Anglonautes > English words - vocabulary - dictionary - encyclopedia > Economy > Housing market

The housing market has shown signs of life recently. Home sales have beat expectations and pending sales neared a two-year high. But prices — the crucial measure of housing-market health — are still falling, driven down by increasing levels of distressed sales of foreclosed properties. That means the market, and the broader economy, which derives much of its strength from housing, are not out of the woods — not by a long shot.

For too long, President Obama and his team have relied on the banks to voluntarily modify troubled loans. Those efforts were focused on reducing monthly payments, not principal — a more powerful form of relief.

Now President Obama is trying again. On Tuesday, he announced a new policy of easier refinancings for loans that are backed by the Federal Housing Administration. As part of the settlement announced in February, the major banks will be required to promote loan modifications for troubled borrowers, including principal reductions for underwater homeowners.

Mr. Obama has also promised a far-reaching investigation into mortgage abuses that is supposed to yield more accountability from the banks and more money for foreclosure prevention. He must deliver.

One thing is sure: Waiting for the situation to self-correct, as Mitt Romney has recommended, won’t fix the problem. The recent good news on sales has been driven by pent-up demand and warm winter weather that lured buyers. But more sales won’t translate into higher prices until foreclosures abate.

In the last quarter of 2011, national home prices fell 4 percent, putting prices back to levels last seen in mid-2002, according to the Standard & Poor’s/Case-Shiller price index. Moody’s Analytics estimates that 3.3 million homes are in or near foreclosure and another 11.5 million underwater homeowners are at risk of foreclosure if the economy or their finances weaken.

Is help really on the way?

The main component of the administration’s new efforts is the recent foreclosure settlement between the big banks and state and federal officials. In exchange for immunity from government civil lawsuits over most foreclosure abuses, the banks will provide $26 billion worth of relief, including principal write-downs, to an estimated 1.75 million borrowers. That is a pittance compared with the losses in the housing bust. But by preventing a chunk of additional foreclosures, it could help ensure that prices do not fall much further before bottoming out.

The settlement was announced nearly a month ago, but the specific terms have yet to be released. One concern is that banks may have leeway to tailor loan modifications in ways that help them clean up their balance sheets, while leaving many homeowners deeply underwater. Another is that states may be able to use money from the settlement for purposes other than foreclosure relief.

The investigation that is supposed to be the powerful follow-up to the settlement has also gotten off to a worryingly slow start. Announced in January by Mr. Obama, it still has no executive director, raising questions about the administration’s commitment to truly holding the banks accountable. The longer it takes to do an investigation, the longer it will take to secure verdicts or settlements that would include money for further antiforeclosure efforts.

Because the banks held off on foreclosure while the settlement was being negotiated, reclosure filings are set to rise in the coming year to more than two million. That means more pain for struggling homeowners — and the economy. By this point, homeowners should be inundated with relief, not still anxiously awaiting help.

How Good Is the Housing News?,
NYT,
7.3.2012,
https://www.nytimes.com/2012/03/08/
opinion/how-good-is-the-housing-news.html

Homeowners Need Help

August 21, 2011

The New York Times

Neither Congress, nor federal regulators, nor state or federal prosecutors have yet to conduct a thorough investigation into the mortgage bubble and financial bust. We welcomed the news that the Justice Department is investigating allegations that Standard & Poor’s purposely overrated toxic mortgage securities in the years before the bust. We hope the investigative circle will widen.

But a lot more needs to be done to address the continuing damage from the mortgage debacle.

Tens of millions of Americans are being crushed by the overhang of mortgage debt. And Congress and the White House have yet to figure out that the economy will not recover until housing recovers — and that won’t happen without a robust effort to curb foreclosures by modifying troubled mortgage loans.

Instead of pushing the banks to do what is needed, the Obama administration has basically urged them to do their best to help, mainly by reducing interest rates for troubled borrowers. The banks haven’t done nearly enough. In many instances, they can make more from fees and charges on defaulted loans than on modifications.

The administration needs better ideas. It can start by working with Fannie Mae and Freddie Mac, the government-run mortgage companies, to aggressively reduce the principal balances on underwater loans and to make refinancing easier for underwater borrowers. If the president championed aggressive action, and Fannie and Freddie, which back most new mortgages, also made it clear to banks that they expect principal reductions, the banks would feel considerable pressure to go along.

The housing numbers are chilling. Sales of existing homes fell in July by 3.5 percent, while prices were down 4.4 percent in July from a year earlier. In all, prices have declined 33 percent since the peak of the market five years ago, for a total loss of home equity of $6.6 trillion.

There’s no letup in sight. Currently, 14.6 million homeowners owe more on their mortgages than their homes are worth, and nearly half of them are underwater by more than 30 percent. At present, 3.5 million homes are in some stage of foreclosure. Nearly six million borrowers have already lost their homes in the bust.

Reducing principal is a better solution than lowering interest rates, because it reduces payments and restores equity. Bankers resist, because it could force them to recognize losses they would prefer to delay. The administration has resisted, in part because principal reductions are seen as rewarding reckless borrowers.

But many of today’s troubled borrowers were not reckless. Rather, they are collateral damage in a bust that has wiped out equity and hammered jobs, turning what were reasonable debt levels into unbearable burdens.

Housing advocates and bankruptcy experts are calling for the administration to try new approaches. One would have Fannie and Freddie urge banks to let underwater borrowers who file for bankruptcy apply their monthly mortgage payments to principal for five years — in effect, reducing the loan’s interest rate to zero.

Another solution would be for Fannie and Freddie to ease the rule for refinancing underwater mortgages for borrowers who are current in their payments. The lower payments on refinanced loans would help to prevent defaults and free up money for borrowers to use for paying down principal or consumer spending.

President Obama is reportedly planning to include housing relief measures in his new jobs plan. Unless the plan includes strong support for principal reductions and easier refinancings, it will not get at the root of the problem: too much mortgage debt and too little relief.

Homeowners Need Help,
NYT,
21.8.2011,
https://www.nytimes.com/2011/08/22/
opinion/homeowners-need-help.html

A Sharp Drop in Home Prices

at End of Year

February 25, 2009

The New York Times

By JACK HEALY

Home prices in the United States plunged at the fastest pace on record in December, a sign that housing is likely to continue declining in the months ahead as the economy sinks deeper into recession.

Single-family home values in 20 major metropolitan areas fell 18.5 percent in December compared with a year earlier, according to a data released Tuesday by Standard & Poor’s Case-Shiller home price index. Housing prices dropped 2.5 percent from November to December.

Nationwide, housing prices in the last three months of 2008 sank to their lowest levels since the third quarter of 2003.

Prices fell in all of the 20 cities surveyed by Case-Shiller, but the declines were starkest in Phoenix and Las Vegas as well as much of Florida and Southern California, where development has all but dried up.

“The Sun Belt continues to get hardest hit in terms of just about any measure,” said David M. Blitzer, chairman of Standard & Poor’s index committee.

Prices in Phoenix fell 5.1 percent in December alone, and were down 34 percent since December 2007. In Las Vegas, which was recently rated “America’s emptiest city” by Forbes magazine, prices dropped 4.8 percent in December and were down 33 percent for the year.

The declines for 2008 were shallowest in Dallas and Denver, where prices fell about 4 percent.

Housing prices are now falling so quickly that economists worried that potential buyers will stay on the sidelines and wait for the market to deteriorate further, reinforcing the downward momentum.

“It’s a deflationary spiral,” said Dan Greenhaus, an analyst in the equity strategy division of Miller Tabak & Company. “Prices go down, people hold back, prices go down further, people hold back, and so on and so forth.” Although houses are now cheaper and mortgage rates have fallen to 5.22 percent from 6.10 percent about a year ago, the rapidly deteriorating economy and rising unemployment have scared off potential buyers, economists said. The unemployment rate has risen to 7.6 percent nationwide, and the economy is shedding more than 500,000 jobs every month.

“We continue to believe that it is unlikely that we are anywhere near a bottom in nationwide home prices,” Joshua Shapiro, chief United States economist at MFR, wrote in a note.

Since the recession began in December 2007, the pace of declines in housing prices has accelerated as the financial crisis spread and unemployment rose.

According to the National Association of Realtors, the country’s median home price was $175,400 in December, down nearly 25 percent from its peak of $230,100 in July 2006.

The two-year decline in real-estate prices followed more than a decade of steady growth in home prices.

A Sharp Drop in Home Prices at End of Year, NYT, 25.2.2009,
http://www.nytimes.com/2009/02/25/business/economy/25econ.html

New Home Sales

Post 14.7 Pct Drop

in December

January 29, 2009

Filed at 11:34 a.m. ET

The New York Times

By THE ASSOCIATED PRESS

WASHINGTON (AP) -- Sales of new homes plunged to the slowest pace on record last month as the hobbled homebuilding industry posted its worst annual sales results in more than two decades.

The Commerce Department said Thursday that new home sales fell 14.7 percent in December to a seasonally adjusted annual rate of 331,000, from a downwardly revised November figure of 388,000.

''This is an awful report...Builders just can't cut back fast enough, so prices remain under downward pressure,'' Ian Shepherdson, chief U.S. economist for High Frequency Economics, wrote in a research note.

December's sales pace was the lowest on records dating back to 1963. Economists surveyed by Thomson Reuters had expected sales would fall to a rate of 400,000 homes.

For 2008, builders sold 482,000 homes, the weakest results since 1982, when 412,000 homes were sold.

The median price of a new home sold in December was $206,500, a drop of 9.3 percent from a year ago. The median is the point where half the homes sold for more and half for less.

Builders have been forced to slash production during a prolonged and severe slump in housing that has seen sales and prices plummet. December's sales activity was depressed by the worst financial crisis in seven decades, which has made it harder for potential buyers to get mortgage loans.

