As a published author even before he graduated from Duke Divinity School in 2006, many might have expected Jonathan Wilson-Hartgrove to move to a bigger city with brighter job prospects.

But instead, Wilson-Hartgrove and his wife, Leah, have dug their heels into the floorboards of a sagging 11/2-story bungalow in the Walltown neighborhood of Durham, where they have lived for the past seven years. The Wilson-Hartgroves have no plans to move, either.

In his new book, “The Wisdom of Stability: Rooting Faith in a Mobile Culture” (Paraclete Press), he explains why.

“We felt that by moving again and again we could get to a place where you dig 10 wells 3 feet deep and never strike water,” said Wilson-Hartgrove, 29.

The Wilson-Hartgroves see stability as a virtue. The couple consider themselves modern-day monks, devoted to a religious community of like-minded people who practice prayer, contemplation and works of justice.

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Under pressure by Massachusetts prosecutors, Bank of America Corp. said Wednesday it would reduce mortgage-loan balances as much as 30% for thousands of troubled borrowers, in what could presage a wider government effort to encourage banks to offer debt reduction to ease the mortgage crisis.

The plan is one of the boldest moves yet to address the plight of millions of U.S. homeowners who are “under water,” owing more on their homes than they’re worth. It could make it easier for the Obama administration to move in a similar direction with its existing loan-modification program, although senior government officials and many bankers remain very wary of offering to cut loan balances as the main way of helping distressed borrowers.

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There are basically two kinds of homeowners on Dana Lane ”” those who bought high like the Sandovals, and those who had been there awhile and saw their equity ballooning until it stopped.

“Like everybody else, I’m in an upside-down loan,” says Brenda Moore, who owes more than $300,000 on her mortgage. This is remarkable considering she bought her house in 1989 for $80,000. A search of public records reveals that Moore, a retired nurse, has refinanced her home eight times since 1998.

The loans are from a who’s who of subprime lenders. With each loan she took out more equity, and each time the loan terms got worse.

Read or better listen to it all.

Around 37% of all borrowers with 30-year conforming fixed-rate mortgages””who collectively hold about $1.2 trillion of home loans””have mortgage rates of 6% or higher, according to investment bank Credit Suisse. Many could reduce their rates by a full percentage point if they refinanced at current rates, about 5%. More than half could lower their rates nearly three-quarters of a percentage point, according to Credit Suisse.

But new refinance applications in January stood near their lowest levels in the past year. Weekly data compiled by the Mortgage Bankers Association also show that refinance activity has been muted, considering that rates are so low…

The last time mortgage rates were at current levels, in 2003, refinancing activity hit $2.9 trillion, according to trade publication Inside Mortgage Finance. Last year, refinance volume reached $1.2 trillion, the highest amount since 2003 but not nearly as much as expected, considering how low interest rates have fallen.

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Our largest operation in this sector is Clayton Homes, the country’s leading producer of modular and manufactured homes. Clayton was not always number one: A decade ago the three leading manufacturers were Fleetwood, Champion and Oakwood, which together accounted for 44% of the output of the industry. All have since gone bankrupt. Total industry output, meanwhile, has fallen from 382,000 units in 1999 to 60,000 units in 2009.

The industry is in shambles for two reasons, the first of which must be lived with if the U.S. economy is to recover. This reason concerns U.S. housing starts (including apartment units). In 2009, starts were 554,000, by far the lowest number in the 50 years for which we have data. Paradoxically, this is good news.

People thought it was good news a few years back when housing starts ”“ the supply side of the picture ”“ were running about two million annually. But household formations ”“ the demand side ”“ only amounted to about 1.2 million. After a few years of such imbalances, the country unsurprisingly ended up with far too many houses.

There were three ways to cure this overhang: (1) blow up a lot of houses, a tactic similar to the destruction of autos that occurred with the “cash-for-clunkers” program; (2) speed up household formations by, say, encouraging teenagers to cohabitate, a program not likely to suffer from a lack of volunteers or; (3) reduce new housing starts to a number far below the rate of household formations.

Our country has wisely selected the third option, which means that within a year or so residential housing problems should largely be behind us, the exceptions being only high-value houses and those in certain localities where overbuilding was particularly egregious. Prices will remain far below “bubble” levels, of course, but for every seller (or lender) hurt by this there will be a buyer who benefits. Indeed, many families that couldn’t afford to buy an appropriate home a few years ago now find it well within their means because the bubble burst.

