Frank Howard Allen Blog

Thursday, 08 May 2008

Media Advisory 5/8/08

U.S.home slump puts owners ‘under water,’ Zillow says

Home values dropped 7.7 percent nationally in the first quarter and five California metropolitan areas were among the markets whose prices plunged by the highest percentage year over year and whose homeowners had high rates of negative equity, according to a report issued Tuesday by Zillow. Nationally, a little more than half of homeowners who purchased during the 2006 market peak today owe more on their home than its current value.

130 of 160 metro markets included in the survey now are priced lower than a year ago. Among the California markets suffering the greatest decline: Stockton (-33.5 percent), Riverside/San Bernardino/Ontario (-26 percent), Greater Sacramento (-20.5 percent) and Los Angeles/Long Beach/Orange County (-16.4 percent).
Despite the year-over-year decline, the nation as a whole and the four California markets cited as having the greatest decline experienced gains when home prices are annualized over five years. Home prices experienced a net gain of 4.7 percent nationally over five years, 6.2 percent in Los Angeles/Long Beach/Orange County, 5.8 percent in Riverside/San Bernardino/Ontario, 1.5 percent in Greater Sacramento, and 0.3 percent in Stockton.
Zillow calculated that 95.8 percent of Stockton-area homeowners who purchased in 2006 now owe more than their home is worth: In Riverside/San Bernardino/Ontario the number stands at 88.5 percent; in Los Angeles/Long Beach/Orange County the number is 71.6 percent; and 69.4 percent in Sacramento.
Owing more than a home is worth may not be a problem for homeowners who can afford the monthly payment or who plan to stay in the home for an extended period. Those most affected are people who have lost a job or obtained a mortgage they couldn’t afford, those seeking to refinance into a lower or fixed interest rate, or those whose circumstances require them to sell now.

To read the full story, please click here:

http://www.bloomberg.com/apps/news?pid=20601103&sid=a5fN1s4jvUmE&refer=us

For a Silicon Valley perspective, please click here:

http://www.mercurynews.com/ci_9167620?source=most_emailed

MarketWatch

Banks squeezing credit to consumers, businesses

Despite efforts to maintain the availability of credit to consumers and businesses in the wake of the subprime credit crisis, more than half of banks surveyed by the Federal Reserve said they have tightened lending policies during the past three months on a wide range of consumer and commercial loans, including residential mortgages.

MAKING SENSE OF THE STORY FOR CONSUMERS

Consumers have been most affected by stricter credit guidelines. A record 62 percent of banks reported tighter standards for prime mortgages and 72 percent said they tightened subprime requirements. However, the number of lenders offering subprime loans declined to only 17 percent from about 30 percent two years ago.
The majority of lenders tightened standards due to worries about risk, illiquid markets and their own deteriorating capital position. Most said they were increasing spreads on interest rates, requiring more documentation, increasing collateral requirements, or requiring co-signers and/or covenants before approval a loan.

To read the full story, please click here:

http://www.marketwatch.com/news/story/banks-squeezing-credit-consumers-businesses/story.aspx?guid=%7BB449EDEF%2D0D14%2D48BF%2DAE62%2D1FB693529F31%7D&dist=msr_2

The Associated Press

Fannie Mae loses $2.2B in 1Q, warns of severe weakness

The nation’s largest government-sponsored mortgage lender, Fannie Mae, reported a loss of $2.2 billion for the first quarter Tuesday and announced plans to raise $6 billion in capital to fund the purchase of mortgage loans the company rebundles for sale as securities. The company announced it set aside $3.2 billion to cover bad loans, will cut its dividend from 35 cents a share to 25 cents, and expects “severe weakness” in the mortgage market through the rest of the year.

MAKING SENSE OF THE STORY FOR CONSUMERS

Seventy-five percent of mortgage-backed securities are issued by Fannie Mae and the smaller Freddie Mac. The federal government has positioned the two companies as key players in the effort to restore liquidity and stability to the nation’s real estate finance system. However, some analysts worry that taking on additional debt could be damaging down the line if the real estate downturn continues or worsens. There also are concerns that Moody’s Investor Service may lower Fannie Mae’s credit rating based on its diminishing capital position.
Fannie Mae’s regulators have taken steps to help free up additional sources of cash by reducing the mandatory reserves the company must maintain. The Office of Federal Housing Enterprise Oversight has said it will again reduce this surplus requirement by five points to 15 percent. That will be followed by another five-point cut in September if Fannie Mae’s position does not worsen.

To read the full story, please click here:

http://ap.google.com/article/ALeqM5iVAF4FNNGCiKCJfNJMp-FCePBQxAD90G5PA00

Bloomberg TV

Feder of Radar Logic sees ‘bright spots’ in housing

Michael Feder, CEO of Radar Logic, Inc., and Rod Dubitzsky of Credit Suisse Group talk with Bloomberg’s Kathleen Hays about their outlook for home foreclosures, housing prices and sales, and Federal Reserve monetary policy.

To view the full video, click here:

http://www.bloomberg.com/avp/avp.htm?clipSRC=mms://media2.bloomberg.com/cache/vty46VzRAM.c.asf

In Other News…

The New York Times