The inventory of unsold new homes stood at a seasonally adjusted 357,000 in December, down 10 percent from November. But at the current sales pace, it would take a more than a year to exhaust the stock as houses are dumped onto a market already glutted by a tide of foreclosures.

''The inventory of unsold new homes is still too high,'' wrote Joshua Shapiro, chief U.S. economist at MFR Inc. ''Prices need to fall further to stimulate sufficient demand to begin to balance the market.''

The sales weakness in December reflected a 28 percent drop in the Northeast and a 20 percent drop in the West. The South and Midwest posted smaller declines of 12 percent and almost 6 percent, respectively.

Earlier this month, a key gauge of homebuilders' confidence sank to a new record low, as the deepening U.S. recession and rising unemployment erode chances for a housing turnaround.

Sales of existing homes, however, posted an unexpected increase last month, as consumers snapped up bargain-basement foreclosures in California and Florida. Sales of existing homes rose 6.5 percent from November's pace, the National Association of Realtors said Monday.

New Home Sales Post 14.7 Pct Drop in December,
NYT,
29.1.2009,
http://www.nytimes.com/aponline/2009/01/29/
business/AP-New-Home-Sales.html

House prices fall

at fastest pace in 25 years

December 4, 2008
From Times Online
Rosie Lavan

British house prices tumbled at a record 16.1 per cent in November, marking the sharpest drop in property values for a quarter of a century.

Figures released this morning by Halifax revealed that prices fell 2.6 per cent in November compared with October, and are 16.1 per cent lower than in November 2007.

The year-on-year decline is deeper than falls recorded during the last recession in the early 1990s, and is the biggest drop since 1983.

The shock fall emerged just hours before the Bank of England's Monetary Policy Commitee (MPC) cut the interest rate again by 1 per cent to 2 per cent, after last month reducing borrowing costs by 1.5 per cent to 3 per cent.

The reduction is likely to be accompanied by a rate cut by the European Central Bank, which is predicted to fall by 50 basis points in the 15-nation eurozone.

Howard Archer, chief UK and European economist at IHS Global Insight, said: "Ongoing very tight credit conditions, still relatively stretched housing affordability on a number of measures, faster rising unemployment, muted income growth and widespread expectations that house prices form a powerful set of negative factors are weighing down on the housing market."

The average price of a house in the UK is back to the July 2005 level of £163,445, but this is 124 per cent higher — or £90,000 — than the figure in November 1998.

Mr Archer said Halifax's figures had placed further, last-minute pressure on the Bank to deliver a large cut in rates.

IHS Global Insight predicted that interest rates would fall as low as 0.5 per cent in the first half of the new year, and could be reduced even further.

Central banks around the world have cut interest rates ahead of today's moves.

Sweden's central bank today cut its key rate by a record 175 basis points, to 2 per cent, the third reduction since October and the biggest since 1992. It expects rates to remain at 2 per cent throughout next year.

The Riksbank said there was an "unexpectedly rapid and clear deterioration in economic activity since October".

New Zealand also announced a record cut of 150 basis points, bringing its rate down to a five-year low of 5 per cent and acknowledging that further cuts would probably be necessary.

Indonesia made a surprise 25 basis-point cut to its rate. This reduction, the first since December last year, takes the interest rate to 9.25 per cent.

Yesterday, the Bank of Thailand cut rates by 100 basis points to 2.75 per cent, partly in response to the recent political turmoil during which the ruling party was dissolved and the Prime Minister forced out of office.

On Tuesday, the Reserve Bank of Australia surprised with a larger-than-anticipated 100 basis-point cut to 4.25 per cent.

But Mr Archer added that: "...it is highly questionable how much of further interest rate cuts by the Bank of England that mortgage lenders would pass on."

Yesterday, Gordon Brown unveiled a rescue package for homeowners who struggle to meet their mortgage repayments if they lose their jobs or suffer a severe drop in income.

Those with loans of up to £400,000 — typically borrowers on upper and middle incomes — will be able to cut payments, with the taxpayer underwriting the risk of default.

The emergency state guarantee, which will enable homeowners to defer mortgage interest payments for up to two years, was announced unexpectedly in the debate following the Queen's Speech yesterday.

The Prime Minister said eight big lenders which account for 70 per cent of the market — HBOS, Abbey, Nationwide, Lloyds TSB, Northern Rock, Barclays, Royal Bank of Scotland and HSBC — had signed up to the £1 billion plan.

Northern Rock, the nationalised lender, yesterday announced that it would follow Royal Bank of Scotland (RBS) in delaying the issue of repossession orders by six months.

RBS announced that it was taking the same measure on Monday.

House prices fall at fastest pace in 25 years, 3.12.2008,
http://www.timesonline.co.uk/tol/money/property_and_mortgages/
article5284863.ece - broken link

Families brace for holidays

without a home

Thu Oct 30, 2008
7:54am EDT
Reuters
By Lisa Baertlein

THOUSAND OAKS, Calif (Reuters) - A memento with Depression-era humor helps Kristin Bertrand keep perspective as her family braces for a Christmas holiday without their home.

The small ceramic dish she keeps from her grandfather reads: "Cheer up, things could be worse." Then, in smaller type: "So I cheered up and sure enough things got worse."

Just a few years ago, Kristin and her husband Mike Bertrand, 36, were confident they owned their own piece of the American dream. They pulled in $140,000 a year, owned a house, two cars, a telescope and other gadgets, and had season tickets to Disneyland for their two kids.

But since they lost their home in May, the Bertrands live in a sparsely furnished rental in Thousand Oaks, California, and have cut expenses to the bone.

They've sold Kristin's set of wedding rings, given up a car and the Disneyland passes to get back on their feet. The dish, taken when Kristin's 90-year-old grandfather moved to a nursing home, sits on the mantel as a reminder.

"It's going to be a lean holiday for us," said Kristin, 36, who said the family has put plans to visit relatives in Idaho on the back burner. "I think this year we need to lay low."

Adding to their worries as the holidays approach, Mike just learned that his consulting contract, the family's main income, will not be renewed at the end of October.

The Bertrands' story will be played out in many versions across the United States this holiday season, where several hundred thousand people who lost their homes to foreclosure try to redefine how they celebrate with their families.

For the Bertrands, and others, past splurges for special occasions have already been cut out of the household budget.

The Bertrands have kept their 13-year-old daughter McKaylee and 10-year-old son Taylor in the loop about their financial troubles all along. The kids have long stopped asking for money for clothes or fund-raisers, they said.

While the family had once taken McKaylee and a friend to Disneyland to celebrate her birthday, her latest party was held at home with a borrowed karaoke machine and a jump rope that guests fashioned from glow-in-the-dark necklaces.

NOT JUST A NUMBER

More than one million U.S. homes were lost in foreclosure from the beginning of 2007 through the end of September this year, according to RealtyTrac. Credit Suisse estimates 6.5 million loans will fall into foreclosure over the next five years, with the peak coming this year.

Families who have already lived through the worst of their financial troubles -- due to inflated monthly mortgage payments, the plunge in U.S. home values, or layoffs -- have prepared for a low-key holiday.

But even people who have not fallen into dire straits expect to tone it down this year, frightened by a plunge in financial markets that has wiped out trillions of dollars of asset values and raised the prospect of a global recession.

Six times as many people say they will cut back on gift-buying as those who plan to spend more, according to a recent Reuters/Zogby poll. U.S. retailers are bracing for their most dismal holiday sales season in nearly two decades.

Virginia Washington, a 64-year-old grandmother to 10, is already planning a more frugal holiday as she struggles to make payments on the $207,000 loan on her dream retirement home in Tolleson, Arizona, which is now worth about $150,000.

"The spirit will be there, though many of the things you've gotten used to over the years may not be," she said.

Counselors who help people through the foreclosure process say that many families just aren't making holiday plans.

"They're not as concerned about what they're going to do for the holidays, it's more about what they're going to do to keep the home," said MaryEllen De Los Santos, a housing counseling coordinator with the Adams County Housing Authority in Commerce City, Colorado.

One outlier is Ann Neukomm, 57, a receptionist from Cape Coral, Florida, who filed for bankruptcy in May and now faces foreclosure on a mortgage she took out about two years ago.

She's thinking about using a small inheritance from her father to take her 17-year-old son on a holiday cruise.

"I'd like to do something with him because it's probably going to be the last time," Neukommm said, referring to her son's 18th birthday, a time when many American teenagers stop living with their parents.

De Los Santos, the housing counselor, said that in the past, families in trouble would pour into her office at the beginning of each year. Many of them could not make mortgage payments because they spent too much on the holidays.

Now she expects more people won't even make it to the holidays to overspend, and predicts a flood of cases starting in early December.

One question De Los Santos asks clients is: "Do you want to have this kind of Christmas, or to you want to spend next Christmas in your home?"

FINANCIAL SPIRAL

Archstone Consulting Chief Executive Todd Lavieri said his biggest concern is unemployment and job insecurity. The United States has lost more than 700,000 jobs since January and experts are bracing for massive layoffs ahead.

"Saving your money to save your house will have a direct impact on holiday spending, no question about it," said Lavieri, whose group expects this year's holiday sales to contract when adjusted for inflation.

The Bertrands' plight began when Mike lost his job in 2007. He has worked since, but always for lower pay.

"I was working, but I was making less money. I kept fighting and struggling to catch up," Mike said.

In February, he lost a second job. "That was pretty much the final nail in the coffin," said Mike.

"The fear was overwhelming," Kristin said of the foreclosure saga, which left her feeling guilty and helpless.

While the family was not required to make mortgage payments during the year that the Newbury Park house they bought in 2001 was in foreclosure, Mike and Kristin said nothing felt as good as making their first payment on their rental.

"It was the best therapy," said Mike.