Ponder that first set of numbers for a moment. Ten years ago total manufactured homes industry output was more than 600% higher than it was last year. Can you say overbuilt? Read the rest–KSH.

In an interview with property magazine Estates Gazette just a month after the Church of England wrote of its £40m investment in the project Joseph Cannon, chief surveyor, said that while the episode was “painful” much of the criticism levelled at the Church was undeserved.

“The loss of our investment in Stuyvesant Town is very unpleasant and clearly not something we would ever have wished for. But painful as it has been, we have been able to absorb it and it has not knocked us off strategic course in any way,” he said.

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Take a look.

….Elkhart also symbolizes the failure of federal efforts to turn around the housing slump at the heart of the economic crisis. Housing in this community has become almost entirely dependent on a string of federal support programs, which are nonetheless failing to prevent a fall in prices and a rise in mortgage delinquencies.

More than one in 10 mortgage holders in Elkhart is seriously behind on payments. The median sales price has plunged to the level of a decade ago. Many homeowners owe more than their home is worth, freezing them in place for years. Foreclosures recently hit a record.

To the extent that the real estate market is functioning at all, people here say, it is doing so only because of the emergency programs, which have pushed down interest rates on mortgages and offered buyers a substantial tax credit.

Equally important is an expanded mortgage insurance program run by the Federal Housing Administration, which encourages private lenders to accept borrowers with small down payments. The government takes the risk of default.

A few years ago, only one in 10 buyers in Elkhart used the housing agency program. Now about half do. Across the country, the agency has greatly expanded its reach so that it now insures six million mortgages.

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Myers Park, a historic neighborhood in Charlotte, N.C., has wide, tree-lined streets, sweeping lawns and historic mansions worth millions. It’s the kind of neighborhood where people take pride in the pedigree of their homes.

But Myers Park is also struggling with a racial legacy that plagues many communities across the country: discriminatory language written into original home deeds. The restrictions are no longer enforceable, but the words are a painful reminder of history.

The deed on homeowner John Williford’s 75-year-old Myers Park house includes restrictions written by the original developers geared to preserve the parklike feel of the neighborhood. The deeds also include racial restrictions: “This lot shall be owned and occupied by people of the Caucasian race only.”

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In 2006, Benjamin Koellmann bought a condominium in Miami Beach. By his calculation, it will be about the year 2025 before he can sell his modest home for what he paid. Or maybe 2040.

“People like me are beginning to feel like suckers,” Mr. Koellmann said. “Why not let it go in default and rent a better place for less?”

After three years of plunging real estate values, after the bailouts of the bankers and the revival of their million-dollar bonuses, after the Obama administration’s loan modification plan raised the expectations of many but satisfied only a few, a large group of distressed homeowners is wondering the same thing.

New research suggests that when a home’s value falls below 75 percent of the amount owed on the mortgage, the owner starts to think hard about walking away, even if he or she has the money to keep paying.

Read the whole article.

It is payback time for Fannie Mae and Freddie Mac on some mortgages sold to the finance companies by lenders.

Stuck with about $300 billion in loans to borrowers at least 90 days behind on payments, Fannie and Freddie have unleashed armies of auditors and other employees to sift through mortgage files for proof of underwriting flaws. The two mortgage-finance companies are flexing their muscles to force banks to repurchase loans found to contain improper documentation about a borrower’s income or outright lies.

The result: Freddie Mac required lenders to buy back $2.7 billion of loans in the first nine months of 2009, a 125% jump from $1.2 billion a year earlier. Fannie Mae won’t disclose its figure, but trade publication Inside Mortgage Finance said Fannie made $4.3 billion in loan-repurchase requests in the first nine months of 2009.

“Because taxpayers are involved, we’re being very vigilant,” said Maria Brewster, who oversees Fannie’s repurchase team. “No taxpayer should have to pay for a business decision that caused a bad loan to be sold to Fannie Mae.”

Read it all from the weekend Wall Street Journal.

As the CBO notes, Fannie and Freddie “purchase mortgages at above-market prices,” driving down interest rates and passing some of the savings to home buyers. That subsidy is felt right away, but the risks in providing it are stored up over time, and their real costs may not be felt for years or even decades””as was the case in the years leading up to their spectacular collapse in 2008.

