second mortgages, home equity loans and other consumer debt would not be included.

However, administration officials said they will offer other financial incentives to servicers to reach agreements with second lien holders to accept partial repayment of those debts..

Those whose interest rates are reduced below market value would see rates float back after the initial five-year loan period, at 1 percent a year, up to the market rate on the day the modification was signed.

T.G.I.F.

Happy Friday everyone,

Thanks to all who continue to make this blog the #1 Real Estate blog in Long Beach. We've been so busy over here with Mortgage Modifications, Credit Restorations, and Short Pay Refinances. We are in the process of launching a new site that explains what services The Bui Group provides.

Come take a sneak peak at www.thebuigroup.synthasite.com

For our Friday tradition, this week I found a video that shows just how cool our new president is. He sits courtside, drinks beer, and supports his Chicago Bulls!!!

1 in 5 mortgages 'underwater'

NEW YORK (CNNMoney.com) -- The dramatic decline in the housing market has hit Americans hard: 20% of people with mortgages owe more than their home is worth, according to a report released Wednesday.

More than 8.3 million U.S. mortgages were "underwater" as of December, said research firm First American CoreLogic. Three months earlier, 18% were underwater.

The phenomenon is exploding beyond bubble markets such as California, Florida, Arizona and Nevada, according to Sam Khater, senior economist for CoreLogic.

"As of December, home prices are declining in 75% of all metro markets, up from a third of those markets last March," Khater said.

Another 2.2 million homeowners are within 5% of negative territory, according to CoreLogic. These borrowers are prime candidates for refinancing under President Obama's foreclosure prevention plan.

Details on Obama's plan are expected to be released Wednesday. The administration has indicated that the plan will allow borrowers with between 80% and 105% loan-to-value ratios - near underwater and slightly underwater borrowers - to refinance their conforming loans, allowing many to lower their mortgage payments.

Anyone who is more underwater may qualify for a loan modification, where monthly mortgage payments would be reduced to 31% of gross income.

State totals: Of all the states, California has fared the worst. Homeowners in the beleaguered state lost more than $1.2 trillion in housing value last year, accounting for roughly half of the national decline.

California also led in the number of underwater borrowers: 1.9 million. It was followed by Florida (1.3 million), Texas (497,000), Michigan (459,000) and Ohio (435,000).

Those five states comprised more than 50% of the country's negative equity mortgages, the report said.

According to the CoreLogic report, home prices show little sign of stabilizing but declines in some of the worst-hit markets, such as the Central Valley of California, have recently lured buyers looking for bargains. But demand has not grown enough to boost prices, according to Khater.

"The supply must be whittled down more before prices can begin to stabilize," he said.

Outlook: As of the end of 2008, the total value of residential properties was $19.1 trillion, down $2.4 trillion from December 2007.

The report speculated that, over the next few months, the largest increase in underwater borrowers will come in states that have yet to record big home-price declines. The bubble states already have such high percentages of underwater borrowers and prices have fallen so far that only incremental increases should occur.

But the pace should quicken in states, such as New York, New Jersey, Montana and Hawaii, in which underwater borrowers still only account for fewer than 10% of all loans.

Obama foreclosure fix open for business

NEW YORK (CNNMoney.com) -- The Obama administration's foreclosure prevention program is open for business.

The multipronged fix calls for companies to help as many 4 million struggling borrowers by modifying loans so housing payments are no more than 31% of monthly gross income. Separately, homeowners who haven't missed a payment can refinance into lower-cost loans even if they have little or no equity. This is expected to help up to 5 million homeowners.

The $75 billion loan modification plan will provide incentives to borrowers and loan servicers and investors to spur mortgage modifications. The government will also subsidize interest rate reductions to get borrowers to affordable monthly payments.

"This plan will help make home ownership more affordable for nine million American families and in doing so, help to stop the damaging impact that declining home prices have on all Americans," said Housing Secretary Shaun Donovan.

Administration officials once again stressed that they are not using taxpayer money to bailout irresponsible homebuyers, listing those who will not qualify for assistance: people who bought investment properties, lied on their mortgage documents or purchased multimillion dollar homes.
iReport: Would you walk away from your home?