The couple started a support group called Moving Forward (http://wearemovingforward.org/) to help others manage the emotional toll of foreclosure. They worry that the holidays will pile additional stress on families already struggling to keep their heads above water.

"We need to get through it without any casualties," Kristin said.

(Reporting by Lisa Baertlein;

Additional reporting by Tim Gaynor in Phoenix

and Tom Brown in Cape Coral, Florida;

Editing by Michele Gershberg

and Eddie Evans)

Families brace for holidays without a home,
R,
30.10.2008,
https://www.reuters.com/article/domesticNews/idUSTRE49T01O
20081030

Home Prices Tumbled in August

October 29, 2008
The New York Times
By MICHAEL M. GRYNBAUM

The beleaguered housing market found little relief in August as home prices across the country dropped at yet another record pace, according to a closely watched survey released Tuesday.

Home prices in 20 cities fell 16.6 percent in August compared with a year ago, the biggest annual drop in the history of the Case-Shiller Home Price Index, released by Standard & Poor’s, the ratings agency.

Every city included in the survey experienced a drop in prices from a year earlier, a trend that has so far lasted five months. Phoenix and Las Vegas were hit hardest, with prices down 31 percent in both cities. Prices declined more than 25 percent in Los Angeles, Miami, San Diego and San Francisco.

Prices dropped a percentage point between August and July, a sign that the pace of the decline may be slowing slightly. Only two cities — Cleveland and Boston — had price increase for the month, compared with six in July. Prices were unchanged in Chicago and Denver.

“The downturn in residential real estate prices continued, with very few bright spots in the data,” David M. Blitzer, who oversees the survey, said in a statement.

A 10-city index fell 17.7 percent year-over-year.

The housing slump has continued unabated for months, and its consequences can be felt throughout the nation’s economy. It has led to the erosion of jobs, pain in a number of housing-related industries, and, in part, the credit crisis that caused the collapse of several Wall Street banks. Whirlpool, the appliance maker, announced more layoffs and additional plants closings on Tuesday, citing the housing slowdown. Households have also watched their home equity lines deteriorate.

Lower prices, however, are in some sense the key to recovery, economists said, although prices may need to fall further to lure buyers back into a market sagging with unsold inventory.

Sales also appeared to pick up slightly in September, according to reports from the Commerce Department and the private National Association of Realtors. Sales of both previously owned and newly reconstructed homes rose. But inventories remained elevated.

Housing woes are just one of the problems currently ailing the American consumer, a fact driven home by a disastrous reading on consumer confidence released on Tuesday by the Conference Board, a private group.

The confidence survey, which dates back decades, plunged to its lowest reading on record, hitting 38.0 in October from 61.4 in September. Expectations are also at an all-time low.

The enormous declines in the stock market last month appeared to have taken a dramatic toll on sentiment among Americans. Nearly half of the 5,000 consumers surveyed said they expected the job market to deteriorate further, and many appeared worried about their ability to make purchases over the next few months.

“These moves are likely to have at least partially been driven by the worrying news flow on the U.S. financial system, but it appears to be the labor market that is the source of the bulk of the worries,” James Knightley, an economist at ING Bank, wrote in a research note.

Home Prices Tumbled in August, NYT, 29.10.2008,
http://www.nytimes.com/2008/10/29/business/economy/29econ.html

The Reckoning

Building Flawed American Dreams

October 19, 2008
The New York Times
By DAVID STREITFELD and GRETCHEN MORGENSON

SAN ANTONIO — A grandson of Mexican immigrants and a former mayor of this town, Henry G. Cisneros has spent years trying to make the dream of homeownership come true for low-income families.

As the Clinton administration’s top housing official in the mid-1990s, Mr. Cisneros loosened mortgage restrictions so first-time buyers could qualify for loans they could never get before.

Then, capitalizing on a housing expansion he helped unleash, he joined the boards of a major builder, KB Home, and the largest mortgage lender in the nation, Countrywide Financial — two companies that rode the housing boom, drawing criticism along the way for abusive business practices.

And Mr. Cisneros became a developer himself. The Lago Vista development here in his hometown once stood as a testament to his life’s work.

Joining with KB, he built 428 homes for low-income buyers in what was a neglected, industrial neighborhood. He often made the trip from downtown to ask residents if they were happy.

“People bought here because of Cisneros,” says Celia Morales, a Lago Vista resident. “There was a feeling of, ‘He’s got our back.’ ”

But Mr. Cisneros rarely comes around anymore. Lago Vista, like many communities born in the housing boom, is now under stress. Scores of homes have been foreclosed, including one in five over the last six years on the community’s longest street, Sunbend Falls, according to property records.

While Mr. Cisneros says he remains proud of his work, he has misgivings over what his passion has wrought. He insists that the worst problems developed only after “bad actors” hijacked his good intentions but acknowledges that “people came to homeownership who should not have been homeowners.”

They were lured by “unscrupulous participants — bankers, brokers, secondary market people,” he says. “The country is paying for that, and families are hurt because we as a society did not draw a line.”

The causes of the housing implosion are many: lax regulation, financial innovation gone awry, excessive debt, raw greed. The players are also varied: bankers, borrowers, developers, politicians and bureaucrats.

Mr. Cisneros, 61, had a foot in a number of those worlds. Despite his qualms, he encouraged the unprepared to buy homes — part of a broad national trend with dire economic consequences.

He reflects often on his role in the debacle, he says, which has changed homeownership from something that secured a place in the middle class to something that is ejecting people from it. “I’ve been waiting for someone to put all the blame at my doorstep,” he says lightly, but with a bit of worry, too.

The Paydays During the Boom

After a sex scandal destroyed his promising political career and he left Washington, he eventually reinvented himself as a well-regarded advocate and builder of urban, working-class homes. He has financed the construction of more than 7,000 houses.

For the three years he was a director at KB Home, Mr. Cisneros received at least $70,000 in pay and more than $100,000 worth of stock. He also received $1.14 million in directors’ fees and stock grants during the six years he was a director at Countrywide. He made more than $5 million from Countrywide stock options, money he says he plowed into his company.

He says his development work provides an annual income of “several hundred thousand” dollars. All told, his paydays are modest relative to the windfalls some executives netted in the boom. Indeed, Mr. Cisneros says his mistake was not the greed that afflicted many of his counterparts in banking and housing; it was unwavering belief.

It was, he argues, impossible to know in the beginning that the federal push to increase homeownership would end so badly. Once the housing boom got going, he suggests, laws and regulations barely had a chance.

“You think you have a finely tuned instrument that you can use to say: ‘Stop! We’re at 69 percent homeownership. We should not go further. There are people who should remain renters,’ ” he says. “But you really are just given a sledgehammer and an ax. They are blunt tools.”

From people dizzily drawing home equity loans out of increasingly valuable houses to banks racking up huge fees, few wanted the party to end.

“I’m not sure you can regulate when we’re talking about an entire nation of 300 million people and this behavior becomes viral,” Mr. Cisneros says.

Homeownership has deep roots in the American soul. But until recently getting a mortgage was a challenge for low-income families. Many of these families were minorities, which naturally made the subject of special interest to Mr. Cisneros, who, in 1993, became the first Hispanic head of the Department of Housing and Urban Development.

He had President Clinton’s ear, an easy charisma and a determination to increase a homeownership rate that had been stagnant for nearly three decades.

Thus was born the National Homeownership Strategy, which promoted ownership as patriotic and an easy win for all. “We were trying to be creative,” Mr. Cisneros recalls.

Under Mr. Cisneros, there were small and big changes at HUD, an agency that greased the mortgage wheel for first-time buyers by insuring billions of dollars in loans. Families no longer had to prove they had five years of stable income; three years sufficed.

And in another change championed by the mortgage industry, lenders were allowed to hire their own appraisers rather than rely on a government-selected panel. This saved borrowers money but opened the door for inflated appraisals. (A later HUD inquiry uncovered appraisal fraud that imperiled the federal mortgage insurance fund.)

“Henry did everything he could for home builders while he was at HUD,” says Janet Ahmad, president of Homeowners for Better Building, an advocacy group in San Antonio, who has known Mr. Cisneros since he was a city councilor. “That laid the groundwork for where we are now.”

Mr. Cisneros, who says he has no recollection that appraisal rules were relaxed when he ran HUD, disputes that notion. “I look back at HUD and feel my hands were clean,” he says.

Lenders applauded two more changes HUD made on Mr. Cisneros’s watch: they no longer had to interview most government-insured borrowers face to face or maintain physical branch offices. The industry changed, too. Lenders sprang up to serve those whose poor credit history made them ineligible for lower-interest “prime” loans. Countrywide, which Angelo R. Mozilo co-founded in 1969, set up a subprime unit in 1996.

Mr. Cisneros met Mr. Mozilo while he was HUD secretary, when Countrywide signed a government pledge to use “proactive creative efforts” to extend homeownership to minorities and low-income Americans.

He met Bruce E. Karatz, the chief executive of KB Home, when both were helping Los Angeles rebuild after the Northridge earthquake in 1994.

There were real gains during the Clinton years, as homeownership rose to 67.4 percent in 2000 from 64 percent in 1994. Hispanics and African-Americans were the biggest beneficiaries. But as the boom later gathered steam, and as the Bush administration continued the Clinton administration’s push to amplify homeownership, some of those gains turned out to be built on sand.

Mr. Cisneros left government in 1997 after revelations that he had lied to federal investigators about payments to a former mistress. In the following years, HUD continued to draw attention in the news media and among consumer advocates for an overly lenient posture toward the housing industry.

In 2000, Mr. Cisneros returned to San Antonio, where he formed American CityVista, a developer, in partnership with KB, and became a KB director. KB’s board also included James A. Johnson, a prominent Democrat and the former chief executive of Fannie Mae, the mortgage giant now being run by the government. Mr. Johnson did not return a phone call seeking comment.