Yet this is precisely the fiction that the Obama Administration seeks to preserve by keeping the cost of Fan and Fred off the government’s books. The Administration’s budget accounting assumes Fannie and Freddie are private companies. So under its preferred treatment, the only recognized cost to taxpayers is the money that is being pumped in to keep them afloat””$110 billion so far.

That’s plenty as it is, but in the wake of their government takeover, there is no justification for pretending that their risks aren’t taxpayer risks. This is all the more true with the likes of New York Senator Chuck Schumer giving the companies marching orders to rescue tenants in the Stuyvesant Town development in Manhattan.

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Obama’s economic team could have raised the limits on how much mortgage securities Fannie and Freddie can buy, allowing those firms to replace the Fed’s purchasing program. But Barr said the administration thinks the mortgage business will stand on its own without such special assistance, similar to the way the nation’s biggest banks weaned themselves off federal bailout funds by raising private capital.

“The basic goal is to implement a gradual process where the government’s role in the economy goes down,” Barr said. “It has to be consistent with the basic goal of stability, but it is appropriate.”

Administration and Fed officials expressed confidence that rates will rise only modestly — perhaps a quarter of a percentage point. They attribute their optimism to the lengthy notice they have given the market. The markets already should have anticipated the government’s exit by adjusting interest rates higher. Yet mortgage rates have been falling slightly the past few weeks.

The optimism at the White House and the Fed, however, is not shared across the government. A few senior policymakers at the central bank view the economic recovery as still too fragile, suggesting that purchases perhaps should expand further. These dissenters also warn that mortgage rates could shoot up, perhaps to 6 percent or higher, because private investors buying securities would demand a greater rate of return than the Fed. To reach it, lenders may have to raise rates for consumers.

“Presumably, there is pent-up demand from the private sector, but the question is: At what rate are they going to be interested?” said Eric S. Rosengren, the president of the Federal Reserve Bank of Boston, who has indicated that he supports expanding the Fed’s mortgage securities purchase program.

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The Church of England has lost £40m after a New York apartment complex deal it had invested in turned sour.

In June 2007, when the property market was at its peak and the credit crunch was yet to arrive, the Church made investments in Stuyvesant Town and Peter Cooper Village, two Manhattan housing estates situated along the New York’s East River. But the projects incurred huge debts and collapsed when the US property bubble burst next year.

Read the whole thing.

Morality aside, there are other factors deterring “strategic defaults,” whether in recourse or nonrecourse states. These include the economic and emotional costs of giving up one’s home and moving, the perceived social stigma of defaulting, and a serious hit to a borrower’s credit rating. Still, if they added up these costs, many households might find them to be far less than the cost of paying off an underwater mortgage.

An important implication is that we could be facing another wave of foreclosures, spurred less by spells of unemployment and more by strategic thinking. Research shows that bankruptcies and foreclosures are “contagious.” People are less likely to think it’s immoral to walk away from their home if they know others who have done so. And if enough people do it, the stigma begins to erode.

A spurt of strategic defaults in a neighborhood might also reduce some other psychic costs. For example, defaulting is more attractive if I can rent a nearby house that is much like mine (whose owner has also defaulted) without taking my children away from their friends and their school.

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What about the future? The problem in the job market going forward is not so much layoffs in the private sector, which are abating, but a lack of hiring. The federal stimulus program is offset by a 2010 budget shortfall for state, city, county and school districts, which the Center on Budget and Policy Priorities recently estimated will be in the range of an astonishing $200 billion nationally. Since virtually all states and cities have to run balanced budgets, the result will be reduced services, layoffs and tax hikes.

The consequence is that the U.S. economy””for decades the greatest job creation machine in the world””is taking longer and longer to replace the jobs already lost. In the 1970s and 1980s, Jane Sasseen noted in a recent report in BusinessWeek, it took as little as one year from the end of a recession to add back the lost jobs. After the eight-month downturn ending in March of 1991, for example, jobs came back in 23 months. After the downturn from the dot-com bust in 2001, it took 31 months. This time it could take as many as five years or even more to recover all of the eight-plus million jobs lost since March 2007. That’s because we would have to create an additional 1.7 million jobs annually beyond those for the 1.3 million new people who enter the work force every year.

