U.S. lawmakers should demand more accountability from the government’s $700 billion financial rescue package before releasing the second half of the funds, the head of the program’s watchdog panel said Friday.

“We would urge Congress to consider the accountability and transparency questions, the question of whether money is going to be used for foreclosures, and the overall strategy issues as part of any additional requests made for more money,” said Harvard Law School Professor Elizabeth Warren, who chairs a bipartisan panel charged with overseeing the Treasury Department’s Troubled Asset Relief Program.

The Obama administration is already looking at a broad revamp of the program, which has faced criticism from Democrats and Republicans over its implementation. Obama’s team is expected to launch a major program to prevent foreclosures. House Financial Services Committee Chairman Barney Frank (D., Mass.) said he is working with the Obama administration to try and come up with restrictions on how the second installment of the fund is used, including aid to cities.

The federal government should devote at least $50 billion of the remaining financial-rescue funds toward a plan to prevent foreclosures, said House Financial Services Committee Chairman Barney Frank Friday.

Wrapping up a week of efforts by legislators and businesses to stake claims on the Troubled Asset Relief Program and the proposed stimulus package, Mr. Frank said he plans to lay out a series of restrictions on the remaining $350 billion in TARP in a bill the House could vote on as soon as next week.
eanwhile, an industry coalition is lobbying for a tax break that would allow companies to renegotiate troubled debt without incurring corporate income taxes, a potential windfall for many companies, including private-equity firms.

Mr. Frank said his plan would prevent banks from using government money to buy healthy banks and impose tougher executive-compensation restrictions for new recipients of TARP funds. He is also proposing a permanent increase in the Federal Deposit Insurance Corp.’s insurance limit on deposit accounts to $250,000.

‘Making these programs more accessible to borrowers and banks would help ensure that low and moderate income borrowers can obtain financing, which should help stabilize the market for lower-priced homes,’ Rosengren said in comments this evening before the Massachusetts Mortgage Bankers Association.

‘Since many banks have been raising their minimum credit score to qualify for mortgages, the FHA may be able to provide loans for borrowers whose credit history is not up to current thresholds, yet have the capacity to make payments,’ he added.

He also recommended that Fannie Mae and Freddie Mac work to provide a secondary market for mortgages that reflect the lower costs of funds in many credit markets. ‘Further exploration of the GSEs options for pricing and programs may result in additional support to the mortgage market,’ Rosengren said.

For the first time since the housing crisis began, a major mortgage lender agreed Thursday that courts should be allowed to order reductions in the principal of “underwater” loans for some troubled borrowers, cracking what had been fierce and unified industry opposition.

The agreement struck between congressional Democrats and Citigroup Inc. would permit bankruptcy judges to change the terms of mortgages as part of court-ordered debt restructuring. Democrats hope to include the provision in the upcoming economic rescue legislation under negotiation between Congress and the incoming Obama administration.

It still remains to be seen whether measures like these have any real effect on preventing foreclosures, as many troubled borrowers simply go into default again on modified loans a few months later. Proposals such as this also run the real risk of causing lenders to raise their rates on other loans (or cut back on lending), when faced with the prospect of absorbing losses on loans it made in the past.

Long-term home-mortgage rates dropped again this week, with the 30-year fixed-rate mortgage hitting a fourth consecutive low in the history of Freddie Mac’s weekly survey.

The 30-year mortgage averaged 5.01% for the week ended Jan. 8, down from last week’s 5.10%. The mortgage averaged 5.87% a year ago.

The rate hasn’t been lower since Freddie Mac’s survey began in 1971. The survey covers conventional, conforming mortgages.

“Interest rates for 30-year fixed-rate mortgages fell for the 10th week … due in part to the Federal Reserve’s recent purchases of mortgage-backed securities issued by Freddie Mac, Fannie Mae and Ginnie Mae,” said Frank Nothaft, Freddie Mac chief economist.

Mortgage rates are now nearly 1.5 percentage points below their level in October.

Rates on 15-year fixed-rate mortgages also dropped, averaging 4.62% this week, down from 4.83% last week and 5.43% a year ago. The mortgage hasn’t been lower since June 13, 2003, when it averaged 4.60%.

Five-year Treasury-indexed hybrid adjustable-rate mortgages averaged 5.49%, down from 5.57% last week and 5.63% a year ago. And one-year Treasury-indexed ARMs were 4.95%, up from 4.85% last week but down from the 5.37% average of a year ago.

If you’re looking to buy a home or refinance an existing mortgage, it could be a great opportunity in coming months to lock in a rate that would have seemed unbelievable just a few months back.

The Justice Department gave a boost Tuesday to online real estate brokers - and potentially their clients - by forcing new industry policies that give Internet-based agents access to home listings they were previously denied.

The tentative settlement, which still requires court approval, could save consumers thousands of dollars when buying a home.

Online real estate agents often charge discounted commission fees and let buyers review listings at their own pace.

For years, however, Internet-based brokers have complained that the National Association of Realtors wanted to let real estate agents exclude some of their listings from their online competitors, many of whom offer discounted prices. More than 800 multiple listing services nationwide are affiliated with the Realtors group.

In a September 2005 lawsuit, government lawyers said such policies discriminated against online brokers. The settlement, filed in U.S. District Court in Chicago, opens the MLS databases to online and traditional residential property agents.