It made for a cozy network. Fannie bought or backed many mortgages received by home buyers in the KB Home/American CityVista partnership. And Fannie’s biggest mortgage client was Countrywide, whose board Mr. Cisneros had joined in 2001.

Because American CityVista was privately held, Mr. Cisneros’s earnings are not disclosed. He held a 65 percent stake, and KB had the rest. In 2002, KB paid $1.24 million to American CityVista for “services rendered.”

‘A Little Too Ambitious’

One of American CityVista’s first projects, unveiled in late 2000, was Lago Vista — Spanish for “Lake View.” The location was unusual: San Antonio’s proud and insular South Side, a Hispanic area home to secondhand car dealers, light industry and pawnshops.

Mr. Cisneros and KB pledged to transform an overgrown patch of land into a showcase. Homes were initially priced from $70,000 to about $95,000, and Mr. Cisneros promised that Lago Vista would be ringed with jogging paths and maple trees.

The paths were never built, and few trees provide shade from the Texas sun. The adjoining “lake” — at one point a run-off pit for an asphalt plant — is fenced off, a hazard to neighborhood children. The houses are gaily painted in pink, blue, yellow or tan, and most owners keep their yards green and tidy.

KB considers Lago Vista a “model community,” a spokeswoman said.

To get things rolling in Lago Vista, traditional bars to homeownership were lowered to the ground. Fannie Mae, CityVista and KB promoted a program allowing police officers, firefighters, teachers and others to get loans with nothing down and no closing costs.

KB marketed its developments in videos. In one from 2003, Mr. Karatz declared: “One of the greatest misconceptions today is people who sit back and think, ‘I can’t afford to buy.’ ” Mr. Cisneros appeared — identified as a former HUD director — saying the time was ripe to buy a home. Many agreed.

Victor Ramirez and Lorraine Pulido-Ramirez bought a house in Lago Vista in 2002. “This was our first home. I had nothing to compare it to,” Mr. Ramirez says. “I was a student making $17,000 a year, my wife was between jobs. In retrospect, how in hell did we qualify?”

The majority of buyers in Lago Vista “were duped into believing it was easier than it was,” Mr. Ramirez says. “The attitude was, ‘Sign here, sign here, don’t read the fine print.’ ” He added that some fault lay with buyers: “We were definitely willing victims.” (The Ramirez family veered close to foreclosure, but the couple now have good jobs and can make their payments.)

KB and Mr. Cisneros eventually built more than a dozen developments, primarily in Texas. But the shine slowly came off Lago Vista.

“It started off fabulously,” Mr. Karatz recalled. Then sales slowed considerably. “It was probably, looking back, a little too ambitious to think that there would be sufficient local demand.”

And then the foreclosures started. “A lot of people got approved for big amounts,” says Patricia Flores, another Lago Vista homeowner. “They bit off more than they could chew.” Families split up under the strain of mortgage payments. One residence had so much marital turmoil that neighbors nicknamed it “The House of Broken Love.”

Some homes were taken over and sold at a loss by HUD, which had insured them. KB was also a mortgage lender, a business many home builders pursued because it was so profitable. At times, it was also problematic.

Officials at HUD uncovered problems with KB’s lending. In 2005, about two years after Mr. Cisneros left the KB board, the agency filed an administrative action against KB for approving loans based on overstated or improperly documented borrower income, and for charging excessive fees. Because HUD does not specify where improprieties take place, it is not clear if this occurred at Lago Vista.

KB Home paid $3.2 million to settle the HUD action without admitting liability or fault, one of the largest settlements collected by the agency’s mortgagee review board. Shortly afterward, KB sold its lending unit to Countrywide. Then they set up a joint venture: KB installed Countrywide sales representatives in its developments.

By 2007, almost three-quarters of the loans to KB buyers were made by the joint venture. In Lago Vista, residents secured loans from a spectrum of federal agencies and lenders.

During years of heady growth, and then during a deep financial slide, Countrywide became a lightning rod for criticism about excesses and abuses leading to the housing bust — which Countrywide routinely brushed off.

Mr. Cisneros says he was never aware of improprieties at KB or Countrywide, and worked with them because he was impressed by Mr. Karatz and Mr. Mozilo. Mr. Mozilo could not be reached for comment.

Still, Countrywide expanded subprime lending aggressively while Mr. Cisneros served on its board. In September 2004, according to documents provided by a former employee, lending audits in six of Countrywide’s largest regions showed about one in eight loans was “severely unsatisfactory” because of shoddy underwriting.

HUD required such audits and lenders were expected to address problems. Mr. Cisneros was a member of the Countrywide committee that oversaw compliance with legal and regulatory requirements. But he says he did not recall seeing or receiving the reports.

Nor, he says, was there ever a board vote about the wisdom of subprime lending.

“The irresistible temptation to engage in subprime was Countrywide’s fatal error,” he says. “I fault myself for not having seen it and, since it was not something I could change, having left.”

Mr. Cisneros left Countrywide’s board last year. At the time, he expressed “enormous confidence in the leadership.” In 2003, Mr. Cisneros ended his partnership with KB because, he says, he felt constrained working with just one builder. He formed a new company with the same mission, CityView, that has raised $725 million.

Mr. Karatz has a different recollection of why the partnership ended.

“It didn’t become an important part of KB’s business,” he says. “It was profitable but I don’t think as profitable in those initial years as Henry’s group wanted it to be.”

Troubles in Lago Vista

Today in Lago Vista, many are just trying to get by. Residents say crime has risen, and with association dues unpaid, they cannot hire security. Salvador Gutierrez, a truck driver, woke up recently to see four men stealing the tires off his pickup. Seventeen houses are for sale, but there are few buyers.

Hugo Martinez, who got a pair of Countrywide loans to buy a two-bedroom house with no down payment, recently lost his job with a car dealership. He has a lower-paying job as a mechanic and can’t refinance or sell his house.

“They make it easy when you buy,” Mr. Martinez says. “But after a while, the interest rate goes up. KB Home says they cannot help us at all.”

Five years ago, Carlo Lee and Patricia Reyes bought their first home, a three-bedroom house in Lago Vista.

After Mrs. Reyes became ill last year and lost her job, they fell behind on their payments. Last month, Mr. Reyes was laid off from one of his jobs, assembling cabinets. He still works part time at a hospital, but unless the couple come up with missed payments and fees, they will lose their home.

“Everyone isn’t happy here in Lago Vista,” Mr. Reyes says. “Everyone has a lot of problems.”

Countrywide was bought recently at a fire-sale price by Bank of America. Mr. Cisneros describes Mr. Mozilo as “sick with stress — the final chapter of his life is the infamy that’s been brought on him, or that he brought on himself.”

Mr. Karatz was forced out of KB two years ago amid a compensation scandal. Last month, without admitting or denying the allegations, he settled government charges that he illegally backdated stock options worth $6 million.

For his part, Mr. Cisneros says he is proud of Lago Vista. “It is inaccurate to say that we put people into homes that they couldn’t afford,” he says. “No one was forcing people into homes.”

He also remains bullish on home building, despite the current carnage.

“We’re not selling cigarettes,” he says. “We’re not drawing people into casino gambling. We’re building the homes they’re going to raise their families in.”

David Streitfeld reported from San Antonio,

and Gretchen Morgenson from New York.

Building Flawed American Dreams, NYT, 19.10.2008,
http://www.nytimes.com/2008/10/19/business/19cisneros.html

Home Prices Seem Far From Bottom

October 16, 2008
The New York Times
By VIKAS BAJAJ

The American housing market, where the global economic crisis began, is far from hitting bottom.

Home prices across much of the country are likely to fall through late 2009, economists say, and in some markets the trend could last even longer depending on the severity of the anticipated recession.

In hard-hit areas like California, Florida and Arizona, the grim calculus is the same: More and more homes are going up for sale, but fewer and fewer people are willing or able to buy them.

Adding to the worries nationwide are rising unemployment, falling wages and escalating mortgage rates — all of which will reduce the already diminished pool of would-be buyers.

“The No. 1 thing that drives housing values is incomes,” said Todd Sinai, an associate professor of real estate at the Wharton School at the University of Pennsylvania. “When incomes fall, demand for housing falls.”

Despite the government’s move to bolster the banking industry, home loan rates rose again on Tuesday, reflecting concern that the Treasury will borrow heavily to finance the rescue.

On Wednesday, the average rate for 30-year fixed rate mortgages was 6.75 percent, up from 6.06 percent last week. While banks are moving aggressively to sell foreclosed properties, the number of empty homes is hovering near its highest level in more than half a century.

As of June, 2.8 percent of homes previously occupied by an owner were vacant. Nearly 1 in 10 rentals was without a tenant. Both numbers are near their highest levels since 1956, the earliest year for which the Census Bureau has such data.

At the same time, the number of people who are losing jobs or seeing their incomes decline is rising. The unemployment rate has climbed to 6.1 percent, from 4.4 percent at the end of 2007, and wages for those who still have a job have barely kept up with inflation.

In New York and other cities that rely heavily on the financial sector, economists expect that job losses will increase and that pay heavily tied to year-end bonuses will decline significantly.

One reliable proxy of housing values — the ratio of home prices to rents — indicates that in many cities prices are still too high relative to historical norms.

In Miami, for instance, home prices are about 22 times annual rents, according to analysis by Moody’s Economy.com. The average figure for the last 20 years is just 15 times annual rents. The difference between those two numbers suggests that a home valued at $500,000 today might be worth only $341,000 based on the long-term relationship between prices and rents.

The price-to-rent ratio, which provides one measure of how much of a premium home buyers place on owning rather than renting, spiked across the country earlier this decade.

It increased the most on the coasts and somewhat less in the middle of the country. Economy.com’s calculations show that while it remains elevated in many places, the ratio has fallen sharply to more normal levels in places like Sacramento, Dallas and Riverside, Calif.