Read the whole piece.

Not just once but twice in as many days, news media have used the word “unexpectedly” to describe serious economic bad news in the housing industry. Yesterday, CNBC used it to report on homebuilder sentiment as housing sales fall and foreclosures rise. And unemployment has builders wondering when they can expect to start selling houses again at all….

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If the Commission really does want to learn WHO knew what, when, then they’re interviewing the wrong people.

They need to interview the line workers. Mortgage loan processors, managers, escrow closers, underwriters from the banks, private mortgage insurance companies as well as wholesale lending, loan servicing default and loss mitigation workers and even consumers. Seasoned mortgage industry veterans who have proof in the form of saved memos or emails, that they informed senior management of the red flags, predatory lending, and the insane relaxation of underwriting guidelines that started to pop up as early as 2001 and 2002 yet were ignored or whose concerns were dismissed.

I am willing to bet that if the commission opened up a public comment period for testimony, they would have all the evidence they need to prove all these hoocoodanode banksters definitely did know but their own pay and bonus structure set up an external incentive to keep the dice rolling. Who wants to be a Debbie Downer CEO and be the first banker to take away the punch bowl when the money party is still going full on? Anyone? Anyone”¦Buehler?

Read it all (hat tip: Calculated Risk).

American families were squeezed last year as their inflation-adjusted weekly wages fell 1.6 percent — the sharpest drop since 1990 — well below the 2.7 percent consumer inflation rate.

Consumers’ spending power sank in the face of falling wages, job losses and higher prices for energy, medical care and education. Slack pay and scarce job creation are slowing consumer spending, hindering the economy’s ability to mount a strong recovery.

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Household leverage in the United States and many industrial countries increased dramatically in the decade prior to 2007. Countries with the largest increases in household leverage tended to experience the fastest rises in house prices over the same period. These same countries tended to experience the biggest declines in household consumption once house prices started falling.

–Reuven Glick and Kevin J. Lansing of the Federal Reserve Bank of San Francisco in a very important recent paper

Sen. Bob Corker (R-Tenn.) ”” a member of the Senate Banking Committee ”” sent a letter to Treasury Secretary Tim Geithner Monday with a list of questions regarding what the Republican called a “blank check” to Fannie Mae and Freddie Mac.

In the letter, Corker criticized the Treasury’s removal of a cap on credit available to the two government-backed firms that were in at the nexus of the mortgage crisis.

“On Dec. 24, 2009, the United States Department of the Treasury announced amendments to the Preferred Stock Purchase Agreements it has with the government-sponsored enterprises Fannie Mae and Freddie Mac. Those amendments removed the $200 billion per enterprise cap ($400 billion total) and, in effect, wrote a blank check for the amount of ‘credit’ that will be made available to the two mortgage giants,” the letter reads.

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I happened to catch this yesterday during lunch. Watch it carefully and watch it all. Listen attentively to his idea of the possibility of the emergence of a new business model which poses huge issues for employment going forward–KSH.

Beginning last January, The New York Times made regular visits to Beth Court, about 60 miles east of downtown Los Angeles, to chronicle how the foreclosure crisis had reshaped a middle-class neighborhood. Four of the eight houses went through foreclosure, and the others barely escaped the same fate. Beth Court was a microcosm of a nation in deep recession, a block of neighbors whose bad choices ”” often with the complicity of lending agencies ”” came crashing into a global economic downturn.

Now, a year later, California’s unemployment rate continues to grow, its housing market remains depressed and the state’s fiscal situation is dire. But the economic and policy shifts that are slowly changing parts of the country are also making a mark here.

Mr. Winkler, a factory worker, was hired at the end of September by Kimberly-Clark at the company’s mill in Fullerton, about 50 miles from here. He had gone more than year without a job….

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Banks and other lenders are still foreclosing on Americans’ homes at a rate that’s outpacing the Obama administration’s main effort to stem the crisis.

In fact, while the Treasury Department’s Home Affordable Modification Program, or HAMP, has started the mortgage modification process on almost 760,000 homeowners who are at risk of losing their homes, less than 5 percent of those workouts have become permanent, government data show.