"The cost of not acting outstrips that of acting boldly," said a senior administration official.

Borrowers can now contact their servicers to see whether they are eligible for assistance. Federal officials have posted additional information for borrowers to determine their eligibility at www.hud.gov. They will also promote the program at homeownership events nationwide.
Who's eligible for modification?

The administration Wednesday released additional eligibility criteria and program guidelines.

The loan modification plan focuses on people who are behind in their payments or are at risk of default.

Federal officials clarified the definition of "at risk" as those: suffering serious hardships, declines in income or increase in expenses; facing an interest rate hike; having high mortgage debt compared to income; owing more than their house is worth, or demonstrating other reasons for being close to default.

To participate in the loan modification plan, borrowers must:

* have obtained their mortgage before Jan. 1, 2009;
* have a primary mortgage of less than $729,500;
* live in the property;
* fully document their income by providing tax returns and pay stubs;
* sign a statement of financial hardship; and
* go for counseling if their total household debt - including auto loans, credit cards and alimony - totals more than 55% of their income.

The modification program will be in effect until the end of 2012, but loans can only be adjusted once.

Officials also unveiled more details on how servicers will modify the loans. First, they must reduce interest rates so that borrowers' total house payments are not more than 38% of their monthly income. The government will then subsidize servicers dollar-for-dollar to lower that ratio to 31% - but the interest rate can't go below 2%.

The new interest rate would then remain in place for five years, after which it will increase by 1 percentage point a year until it reaches either the original rate or the prevailing mortgage rate at the time of the modification, whichever is lower. This should prevent borrowers from suffering the "payment shock" that sent many borrowers with adjustable-rate mortgage into default in recent years.

If rate reductions aren't enough to get payments to 31% of income, a lender can extend the term up to 40 years, or shift part of the principal to the end of the loan at no interest. Servicers also have the option of reducing the loan's balance.

Servicers will receive $1,000 for each loan modified, as well as additional annual bonuses if borrowers keep up with payments. Mortgage investors will receive one-time $1,500 incentive payments for restructuring qualifying loans that are not yet delinquent. Finally, borrowers who keep up with their new payments will receive up to $1,000 a year in principal reduction, for up to five years.

While the program is voluntary, once servicers commit to participating, they must evaluate all loans that may be eligible. Financial institutions that receive government money going forward must participate.

Only loans where the cost of the foreclosure would be higher than the cost of modification would qualify.

The government is also providing incentives to servicers and borrowers to enter into "short sales" or "deed-in-lieu of foreclosure" agreements with those who can't afford to stay in their homes. In these cases, the bank agrees to take back the home for less than what's owed without filing for foreclosure.

The program also includes a new provision to eliminate borrowers' second mortgages, which will reduce their overall debt levels. Investors in those mortgages, who at times have blocked modifications because they don't benefit from the adjustments, will be paid to eliminate those claims. Details on how much they'll receive will be announced in coming weeks, senior government officials said. Servicers that get second-mortgage holders to participate will receive an additional $250.
The refinancing program

The refinancing program, which is open to homeowners who took out loans from Fannie Mae and Freddie Mac, allows borrowers with less than 20% equity in their homes to refinance to the current prevailing rate. However, borrowers cannot owe more than 105% of the value of their home and must be current on their payments.

The program ends in June 2010. Each servicer will provide details on the terms and costs associated with the refinancing program.
Be patient

While borrowers can now start contacting servicers, it may take several weeks for companies to implement the guidelines, said a senior mortgage industry official in a conference call with reporters.

Servicers are adding staff to handle the expected deluge of calls. Bank of America, for instance, just boosted its servicing staff by 1,000 people.

Still, officials warned borrowers - many of whom have complained of long waits and unresponsive staff at servicers - to be patient.

"There will definitely be a flood of activity, so it's important for consumers to be patient and be persistent and to take a hard look at their own personal financial situation so they can come prepared to really move the process forward as rapidly as possible," the officials said. To top of page

Citi: Mortgage break to unemployed

NEW YORK (CNNMoney.com) -- Unemployed homeowners whose houses are financed by CitiMortgage may be eligible to have their mortgages temporarily reduced to $500 a month, the company announced Tuesday.