The current housing downturn is much more national in scope and severe than any other in the postwar period, partly because of the proliferation of risky lending practices. Today, foreclosures are running ahead of the downturn in the economy, a reversal of previous housing slumps.

“We are in uncharted waters,” said Brian A. Bethune, an economist at Global Insight, a research firm.

Colleen Pestana, a real estate agent in Orange County in California, said many people losing their homes in Southern California used to work at mortgage and real estate companies. Many of them bet heavily on real estate by upgrading to bigger houses every few years. Now, many are losing their homes.

At the same time, Ms. Pestana said, her clients who are looking to buy are having a harder time lining up financing. One of her clients recently had to give up on a home after the lender that had offered a pre-approved loan changed its mind — a frequent occurrence, according to real estate agents and mortgage brokers.

“I am working harder than I have ever had to work to get a deal together and keep it together,” said Ms. Pestana, who has been a real estate agent for seven years.

To cushion themselves from potential losses if homes lose value, Fannie Mae and Freddie Mac, the mortgage finance companies that the government took over in September, have increased fees on loans made to borrowers who have good but not excellent credit records, even those who are making down payments as big as 30 percent.

Those higher fees are generally invisible to borrowers because banks factor them into mortgage interest rates. While the national average rate for a 30-year fixed-rate mortgage is now 6.75 percent, according to HSH Associates, mortgage brokers say the rates for many borrowers in the Southwest or Florida can be as high as 8 percent, especially for so-called jumbo loans that are too big to be sold to Fannie Mae and Freddie Mac. (Those loan limits vary by area from $417,000 to roughly $650,000.)

Higher interest rates result in bigger monthly payments, pricing some potential buyers out of the market. For example, monthly payments are $2,700 on a 6 percent 30-year, fixed-rate loan of $450,000. If the interest rate rises to 7 percent, those monthly payments jump to $3,000. All things being equal, when rates rise prices generally fall.

This month, Fannie and Freddie canceled a fee increase that would have applied to markets where home prices are falling, but the companies still have many other fees in place. In an effort to help drive down rates, the Treasury Department has announced plans to buy mortgage-backed securities issued by Fannie and Freddie. The government also recently increased the amount of loans the companies can buy and hold.

Still, those efforts will take time to have an impact and it is not clear whether they will be sufficient to get banks to lend more freely, especially in areas where jumbo loans make up a bigger percentage of lending, like New York and parts of California and Florida. Economists say that prices in those places will probably fall further.

In some of those places, price declines are being driven by a sharp increase in sales of foreclosed homes.

Hudson & Marshall, a Dallas-based auctioneer that holds sales for lenders, reports that banks are accepting prices that they refused to consider just 12 months earlier. In a recent auction of 110 foreclosed homes in the Las Vegas area, for instance, the auctioneer’s clients accepted 90 percent of the bids submitted by buyers, up from 60 percent a year earlier, said David T. Webb, a co-owner of the company.

Single-family home prices in Las Vegas have already fallen 34 percent from their peak in the summer of 2006, according to the Standard & Poor’s Case-Shiller home price index. Prices in San Diego have fallen 31 percent since late 2005.

While those declines have been painful to homeowners in those cities, economists said the quick decline might help the markets reach bottom faster than in previous housing cycles, said Edward E. Leamer, an economist at the University of California, Los Angeles. In a previous boom, home prices peaked in the Los Angeles area in 1990 but did not hit bottom until 1996. Prices remained near that low for more than a year before starting to climb again.

“In some areas of California, we are really at appropriate levels,” Mr. Leamer said of current home prices. But he added: “The risk is that we are going to get some overshooting, meaning that prices will be lower than they ought to be.”

In Florida, Jack McCabe, a real estate consultant, said that while some cities, like Fort Myers, are showing tentative signs of a rebound, others like Miami and Fort Lauderdale are still under pressure. Two homes on his street in Fort Lauderdale that sold for about $730,000 apiece in 2005 recently sold for $400,000 — a 44 percent decline.

“The rocket has run out of fuel, and now it’s plunged back down to earth,” he said.

Tara Siegel Bernard contributed reporting.

Home Prices Seem Far From Bottom,
NYT, 16.10.2008,
http://www.nytimes.com/2008/10/16/
business/economy/16housing.html

Bush Signs Housing Bill

July 30, 2008 8:08 a.m.
Associated Press

WASHINGTON -- President George W. Bush on Wednesday signed a massive housing bill intended to provide mortgage relief for 400,000 struggling U.S. homeowners and to stabilize financial markets.

Mr. Bush signed the bill without any fanfare or signing ceremony, affixing his signature to the measure he once threatened to veto in the White House's Oval Office in the early morning hours. He was surrounded by top administration officials, including Treasury Secretary Henry Paulson and Housing Secretary Steve Preston.

"We look forward to put in place new authorities to improve confidence and stability in markets," White House spokesman Tony Fratto said. He added that the Federal Housing Administration would begin right away to implement new policies "intended to keep more deserving American families in their homes."

The measure, regarded as the most significant U.S. housing legislation in decades, lets homeowners who cannot afford their payments refinance into more affordable government-backed loans rather than losing their homes. It offers a temporary financial lifeline to troubled mortgage companies Fannie Mae and Freddie Mac, and tightens controls over the two government-sponsored businesses.

The House of Representatives passed the bill a week ago; the Senate voted Saturday to send it to the president.

Mr. Bush didn't like the version emerging from Congress, and initially said he would veto it, particularly over a provision containing $3.9 billion in neighborhood grants. He contended the money would benefit lenders who helped cause the mortgage meltdown, encouraging them to foreclose rather than work with borrowers. But he withdrew that threat early last week, saying hurting homeowners couldn't wait -- and even blaming the Democratic Congress' delays in action for forcing an imperfect solution.

Meanwhile, many Republicans, particularly those from areas hit hardest by housing woes, were eager to get behind a housing rescue as they looked ahead to tough re-election contests. Mr. Paulson's request for the emergency power to rescue Fannie Mae and Freddie Mac helped push through the measure. So did the creation of a regulator with stronger reins on the government-sponsored companies, which Republicans have long sought.

Democrats won cherished priorities in the bargain: the aid for homeowners, a permanent affordable housing fund financed by Fannie Mae and Freddie Mac, and the $3.9 billion in neighborhood grants.

Bush Signs Housing Bill, WSJ, 30.7.2008,
http://online.wsj.com/article/SB121741699750696667.html

Op-Ed Contributor

Home Sweet Investment

March 18, 2008
The New York Times
By ALEX TABARROK

Fairfax, Va.

FEAR is ruling the financial markets. Billions of dollars have been lost in mortgage-related investments. The Federal Reserve worked madly over the weekend to engineer a takeover of Bear Stearns and avert a systemic meltdown. But the big fear remains. How low will house prices go?

If prices continue to fall, mortgage defaults will move well beyond the subprime sector. Trillions of dollars in losses for investors are not impossible. But that doesn’t mean they are inevitable.

In 1997, inflation-adjusted house prices were close to their average levels over the previous half-century. Only four years later, the price of the average home nationwide exceeded anything ever seen before in the United States. Prices continued to rise for another five years, peaking in 2006 at nearly twice the average price in 1997 (as can be seen on the graph on the bottom right, which is based on data collected by the Yale economist Robert Shiller). If house prices are heading back to the levels seen in 1997, then we are facing catastrophe.

But there are good reasons to believe that much of the increase in prices was a rational response to changes in fundamental factors like interest rates and supply. The deeper fundamentals continue to suggest strong housing prices for the future.

Sure, speculation did run rampant toward the end of the housing boom. (The debut of the reality television show “Flip That House” on Discovery Home Channel, followed shortly by “Flip This House” on A&E, was a clear sign that the boom’s end was near.) Prices will fall further, especially in the speculative developments built on the outskirts of the major cities. So yes, we overshot the fundamentals.

Still, especially in coastal areas where zoning regulations have restricted the supply of land that developers can build on, house prices were driven up by increasing population, low interest rates and strong economic growth.

More and more people want to live on the coasts, but land is hard to come by in places like Manhattan and San Francisco. Cities and regions built on ideas — like Boston, Los Angeles, New York and the San Francisco Bay Area — have grown even as areas built on manufacturing, like Detroit and the Rust Belt, have declined. And of course, government isn’t getting any smaller, so Washington and its suburbs, another hot spot of rising house prices during the boom, will continue to grow.

Even in places where land seems plentiful, zoning and other land-use regulations have made it scarce. To meet demand, we should encourage high-density development, but homeowners fought to restrict housing supply when house prices were increasing. Now that house prices are falling, the incentives of owners to restrict supply are even stronger.

Several studies estimate that the average house prices of 2004 were close to fundamental levels, so we may see prices stabilize near that level.

Granted, a catastrophe is not impossible — it did happen in Japan. House prices shot up in Japan in the late 1980s, and by 1999 they had collapsed. The graph on the top right, of Japanese and American house prices, does make for a worrying comparison. (The data come from the Standard & Poor’s/Case-Shiller national home price index and a similar index for Japan.)

But the resemblance isn’t as close as the graph makes it appear. The Japanese run-up in home prices was faster and reached higher levels than the one in the United States. In addition, the Japanese population at the time wasn’t growing, and today it’s shrinking. (None of the major presidential candidates favor drastic reductions in immigration, so population growth in the United States will continue.) As a result of these and other problems, the Japanese economy was moribund from 1992 to 2002, which kept housing prices low.

There are two very real problems for the housing market: tougher credit conditions and slower growth. Here the United States faces a self-fulfilling prophecy problem.

If the financial markets can predict where and when house prices will stabilize, then credit conditions can quickly return to normal, the economy can expand and house prices will indeed stabilize.

But if the financial markets remain uncertain about when the decline in house prices will end, then fear will tighten credit even further, which would strangle the housing market and generate even more fear.

