By ALAN ZIBEL
The Associated Press
Thursday, February 25, 2010; 3:48 PM

WASHINGTON — Lawmakers are taking aim at the Obama administration’s struggling mortgage assistance program, with Republicans calling it a worthless exercise and Democrats saying it doesn’t go far enough.

In a report Thursday, Reps. Darrell Issa, R-Calif. and Jim Jordan, R-Ohio., called the program a misuse of taxpayer money. Though $75 billion has been set aside for the program, so far only $15 million has been spent.

They also said it distorts the housing market by keeping people in their homes who would be better renting.

“Many Americans are throwing their money into homes that they believed the government would help them keep, only to find out thousands of dollars later that they will face foreclosure anyway,” Jordan said at a House hearing.

Obama administration officials, however, say the program gives a second chance to homeowners who were given shoddy loans during the housing boom. And they defend their track record, even though only 116,000 homeowners have completed the process out of the 1 million enrolled since the program’s launch last March.

While “challenges remain”, the program “is helping homeowners who have faced real financial hardship,” said Phyllis Caldwell, chief of the Treasury Department’s homeownership preservation office.

Democrats, however, argued that the Treasury Department needs to put more pressure on the lending industry to reduce borrowers’ outstanding principal balances

The program is designed to lower borrowers’ monthly payments by reducing mortgage rates to as low as 2 percent for five years and extending loan terms to as long as 40 years. To complete the process, homeowners need to make three payments and provide proof of their income, plus a letter documenting their financial hardship.

But experts warn that hundreds of thousands of borrowers will not complete the process because they are found to be ineligible during an initial trial phase. Housing counselors complain that many homeowners remain stuck in limbo without final word on their applications

Treasury officials acknowledge that the treatment of borrowers under the program has been a problem. They have been working on new consumer protections such as giving those rejected from the program 30 days to appeal the decision and barring lenders from lenders continuing with foreclosures while homeowners were being evaluated for help.

Last week, President Barack Obama announced that housing agencies in Arizona, California, Florida, Michigan and Nevada will receive $1.5 billion in financial rescue money. The funds will go to local programs to help unemployed homeowners, “under water” borrowers who owe more than their home is worth, or pay lenders to assist borrowers with second mortgages.

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By MARTIN CRUTSINGER

The Associated Press

4:20 p.m. Wednesday, February 24, 2010

WASHINGTON — Sales of new homes plunged to a record low in January, underscoring the formidable challenges facing the housing industry as it tries to recover from the worst slump in decades.

The Commerce Department reported Wednesday that new home sales dropped 11.2 percent last month to a seasonally adjusted annual sales pace of 309,000 units, the lowest level on records going back nearly a half century. The big drop was a surprise to economists who were expecting a 5 percent increase over December’s pace.

While winter storms were partly to blame, home sales have fallen for three straight months despite sweeping government support. Economists were already worried that an improvement in sales in the second half of last year could falter as various government support programs are withdrawn.

“There is no doubt that January and February are going to be messy months for housing, given the severe weather conditions, but that doesn’t take away from the fact that the housing sector has taken another big step back, even with the government aid,” Jennifer Lee, a senior economist at BMO Capital Markets, said in a research note.

A rebound in housing in the second half of last year helped to boost overall economic growth back into positive territory. Each new home built, for example, creates about three jobs for a year and generates about $90,000 in taxes paid to local and federal authorities, according to the National Association of Home Builders.

However, economists are worried that if housing falters in coming months, that will be one more headwind the recovery will have to overcome. The decline to an annual purchase rate of 309,000 in January was 6 percent below the previous record low set in January last year.

“I don’t think we are going to have a double-dip recession in housing, but it is going to take us longer to recover from a very deep hole,” said Patrick Newport, an economist at IHS Global Insight.

January’s weakness was evident in all regions except the Midwest, where sales posted a 2.1 percent increase. Sales were down 35 percent in the Northeast, 12 percent in the West and almost 10 percent in the South.

The drop in sales pushed the median sales price down to $203,500. That was down 5.6 percent from December’s median sales price of $215,600, and off 2.4 percent from year-ago prices.

New home sales for all of 2009had fallen by almost 23 percent to 374,000, the worst year on record. The National Association of Home Builders is forecasting that sales will rise to more than 500,000 sales this year, an improvement from 2009 but still far below the boom years of 2003 through 2006 when builders clocked more than 1 million new home sales per year.

January’s data increased concerns that the housing rebound could falter in coming months as the government withdraws the support it has used to try to bolster the housing market. The real estate crisis was the epicenter of the country’s overall recession, the worst downturn since the 1930s.

The Federal Reserve has been holding down mortgage rates by buying $1.25 trillion in mortgage-backed securities, but that program is set to end March 31. And temporary tax credits to bolster home buying are scheduled to expire at the end of April.

Federal Reserve Chairman Ben Bernanke told Congress Wednesday that by holding the securities on its books the central bank would continue to help keep mortgage rates low. Economists believe that as long as the Fed owns the securities it will reduce the overall supply and thus help support the price.

Bernanke, delivering the Fed’s twice-a-year economic report to Congress, said that the Fed’s record low interest rates were still needed to attack high unemployment levels and help the overall economy recover.

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A combination of weather and low demand has led to a 13 year low in demand for mortgage applications according to The Mortgage Bankers Association. Demand for mortgages has not been this low since 1997.

Hopefully the market slowdown is a statistical blip due to the harsh winter that so much of the country has been dealing with. Unfortunately the uncertainty of the market and economy has all of us scoreboard watching. The demand for new mortgages is the canary in the coal mine for the real estate industry.

If mortgage applications drop typically closing are not on the horizon.

A continued drop in demand for purchase loans, a tentative early indicator of home sales, would not bode well for the hard-hit U.S. housing market, which remains highly vulnerable to setbacks and heavily reliant on government intervention.

The Mortgage Bankers Association reported an 8.5 percent decline in its seasonally adjusted index of mortgage applications, which includes both purchase and refinance loans, for the week ended February 19.

The four-week moving average of mortgage applications, which smoothes the volatile weekly figures, was up 1.6 percent.

The MBA’s seasonally adjusted purchase index fell 7.3 percent, the lowest level since May 1997.

The Real Estate Bloggers

A Look at Case-Shiller, by Metro Area (February Update)