"We're planning to help recently unemployed homeowners by giving them the ability to pay as little as $500 a month on their mortgage, which is effectively less than the price of an average one-bedroom rental nationally," Sanjiv Das, CitiMortgage's president and CEO, told CNN Radio.

Borrowers are covered by the program for 90 days when they submit documents proving they are recent recipients of state unemployment benefits, Das said. Some homeowners may be able to get extensions after the 90 days expire, depending on their situation.

"This is intended to keep the neediest borrowers in their homes," Das said.

It's unclear how many of the 1.4 million CitiMortgage customers will seek assistance, but Das noted that about 4 million people have lost jobs over the past year.

"We hope to help thousands of customers with this," he said.

The company is the housing lender arm of Citigroup, a beleaguered bank that has received $45 billion in federal bailout funds and recently lost 36% of its ownership to the government.

Housing fix's bankruptcy plan under fire

NEW YORK (CNNMoney.com) -- President Obama is in danger of losing the biggest stick in his foreclosure prevention arsenal.

The administration's plan to stem the housing crisis depends on Congress amending the bankruptcy laws to allow judges to modify mortgages, in particular by reducing principal to make monthly payments more affordable.

The so-called cramdown provision could put pressure on loan servicers to modify mortgages before borrowers file for bankruptcy.

A major critique of the voluntary modification programs is that servicers aren't doing enough to help struggling borrowers. But servicers will likely be more aggressive in working with homeowners if they know that the borrowers can turn to judges for relief.

"Reforming mortgage bankruptcy laws is the only remedy available that will provide the stick to go with the carrots that we have offered lenders to modify mortgages voluntarily," said Rep. Brad Miller, D-N.C., who worked on the legislation.

But congressional Democrats, who first introduced a bill broadening judges' power two years ago, are running into trouble gathering the support needed to pass the legislation. The House postponed a vote on the measure until early this week after a group of centrist Democrats voiced concerns. And its future in the Senate remains in doubt with many powerful Republicans strongly opposed to the legislation.

The House bill would allow judges to modify loans originated before the legislation's enactment. It would let the courts change mortgage terms to make a loan more affordable, permitting judges to reduce the principal to the property's market value, a step servicers loathe.

The Congressional Budget Office estimates more than one million households would benefit if bankruptcy judges were allowed to modify loans.

Debtors, however, would be required to contact their servicer about modifying their loans at least 15 days before filing for bankruptcy. And the debtor cannot have falsified information when he or she obtained the mortgage.

Trying to drum up support for the measure, administration officials are testifying before Congress and meeting behind closed doors with lawmakers to convince them of the need for the bill, while promising to limit its use.

"Carefully tailored bankruptcy reform is a piece of the solution," Housing Secretary Shaun Donovan told the Senate Banking Committee on Thursday. "We do not see bankruptcy court as the place to work out mortgages."

Giving bankruptcy judges the power to modify loans on primary residences -- they already can change mortgages on vacation homes -- is extremely controversial.

While Citigroup, which is under the close watch of federal regulators, has said it would support the measure, many key players in the financial industry are lobbying against the measure. Industry advocates argue that cramdown would force lenders to charge higher rates to compensate for the increased risk and uncertainty in mortgage contracts.

"This legislation will inject more risk into the housing and mortgage markets at a time when everyone is working hard to strengthen the housing market," said John Dalton, head of the Housing Policy Council, an offshoot of the Financial Services Roundtable.

If the measure must pass, the industry would like to see a requirement that borrowers have had to be offered and accepted a loan modification before seeking bankruptcy relief. Lobbyists also want to provision limited only to subprime mortgages. Also, they would like any principal balance above the home's current market value to be deferred rather than forgiven.

"Judicial modifications should be a last resort and only available where other non-judicial options have been exhausted or not available," John Courson, head of the Mortgage Bankers Association, wrote in a letter to Donovan and Treasury Secretary Tim Geithner.