We have nothing to fear but fear itself, but fear itself can be pretty scary. The best way to overcome fear is to look at the long run. The typical homebuyer keeps a home for 10 years or more, so there is time for those who bought in 2005 and 2006 to weather the current decline in prices. Those who bought at the top are unlikely to see any windfalls from house appreciation, but they will not necessarily suffer from buyers’ remorse. Owning a home has its advantages: the deduction on mortgage interest is substantial and too much of a sacred cow to ever be repealed, and there is a certain security and satisfaction to owning your own home.

The collapse of housing prices certainly feels painful, and for some homeowners, it will be. But the houses are still there, as good as ever. Most of the gains going up were paper gains, and most of the losses going down are paper losses.

The strength of an economy comes, fundamentally, from what it can produce. Can America still produce homes? Yes. Can America still produce desirable urban and suburban areas that people are willing to pay a fortune to live in? Yes.

That’s the real bottom line. The United States has some of the most valuable real estate in the world. Markets should not forget that.

Alex Tabarrok is a professor of economics

at George Mason University

and the research director for the Independent Institute.

Home Sweet Investment, NYT, 18.3.2008,
http://www.nytimes.com/2008/03/18/opinion/18tabarrok.html

Lending laws unenforced

in housing crisis: Jackson

Wed Feb 20, 2008
5:37pm EST
Reuters
By Michele Gershberg

NEW YORK (Reuters) - A U.S. mortgage meltdown has its roots in lending discrimination against African-American and Hispanic communities and requires federal intervention to prevent it from crippling municipal services, civil rights activist Rev. Jesse Jackson said on Wednesday.

Jackson told the Reuters Housing Summit in New York that nearly 40 percent of subprime loans went to black and Hispanic families, many of them in districts once shunned by discriminatory "redlining" lenders who later devised a way to profit there by selling a flawed financial product.

"They began to stereotype and target and cluster whole communities. It's kind of like reverse redlining," Jackson said.

Jackson estimates that nearly half of those borrowers could have been eligible for regular loan packages, but instead were locked into mortgages that threaten to balloon out of their ability to pay when the adjustable interest rates reset.

"It suggests that if fair lending laws had been enforced ... we would not have had this global economic crisis," Jackson said. "But while it started by unenforced civil rights laws, the bleeding has not stopped there. It's now engulfing the budgets of cities and counties and states."

Jackson also said that the U.S. Department of Justice was slow to respond, if at all, to concerns of lending discrimination.

An estimated 1.5 million subprime mortgages, traditionally targeted at borrowers with poor credit histories, will reset to higher interest rates this year, putting many owners at risk of losing their homes. Another 500,000 will reset in 2009, according to Federal Reserve estimates.

Jackson said the federal government should institute a halt to foreclosure proceedings and authorize the Federal Housing Administration or another body to start a major restructuring of subprime loans, with lower interest rates and payments spread out over a longer period.

He also called on state attorneys general to subpoena the major lenders on their loan practices and impose penalties on those who have violated the law.

He described President George W. Bush's plan to offer $152 billion in tax rebates this year to fend off a possible recession as irrelevant to the needs of home owners facing foreclosure and ignoring the cause of the crisis.

(Editing by Gary Hill)

Lending laws unenforced in housing crisis: Jackson, R, 20.2.2008,
http://www.reuters.com/article/Housing08/idUSN2039245920080220

Falling home sales problem

spreads to 45 states

14 February 2008
USA Today
By Noelle Knox

Underscoring the breadth of the real estate recession, sales of existing homes fell in 45 states and Washington, D.C., in the last quarter of 2007, and prices dropped in more than half the metro areas it tracks, the National Association of Realtors said Thursday.

The slide in sales is projected to persist through the first half of this year, and prices will likely fall throughout 2008, according to a majority of economists surveyed last month by USA TODAY. The figures reflect job losses in the Rust Belt states, sinking affordability in the Sunshine states and stricter lending rules nationwide.

Nationally, home sales fell nearly 21% from October through December, compared with the same period the year before. At the same time, the median price plunged by a record 5.8%, to $206,200.

South Dakota was the only state where sales rose — at an impressive 8.9%. Sales were flat in North Dakota, and no figures were available for Idaho, Indiana and New Hampshire. John Gustafson of the South Dakota Association of Realtors credits that state's strong industrial base, low crime rate and affordable home prices.

The state with the sharpest quarterly sales drop — a stunning 44% — was Nevada, which was one of the most overheated markets during the real estate boom. In Las Vegas, the median single-family home dropped about 13% in price. That means thousands of people who bought homes during the past couple of years with little or no money down now owe more than their homes are worth.

Luxury condos on the Las Vegas Strip are still faring well, but the single-family home market is "definitely treading water," says Bruce Hiatt, owner of Luxury Realty Group, and he projects it will take up to 18 months to recover.

"Bargain hunters are out there, but the foreclosure issue is presenting its challenges," he says. "Buyers are reluctant to buy in neighborhoods that have high foreclosures. They don't want empty houses next to them."

The median price — at which point half the homes cost more, half less — fell in 77 of the metro areas the NAR surveys, with at least 15 areas suffering double-digit drops. They included Sacramento, Jackson, Miss., and the Riverside-San Bernardino area of Southern California.

Rich Cosner of Prudential California Realty, which has offices in Riverside, San Bernardino and Orange counties, says foreclosures are driving down prices.

"The lenders have so many foreclosures, they need to get them sold and will take a much lower price than a normal home seller," Cosner explains, adding, "I don't see any change in the market happening in 2008."

But all real estate is local, and prices rose in 73 other metro areas, including 11 that enjoyed double-digit gains. Atop the list: the Cumberland area of Maryland and West Virginia, followed by Yakima, Wash., and Binghamton, N.Y.

Explaining buyers' attraction to Cumberland, Melanie Prattdimaio, a local real estate agent, says: "People are relocating here. We have a very low crime rate. We don't have rush-hour traffic."

    Falling home sales problem spreads to 45 states, UT, 14.2.2008,
    http://www.usatoday.com/money/economy/housing/
    2008-02-14-housing-q4-nar_N.htm

Biggest Drop

in Existing Home Sales

in 25 Years

January 24, 2008
Filed at 11:04 a.m. ET
The New York Times
By THE ASSOCIATED PRESS

WASHINGTON (AP) -- Sales of existing homes fell in December, closing out a horrible year for housing in which sales of single-family homes plunged by the largest amount in 25 years. The median home price dropped for the entire year, the first time that has occurred in four decades.

The National Association of Realtors reported that sales of single-family homes and condominiums dropped by 2.2 percent in December to a seasonally adjusted annual rate of 4.89 million units.

For the year, sales of single-family homes were down by 13 percent, the biggest drop since a 17.7 percent plunge in 1982. The median price for a single-family home dropped 1.8 percent to $217,000.

That was the first annual price decline on records going back to 1968. Lawrence Yun, the Realtors' chief economist, said it was likely that the country has not experienced a decline in housing prices for an entire year since the Great Depression of the 1930s.

The new figures underscored the severity of the slump in housing, which has been battered for the past two years after enjoying a boom in which sales set records for five consecutive years.

The housing bust has sent shock waves through the entire economy as defaults have risen, resulting in multibillion-dollar loses for big financial firms whose investments in subprime mortgages have gone sour.

There is a concern that the housing and credit troubles could be enough to push the country into a full-blown recession. After global stock markets experienced a sharp sell-off earlier this week, the Federal Reserve announced a bold three-quarter point cut in a key interest rate and held out the promise of more rate cuts to follow.

The Bush administration and congressional leaders are trying to quickly wrap up negotiations on a stimulus package in an effort to boost consumer and business confidence.

For December, sales were down in all regions of the country. Sales fell by 4.6 percent in the Northeast, 1.7 percent in the Midwest, 1 percent in the South and 2.1 percent in the West.

The inventory of unsold homes dropped by 7.4 percent, raising hopes that backlogs that had hit record levels were starting to be reduced, a key factor necessary to prompt a rebound in the market.

While Yun said he expected sales to start to rebound this spring, other analysts said housing is likely to remain in the doldrums throughout most of 2008, reflecting in part the credit crunch, which has caused lenders to tighten their standards, making it harder for prospective buyers to qualify for loans.

In other economic news, the Labor Department said Thursday that the number of laid off workers filing claims for unemployment benefits fell for a fourth straight week, dropping by 1,000 to 301,000.

Many economists cautioned that they still expected layoffs to start rising in coming weeks, reflecting the sharp economic slowdown that has taken place.

The economy, after racing ahead at an annual rate of 4.9 percent in the July-September quarter, probably slowed to a weak 1 percent rate in the final three months of 2007 and may even fall into negative territory in the current January-March quarter.

A recession is often defined as two consecutive quarters of falling economic output. Many economists believe the risks of a full-blown downturn are roughly 50-50.

The growing worries about the economy in an election year have captured the attention of President Bush and congressional leaders who are working to put together a $150 billion economic stimulus package that will include tax relief for households and businesses in an effort to bolster economic activity.

The drop in unemployment applications to 301,000 for the week ending Jan. 19 left total claims at the lowest level since 300,000 were recorded during the week of Sept. 22.

For the week of Jan. 19, 36 states and territories had increases in claims while 17 had declines.

The biggest increase occurred in California, up 27,194, an upsurge blamed on higher layoffs in construction and service industries, and Florida, with an increase in layoffs of 8,496, which was attributed in part to higher layoffs in construction. California and Florida have been particularly hard hit by the housing slump.