“It really does free brokers generally to engage in whatever they feel is the most efficient and effective way to compete,” Deputy Assistant Attorney General Deborah A. Garza of the Justice Department’s antitrust division told reporters.

She said the settlement “should lower the cost of the transaction for buying a house.”

While I believe that everyone has the right to make a decent buck, it’s hard to argue that the current default method of buying or selling a house benefits the buyer or seller in any way, which is a pretty unusual scenario in the free market system embraced in the US.

But with home prices falling and families losing their homes to foreclosure, some people who under other circumstances would be looking to buy their first home now see greater security in renting.

One such person is Lisa Chesnut, who lives in Tucson, Arizona, and works as an information systems coordinator. With a good job and two young sons, 29-year-old Chesnut and her husband, Bryan, look like classic first-time buyers.

They had considered it, until the market started to slide a year ago.

“At first we thought, prices are falling, that’s good,” she said in a phone interview.

“Then we started reading about the foreclosures and the ARM rates and people losing their homes,” she said. “We thought, what if something happened where we could lose our house?”

Her big fear is falling behind on a mortgage. Having read about people who face higher payments on their adjustable-rate mortgages (ARM), she realizes that being approved for a loan does not guarantee it will be affordable.

As a home owner three times over, I have to say that articles like that don’t exactly strike fear in my heart. Pretty much all of the evidence is anecdotal at best, based on conversations someone had with someone else, etc. And even the “hard” data isn’t that convincing, as far as rental turnover being basically flat and some mysterious 700,000-800,000 people who are neither renting nor buying.

The conclusion is a bit ironic, though, as far as recommending that people only consider buying if they plan on living in the home for at least five years, with dreams of big-time appreciation in just a year or two forever gone. To which I can only respond, “Good riddance”, as the expectation that one might see a substantial return in just a year or two from a home purchase is one of the key reasons we’re in the current mess we’re in right now.

Treasury Secretary Henry Paulson said Thursday that many proposals being put forward to deal with the housing slump would do more harm than good.
While he still believes that the housing problem remains the biggest downside risk to the economy, Paulson said the issue needed to be put in perspective. He said 93 percent of all mortgages are being paid on time and that less than 2 percent are in foreclosure.

“So while some in Washington are proposing big interventions, most of the proposals I’ve seen would do more harm than good,” the secretary said in remarks prepared for delivery Thursday night before the Economic Club of Chicago.

At the risk of sounding very Grinch-like, with a cold, shriveled heart, I have to say that I completely agree. With the media beating it’s doom and gloom drum as hard as it can, it’s easy to forget that amidst all the foreclosure talk we’re still only really talking about a tiny, tiny fraction of households and mortgages out there.

Bailout plans may be good for short-term pops in the stock market, but by and large they’re pretty much completely ineffective and more window dressing than anything. Until we get a widespread correction in prices and more transparency as far as the worst being behind us on the lender/debt side of things, any bailout plan that’ll be proposed is pretty much peeing in the wind.

The Mortgage Bankers Association in its quarterly snapshot of the mortgage market released Thursday said that the percentage of all mortgages nationwide that started the foreclosure process jumped to a record high of 0.78 percent during the July-to-September period. That surpassed the previous high of 0.65 percent set in the prior quarter.

The delinquency rate for all mortgages climbed to 5.59 percent in the third quarter. That was up from 5.12 percent in the second quarter and was the highest since 1986, the association said.

All signs point to things getting worse before they get better, so expect the next few quarters to continue to set more “record highs”.

News like this probably bolsters the arguments that mortgage bailout plans are necessary to keep the overall economy from sliding into a recession, but plenty of folks believe that attempts to stem the forecoslure tide are just sticking your finger in the dam.

I’m still a bit baffled that people seem to believe that we can have a wild speculative run-up in home prices throughout much of the country, reap those benefits (whee, money), yet somehow avoid the inevitable consequences when the correction comes (i.e. lots and lots of foreclosures).

Another person familiar with the matter said the rate-freeze plan would apply to borrowers with loans made at the start of 2005 through July 30 of this year with rates that are scheduled to rise between Jan. 1, 2008, and July 31, 2010.

Paulson, who has been leading the effort to craft a plan, said on Monday that the program would only be available for owner-occupied homes — as a way to make sure that the break is not granted to real estate speculators.

The administration plan is designed to deal with the crisis by allowing subprime borrowers who are living in their homes and are current on their payments to avoid a costly reset for five years. The hope is that by that time the housing downturn will have stabilized, clearing out the glut of unsold homes and halting the steep slide in prices that is occurring in many parts of the country.

With sales and prices once again rising, the expectation is that homeowners will be able to renegotiate their current adjustable rate mortgages into a more affordable fixed-rate plan.

Call me cynical, but I can’t help but view plans like this as political posturing, plain and simple. There are always going to be exceptions to the rule, but I’d hazard a guess that at least 50% of the people facing foreclosure due to ARMs resetting are also up to their eyeballs in consumer debt, and that the possibility of foreclosure isn’t a result of predatory lending but of their own inability to avoid the lure of using credit to spend money they don’t have.

Giving someone who can’t balance their spending or don’t have enough common sense not to buy a house they can’t afford a five year reprieve isn’t going to accomplish much in the end. And putting any faith in the fact that prices will rebound and shoot upwards again, producing enough equity in their home to refinance with ease is, at the very least, wildly optimistic, if not out and out crazy talk.