“HAMP has made only limited progress for nine months now, and the residential foreclosure crisis continues to mount,” said Richard Neiman, the superintendent of banks in New York state and a member of the Congressional Oversight Panel that was formed to monitor the Treasury bank bailout funds that support the mortgage program. He was appointed to the post by the Democratic leadership in the House of Representatives.

Read the whole article.

Manufacturing expanded in the United States in December, the fifth straight month of gains, amplifying hopes that a job market hobbled by double-digit unemployment might finally be adding paychecks. New jobless claims slipped markedly last week. Some economists think data to be released on Friday will show the economy gained jobs in December, the first monthly net increase in two years.

“We’re really coming back,” said Allen Sinai, chief global economist at the research firm Decision Economics. “The expansion is picking up the pace….”

But many economists remain worried that momentum could soon weaken, with the economy sliding back into glum times.

Indeed, the only area in which economists can reliably declare expansion is in the supply of competing narratives about the economy ”” perhaps to be expected in any transition between downturn and the inevitable turn for better.

“That is always the nature of the boomlet after recession,” Mr. Sinai said. “People think it’s going to fade away.”

Read it all.

Happy New Year, readers, but before we get on with the debates of 2010, there’s still some ugly 2009 business to report: To wit, the Treasury’s Christmas Eve taxpayer massacre lifting the $400 billion cap on potential losses for Fannie Mae and Freddie Mac as well as the limits on what the failed companies can borrow.

The Treasury is hoping no one notices, and no wonder. Taxpayers are continuing to buy senior preferred stock in the two firms to cover their growing losses””a combined $111 billion so far. When Treasury first bailed them out in September 2008, Congress put a $200 billion limit ($100 billion each) on federal assistance. Last year, the Treasury raised the potential commitment to $400 billion. Now the limit on taxpayer exposure is, well, who knows?

The firms have made clear that they may only be able to pay the preferred dividends they owe taxpayers by borrowing still more money . . . from taxpayers. Said Fannie Mae in its most recent quarterly report: “We expect that, for the foreseeable future, the earnings of the company, if any, will not be sufficient to pay the dividends on the senior preferred stock. As a result, future dividend payments will be effectively funded from equity drawn from the Treasury.”

The loss cap is being lifted because the government has directed both companies to pursue money-losing strategies by modifying mortgages to prevent foreclosures.

Read it all and there is more from John Huffman here.

Unfortunately, growth caused by an inventory bounce is a one-shot affair unless underlying sources of demand, such as consumer spending and long-term investment, pick up.

Which brings us to the still grim fundamentals of the economic situation.

During the good years of the last decade, such as they were, growth was driven by a housing boom and a consumer spending surge. Neither is coming back. There can’t be a new housing boom while the nation is still strewn with vacant houses and apartments left behind by the previous boom, and consumers ”” who are $11 trillion poorer than they were before the housing bust ”” are in no position to return to the buy-now-save-never habits of yore.

What’s left? A boom in business investment would be really helpful right now. But it’s hard to see where such a boom would come from: industry is awash in excess capacity, and commercial rents are plunging in the face of a huge oversupply of office space.

Can exports come to the rescue? For a while, a falling U.S. trade deficit helped cushion the economic slump. But the deficit is widening again, in part because China and other surplus countries are refusing to let their currencies adjust.

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For most of the past 70 years, the U.S. economy has grown at a steady clip, generating perpetually higher incomes and wealth for American households. But since 2000, the story is starkly different.

The past decade was the worst for the U.S. economy in modern times, a sharp reversal from a long period of prosperity that is leading economists and policymakers to fundamentally rethink the underpinnings of the nation’s growth.

It was, according to a wide range of data, a lost decade for American workers. The decade began in a moment of triumphalism — there was a current of thought among economists in 1999 that recessions were a thing of the past. By the end, there were two, bookends to a debt-driven expansion that was neither robust nor sustainable.

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This is the culmination of an unprecedented policy disaster, inflicted on the American taxpayer by congressional supporters of Fannie and Freddie who refused over many years to approve new and tougher regulations for the two GSEs. Now that many of these folks are in charge of the House and Senate committees that deal with financial reform, they have suddenly found new respect for regulation and are trying to apply it to the entire financial system. Perhaps the American taxpayers, acting as voters in 2010, will decide that one disaster per career is all they should be allowed.

Read it all.