Biggest Drop in Existing Home Sales in 25 Years, NYT, 24.1.2008,
http://www.nytimes.com/aponline/business/AP-Economy.html

Housing market

closest to slump for 15 years,

say chartered surveyors

· Tighter mortgage controls and interest rates to blame
· Professional body urges Bank to make rapid cuts

Wednesday January 16 2008
The Guardian
Angela Balakrishnan

House prices across the UK tumbled in December at the fastest pace in more than 15 years as tighter mortgage lending and higher interest rates pushed the property market closer to the biggest crash since the early 1990s, the Royal Institution of Chartered Surveyors says today.

Surveyors are urging the Bank of England to cut interest rates without delay to attract buyers and help stabilise the market. The latest monthly snapshot of the housing market by the RICS compares the proportion of surveyors reporting a drop in prices with those who saw the market climb. The study shows 49.1% more surveyors reported a fall than a rise. November's level was 40.6%.

The survey offers the bleakest picture since November 1992, when the UK last saw a severe slump in the housing market as properties shed almost 30% in value against a backdrop of soaring interest rates.

Price falls were seen across the country, with East Anglia and the West Midlands showing the heaviest decreases. Only surveyors in Scotland reported some subdued price rises.

"The Christmas slowdown started much earlier this year and hit harder," said Jeffrey Hazel, of Geoffrey Collings and Co in King's Lynn, Norfolk.

Even in London, which has been at the forefront of Britain's housing boom, surveyors said the outlook for 2008 was not promising. "We need one or two very urgent mortgage interest rate decreases," said Arwel Griffith of Lexicon Surveying Services in Walthamstow. "Even that might not assist very substantially in the currently gloomy market."

Ian Perry, a spokesman for the RICS, said: "The housing market is clearly feeling the pinch from the credit crunch and the round of interest rate hikes in 2007."

The Bank of England raised interest rates five times between August 2006 and August last year to 5.75% to cool the rampant expansion of the UK economy, double-digit house price growth and decade-high levels of inflation.

Last summer's credit crunch, sparked by the sub-prime mortgage crisis in the US, has gripped the world economy, making lenders more cautious. This has made it difficult for many buyers to get on to the property ladder, dampening demand.

Meanwhile, supply to the market is edging up. The balance of surveyors reporting a rise in new properties to sell turned positive for the first time since May. The RICS said the looser supply was partly due to the extension last month of home information packs to cover all properties as homeowners brought forward sales of their homes to avoid extra costs.

But Perry said the underlying economic conditions were vastly different from the early 1990s. "Supply would have to loosen considerably before prices experience a significant dip," he said. "The coming months will be of great importance to the market. The Bank of England may have to cut rates further if the market is to remain in a stable condition."

The Bank's quarter-point interest rate cut last month did little to bring Christmas cheer for buyers, the RICS said, with the survey showing that 25% more surveyors reported a fall than a rise in buyer inquiries. But this has eased from 31% in October as first-time buyers wait on the sidelines in the hope that interest rates will fall.

Policymakers decided to hold interest rates at 5.5% last week as they juggled a potential economic slowdown with fears of inflation ticking higher after oil prices flirted with $100 a barrel this month and as food prices creep higher. But analysts forecast that borrowing costs would start to fall next month by a quarter point, possibly ending the year as low as 4%.

Fallout

· London and the south-east, where million-pound homes became common and properties were snapped up in days, can no longer withstand the slowdown. Demand from the City is falling as bonuses and jobs suffer the effects of the credit crunch.

· The RICS says Scotland is the only region which saw price rises, albeit at the slowest pace since April 2005.

· While the RICS says the West Midlands is bearing the brunt of recent falls, Nationwide has said this was the most stable region last year.

· Northern Ireland, which is not covered by the RICS survey, was another red-hot market for housing, making it vulnerable to sharp corrections in prices.

· Northern Ireland and Yorkshire & Humberside were among the first areas to see price falls during the last quarter of 2007.

Housing market closest to slump for 15 years,
say chartered surveyors,
G,
16.1.2008,
https://www.theguardian.com/money/2008/jan/16/
houseprices.interestrates

Review of the year

From the sub-prime to the ridiculous:

how $100bn vanished

Mighty institutions and powerful figures undermined
by pitiful little property deals

Monday December 31 2007
The Guardian
David Teather

It began with low-income Americans being encouraged to borrow mortgages they couldn't afford.

The economic butterfly effect would eventually cause deals worth billions of dollars to fall apart; the first run on a British bank in 140 years; some of the most powerful figures on Wall Street losing their jobs; wild gyrations on the markets; and dire warnings that the world is on the brink of recession.

At the start of the year, stockmarkets were at six-year highs and £40bn worth of mergers and takeovers were awaiting completion. Private equity firms and hedge funds were gorging themselves on cheap money and a handful of secretive, hugely wealthy individuals were becoming increasingly influential. But it was the millions on more modest incomes who would ultimately shape the events of 2007.

As the US housing market cooled and interest rates rose, many on the bottom rungs of the economic ladder found it difficult to meet their monthly mortgage repayments.

The first real concerns about sub-prime mortgages emerged at the end of February, when Wall Street suffered its worst day since the terrorist attacks of 2001. By April one of the biggest sub-prime mortgage lenders in the US had gone bankrupt and there was talk of a full-blown crisis. Credit more broadly began to dry up as lenders became nervous.

Fear also spread as it became clear that much of the bad debt had been packaged up and sold on around the world's financial system. Nobody, not even the banks themselves, knew who owned the toxic debt.

Some otherwise arcane practices of the financial world such as collateralised debt obligations and structured investment vehicles suddenly became everybody's concern.

The flood of private equity money turned into a trickle as it became more difficult to borrow, derailing deals including an attempt to buy J Sainsbury and, at the close of the year, an attempt by Lord Harris to take Carpetright private. Hedge funds too, which rely on leveraging their funds, have had their wings clipped.

The credit crunch was behind the biggest story of the year, Northern Rock. It emerged in September that the bank had been forced to apply to the Bank of England for emergency funds as liquidity had dried up in the market. Savers were told not to panic. But they did anyway. The next day, there were long lines of people threading through high streets across Britain, hoping to retrieve their cash.

The scenes triggered a postmortem into how a major bank - the fifth biggest provider of mortgages in the country - could reach the brink of collapse without any apparent action to prevent it from going under.

The inquest has so far given us the phrase "moral hazard" from the governor of the Bank of England, Mervyn King, who believed it was outside his remit to rescue a bank that had got into difficulties through risky borrowing on international money markets. It has also given us the sight of MPs from the Treasury select committee grappling to discover who from the much lauded tripartite structure of regulation for the UK financial system - the Bank of England, the Treasury and the Financial Services Authority - was to blame for the fiasco.

But it has not given us any definitive answers save that Northern Rock should not have risked so much on such a finely calibrated business model and should have seen it coming.

King came under pressure to quit but no one from the tripartite system has fallen on their sword. Even the architect of the business model, Northern Rock's chief executive Adam Applegarth, hung on until the middle of November when he finally resigned.

The stricken bank has received £25bn of taxpayers' cash. There are still two potential bidders - Sir Richard Branson's Virgin and the Olivant vehicle led by former Abbey National boss Luqman Arnold. Other options include nationalisation or a carve-up among high street banks.

As the mortgage crisis spread, Wall Street bosses began dropping like neatly lined-up dominoes. Stan O'Neal was forced out at Merrill Lynch and Charles Prince was ousted from the world's largest banking group, Citigroup. The most powerful woman on Wall Street, Zoe Cruz, lost her job at Morgan Stanley when the bank recorded losses of $3.7bn. Another Wall Street bank, Bear Stearns, suffered the first loss in its 84-year history.

The numbers just kept getting bigger. This month the Swiss bank UBS wrote off a further $10bn of sub-prime loans, on top of $3.4bn already announced. Two days later the Bank of England joined other central banks in pouring £50bn into the financial markets in the hope of staving off a meltdown. A succession of Wall Street banks have turned to sovereign funds in China, Singapore and the Middle East for injections of cash. The unravelling of events has been a stunning example of how interdependent the world economy has become.

Confidence appears to be ebbing. Retailers in Britain were forced to slash prices before Christmas to shift stock. According to the Royal Institute of Chartered Surveyors, house prices in Britain are falling at their fastest rate in two years. The outlook for jobs is the worst for a decade. Jon Hunt, who sold the estate agency Foxtons in April, may, it turns out, have called the top of the market.

In numbers

$99.29

The oil price reaches its peak just short of $100 a barrel (November 21)

$2

The pound hits $2 for the first time since 1992 (April 16)

£1.1bn

Price HSBC receives selling its headquarters in Canary Wharf (April 30)

$100bn

Ben Bernanke's estimate of total sub-prime losses (July 19)

    From the sub-prime to the ridiculous: how $100bn vanished,
    G, 31.12.2007,
    http://www.guardian.co.uk/business/2007/dec/31/
    subprimecrisis.creditcrunch

Tent city in suburbs

is cost of home crisis

Fri Dec 21, 2007
8:18am EST
Reuters
By Dana Ford

ONTARIO, California (Reuters) - Between railroad tracks and beneath the roar of departing planes sits "tent city," a terminus for homeless people. It is not, as might be expected, in a blighted city center, but in the once-booming suburbia of Southern California.

The noisy, dusty camp sprang up in July with 20 residents and now numbers 200 people, including several children, growing as this region east of Los Angeles has been hit by the U.S. housing crisis.

The unraveling of the region known as the Inland Empire reads like a 21st century version of "The Grapes of Wrath," John Steinbeck's novel about families driven from their lands by the Great Depression.

As more families throw in the towel and head to foreclosure here and across the nation, the social costs of collapse are adding up in the form of higher rates of homelessness, crime and even disease.

While no current residents claim to be victims of foreclosure, all agree that tent city is a symptom of the wider economic downturn. And it's just a matter of time before foreclosed families end up at tent city, local housing experts say.

"They don't hit the streets immediately," said activist Jane Mercer. Most families can find transitional housing in a motel or with friends before turning to charity or the streets. "They only hit tent city when they really bottom out."

Steve, 50, who declined to give his last name, moved to tent city four months ago. He gets social security payments, but cannot work and said rents are too high.

"House prices are going down, but the rentals are sky-high," said Steve. "If it wasn't for here, I wouldn't have a place to go."

'SQUATTING IN VACANT HOUSES'

Nationally, foreclosures are at an all-time high. Filings are up nearly 100 percent from a year ago, according to the data firm RealtyTrac. Officials say that as many as half a million people could lose their homes as adjustable mortgage rates rise over the next two years.

California ranks second in the nation for foreclosure filings -- one per 88 households last quarter. Within California, San Bernardino county in the Inland Empire is worse -- one filing for every 43 households, according to RealtyTrac.

Maryanne Hernandez bought her dream house in San Bernardino in 2003 and now risks losing it after falling four months behind on mortgage payments.

"It's not just us. It's all over," said Hernandez, who lives in a neighborhood where most families are struggling to meet payments and many have lost their homes.

She has noticed an increase in crime since the foreclosures started. Her house was robbed, her kids' bikes were stolen and she worries about what type of message empty houses send.

The pattern is cropping up in communities across the country, like Cleveland, Ohio, where Mark Wiseman, director of the Cuyahoga County Foreclosure Prevention Program, said there are entire blocks of homes in Cleveland where 60 or 70 percent of houses are boarded up.

"I don't think there are enough police to go after criminals holed up in those houses, squatting or doing drug deals or whatever," Wiseman said.

"And it's not just a problem of a neighborhood filled with people squatting in the vacant houses, it's the people left behind, who have to worry about people taking siding off your home or breaking into your house while you're sleeping."

Health risks are also on the rise. All those empty swimming pools in California's Inland Empire have become breeding grounds for mosquitoes, which can transmit the sometimes deadly West Nile virus, Riverside County officials say.

'TRICKLE-DOWN EFFECT'

But it is not just homeowners who are hit by the foreclosure wave. People who rent now find themselves in a tighter, more expensive market as demand rises from families who lost homes, said Jean Beil, senior vice president for programs and services at Catholic Charities USA.

"Folks who would have been in a house before are now in an apartment and folks that would have been in an apartment, now can't afford it," said Beil. "It has a trickle-down effect."

For cities, foreclosures can trigger a range of short-term costs, like added policing, inspection and code enforcement. These expenses can be significant, said Lt. Scott Patterson with the San Bernardino Police Department, but the larger concern is that vacant properties lower home values and in the long-run, decrease tax revenues.

And it all comes at a time when municipalities are ill-equipped to respond. High foreclosure rates and declining home values are sapping property tax revenues, a key source of local funding to tackle such problems.

Earlier this month, U.S. President George W. Bush rolled out a plan to slow foreclosures by freezing the interest rates on some loans. But for many in these parts, the intervention is too little and too late.

Ken Sawa, CEO of Catholic Charities in San Bernardino and Riverside counties, said his organization is overwhelmed and ill-equipped to handle the volume of people seeking help.

"We feel helpless," said Sawa. "Obviously, it's a local problem because it's in our backyard, but the solution is not local."

(Additional reporting by Andrea Hopkins in Ohio;

Editing by Mary Milliken and Eddie Evans)

Tent city in suburbs is cost of home crisis,
R,
21.12.2007,
https://www.reuters.com/
article/domesticNews/idUSN18506821
20071221/

Editorial

The American Dream in Reverse

October 8, 2007

The New York Times

For the first time since the Carter administration, homeownership in the United States is set to decline over a president’s tenure. When President Bush took office in 2001, homeownership stood at 67.6 percent. It rose as the mortgage bubble inflated but is projected to fall to 67 percent by early 2009, which would come to 700,000 fewer homeowners than when Mr. Bush started. The decline, calculated by Moody’s Economy.com, is inexorable unless the government launches a heroic effort to help hundreds of thousands of defaulting borrowers stay in their homes.

These days, modest relief efforts are in short supply, let alone heroic ones. Some officials seem to think that assistance would violate the tenet of personal responsibility that borrowers should not take out loans they cannot afford. That is simplistic.

The foreclosure crisis is rooted in reckless — and shamefully underregulated — mortgage lending. Many homeowners — mainly subprime borrowers with low incomes and poor credit — are now stuck in adjustable-rate loans that have become unaffordable as monthly payments have spiked upward. Their predicament is not entirely of their own making, and even if it were they would need to be bailed out because mass foreclosures would wreak unacceptable damage on the economic and social life of the nation.

The relief efforts so far have been too little, too late. In August, the White House established a program to allow an additional 80,000 borrowers to refinance their loans through the Federal Housing Administration — on top of 160,000 who were already eligible. That’s not enough. Foreclosure filings soared to nearly 244,000 in August alone.

Federal regulators and Treasury officials are urging mortgage lenders and mortgage servicers to do their utmost to modify loan terms for at-risk borrowers, but saying “please” hasn’t worked. To be effective, modifications must reduce a loan’s interest rate or balance or extend its term, or some combination of the three. Gretchen Morgenson reported recently in The Times that a survey of 16 top subprime servicers by Moody’s Investors Service found that in the first half of the year, modifications were made to an average of only 1 percent of loans on which monthly payments had increased.

What’s missing is executive leadership to bring together many players, including lenders, servicers, bankers and various investors. All of them are affected differently depending on whether and how a borrower is rescued, which makes it difficult to agree on a rescue plan. But all of them also made megaprofits during the mortgage bubble. Under firm leadership, they could come up with a way to modify many loans that are now at risk.

Democratic Congressional leaders have called on the Bush administration to appoint one senior official to lead a foreclosure relief effort. The White House dismissed the idea, saying, in effect, that it’s doing enough.

Congress should move forward on other remedies. The most important is to mend an egregious flaw in the current bankruptcy law that prohibits the courts from modifying repayment terms of most mortgages on a primary home. Two bills, one in the House and one in the Senate, would treat a mortgage like other secured debt, allowing a bankruptcy court to restructure it so that it’s affordable for the borrower. That would give defaulting homeowners and their advocates much needed leverage in dealing with lenders and servicers. Creditors would presumably prefer to cut a deal with a borrower rather than be subject to the decision of a bankruptcy judge.

The administration and Congress should work to avoid mass foreclosures. Meanwhile, bankruptcy reform would give borrowers a shot at keeping their homes.

The American Dream in Reverse,
NYT,
8.10.2007,
https://www.nytimes.com/2007/10/08/
opinion/08mon1.html

'Housing boom over'

as UK bank chaos grows

· Economist warns of sharp downturn
· Tory leader attacks Brown over crisis

Sunday September 16, 2007

The Observer

Heather Stewart

and Lisa Bachelor

Britain's house price growth will be halved next year as the global financial crisis exacerbates the impact of rising mortgage rates, according to Nationwide, the biggest mortgage lender.

After the dramatic bail-out of high street bank Northern Rock underlined the impact of the American 'sub-prime' mortgage crisis on Britain's financial sector, Fionnuala Earley, Nationwide's group economist, said she expected house price inflation to slow to around 3 per cent next year.

Thousands of anxious customers queued outside Northern Rock branches for a second day yesterday, ignoring calls for calm from the Chancellor, Alistair Darling, and the bank's management, and sparking fears of a full-blown 'run' on the bank.

Speaking to Channel 4 News last night, Darling said he had been assured by the Financial Services Authority that Northern Rock was capable of meeting its financial obligations to its customers.

In the first signs of political fallout from the crisis, David Cameron accused Gordon Brown of failing to rein in public and private borrowing over the last decade, saying the nation's economic growth is based on a 'mountain of debt'. Writing in today's Sunday Telegraph, the Tory leader says: 'This government has presided over a huge expansion of public and private debt without showing awareness of the risks involved.

'Though the current crisis may have had its trigger in the United States... under Labour our economic growth has been built on a mountain of debt.'

House price growth was running at just below 10 per cent in August, but Nationwide believes it will have dropped to 7 per cent by December and continue slowing throughout next year.

The worldwide credit crunch that pushed Northern Rock to the brink of collapse could make a housing market slowdown worse, Earley warned. 'I think all it can do is make it [the market] cooler: that comes through sentiment, and through expectations.'

With base interest rates at a six-year high of 5.75 per cent, economists said that the feelgood factor was already evaporating and that the Northern Rock crisis could deal a fresh blow to confidence.

'This confirms some of the fears that people had, and reinforces the idea that they need to be more circumspect, and that money is tighter,' said Richard Hyman, director of retail research firm Verdict.

'It couldn't have come at a worse time: consumer confidence was already heading south,' said Kevin Hawkins, director general of the British Retail Consortium, though he added that, as long as Northern Rock was the only casualty, the effects could be short-lived.

A report from property website Rightmove, released on Friday, showed that property prices fell in the last month for the first time in three years. It is expected that, although there will be overall growth in the housing market, some areas of the UK could suffer significant price decline.

Meanwhile, Northern Rock apologised to customers last night, saying it was 'disappointed to see uncertainty caused'. The apology came amid growing speculation of a takeover bid, with HSBC and Lloyds TSB both being mooted as potential suitors. Insiders are predicting that a takeover could occur within weeks to secure the bank's future. One plan currently being looked at by City bankers is to divide the company's £100 billion mortgage portfolio between some of the major banks.

Savers have been rushing to pull out their cash since it emerged last Thursday that Darling had sanctioned an emergency loan from the Bank of England to prevent Northern Rock going bust.

One couple had even camped outside Northern Rock's Cheltenham branch in Gloucestershire overnight, desperate to withdraw the £1m proceeds of a house sale. 'We were told that because our money was in an online account we wouldn't be able to withdraw it there and then,' said Fiona Howard. 'That money is our lifeline, as we are living in rented accommodation at present.'