More U.S. homeowners fell behind on mortgage payments last month, driving the number of homes facing foreclosure up 65 percent versus the same month last year and contributing to a deepening slide in home values, a research company said Tuesday.

Nationwide, 243,353 homes received at least one foreclosure-related filing in April, up 65 percent from 147,708 in the same month last year and up 4 percent since March, RealtyTrac Inc. said.

Nevada, Arizona, California and Florida were among the hardest hit states, with metropolitan areas in California and Florida accounting for nine of the top 10 areas with the highest rate of foreclosure, the company said.

Irvine, Calif.-based RealtyTrac monitors default notices, auction sale notices and bank repossessions.

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Optimists point out that some measures of housing affordability have dramatically improved. According to NAR figures, monthly payments on a typical house with a 30-year mortgage and 20% downpayment were 18.5% of the median family’s income in February, down from almost 26% at the peak””and close to the historical average. But this measure is misleading, not least because credit standards have tightened. A survey of loan officers conducted by the Fed suggested on May 5th that 60% of banks tightened their lending standards for prime mortgages in the first three months of 2007. And, as Michael Feroli of JPMorgan points out, the affordability gauge depends on what measure of home prices you look at. Use the Case-Shiller index, where the affordability of housing worsened sharply during the boom, and mortgage payments are still high in relation to incomes.

A better measure of housing fundamentals is the relationship between house prices and rents. This is a sort of price/earnings ratio for the housing market: the price of a house reflects the discounted value of future ownership, either as rental income or as rent saved by an owner who lives in the house.

A recent analysis by Morris Davis of the University of Wisconsin-Madison, and Andreas Lehnert and Robert Martin of the Fed, shows that the rent/price yield in America ranged between 5% and 5.5% from 1960 to 1995, but fell rapidly thereafter to reach a historic low of 3.5% at the height of the boom. Given the typical pace of rental growth, Mr Feroli reckons house prices (as measured by the Case-Shiller index) need to fall by 10-15% over the next year and a half for the rent/price yield to return to its historical average. Again, that suggests the national housing bust is only halfway through. And, given the scale of excess supply, house prices are likely to overshoot. All told, the pressure on policymakers to help struggling homeowners is bound to increase.

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But large-scale job loss has the most potent effect, note Eric Belsky and Daniel McCue, economists at the Harvard Joint Center for Housing Studies. Markets can overheat, overexpand and digest flippers and overexuberant builders, but housing prices are most likely to fall when people lose their paychecks.

Belsky and McCue studied housing downturns from 1980 to 2004 and discovered that the most likely cause of housing price declines were spikes in unemployment. Consider the industrial cities of Cleveland and Detroit, which have lost jobs steadily since 2000 and now post unemployment rates of 6% and 7.7%, respectively, well above the national average of 5.1%. Of the 10 cities on our list of cities experiencing the greatest price drops, they are the only two where prices are lower than in 2000.

Surprised? Don’t be. While prices are falling, they are, for the most part, higher than earlier this decade. In 2000, Inland Empire prices, for example, were $138,560. Moody’s has Riverside- San Bernardino, Calif., home values declining another 23% this year, to $291,590.

“In a normal housing market, we have ratios that you qualify for a certain amount of house at your income level,” says Anthony Sanders, a professor of finance at Arizona State University. “Since banks have tightened credit, we’re starting to revert back to those lending standards, and prices are going back to reflecting a ratio of income and median house value.”

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Sales of new homes plunged in March to the lowest level in 16 1/2 years as housing slumped further at the start of the spring sales season.
The median price of a new home in March, compared with a year ago, fell by the largest amount in nearly four decades.

The median price of a new home in March, compared with a year ago, fell by the largest amount in nearly four decades.

The Commerce Department reported Thursday that sales of new homes dropped by 8.5 percent last month to a seasonally adjusted annual rate of 526,000 units, the slowest sales pace since October 1991.

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Avery Salkey’s four-bedroom house in Royal Palm Beach, Fla., is still so new that the appliances gleam as bright as the day she moved in four years ago. But she’s not sure how much longer she’ll live there. Salkey has been facing foreclosure for months now and is desperately looking for a way to save her home ”” so far, without success.

Her story is an extreme version of one that’s happening to millions of people across the country.

It’s a story that began full of hope ”” a single mom who, with the help of her family, had moved from the Bronx in New York to make a fresh start. She made a substantial down payment on the house in Florida and got a great fixed interest rate of 5.3 percent. She closed on the house in 2003 and moved in 2004.

Her monthly payments were affordable. The mortgage, along with tax and insurance, cost a little more than $1,500 a month.

“I thought that was pretty good,” Salkey says.

But a series of bad decisions soon got her in trouble.

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The number of California homes lost to foreclosure in the first quarter surged 327% from year-ago levels — reaching an average of more than 500 foreclosures per day — DataQuick said in a report, warning that the widening foreclosure problem could “spread beyond the current categories of dicey mortgages, and into mainstream home loans.”

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The collapse of the housing bubble in the United States is mutating into a global phenomenon, with real estate prices swooning from the Irish countryside and the Spanish coast to Baltic seaports and even parts of northern India.

This synchronized global slowdown, which has become increasingly stark in recent months, is hobbling economic growth worldwide, affecting not just homes but jobs as well.

In Ireland, Spain, Britain and elsewhere, housing markets that soared over the last decade are falling back to earth. Property analysts predict that some countries, like this one, will face an even more wrenching adjustment than that of the United States, including the possibility that the downturn could become a wholesale collapse.

To some extent, the world’s problems are a result of American contagion. As home financing and credit tightens in response to the crisis that began in the subprime mortgage market, analysts worry that other countries could suffer the mortgage defaults and foreclosures that have afflicted California, Florida and other states.

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I cannot believe it. Worst crisis since second world war. Banks to “lose” £500 billion. House prices to plummet by a third. Great depression threatened. Really? I recall from my economics lesson a different and no less potent phenomenon: mad journalism disease.

Like most people I have found the credit crunch hard to follow. The world economy, we were told, was tooling along under the guidance, at last, of competent central bankers rather than hysterical politicians. In Britain, Europe and America, indeed in Moscow and Shanghai, the experts were in charge. Gordon Brown boasted the wisdom of his putting the nation’s financial affairs in the hands of an “independent” Bank of England.

Now we are allegedly up the creek. The selfsame bankers’ indulgence of personal and institutional greed, their regulatory incompetence and their blindness to speculative bubbles have shown them to be as fallible as politicians. It beggars belief that they could see no danger in so-called collateralised debt obligations, known to the Victorians as “bad paper”.

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Home foreclosures in the Charleston area rose dramatically during the first three months of this year, mirroring national trends and reinforcing worries about the shaky U.S. economy.

Lenders filed foreclosure proceedings on 874 residential properties in the tri-county area in the first quarter, according to statistics compiled by The Post and Courier.

While comparable data from a year ago is unavailable for Dorchester County, the number of foreclosures in Charleston and Berkeley counties jumped to 638 this year from 425 in the same period last year, a 50.1 percent increase.

Dorchester County, which reports the number of properties set for county auctions, rather than foreclosure filings, saw a 53.8 percent increase from the same period last year.

Read it all from this morning’s front page.

Before the bottom fell out of the subprime loan market, many big financial firms had an unquenchable thirst for subprime loans. Firms were making a lot of money securitizing these high-interest-rate mortgages, so the demand from Wall Street for new loans was huge. And that created a big opportunity for mortgage brokers. The industry is very thinly regulated, and many brokers made piles of fast, easy money off the lending frenzy.

[Amber] Barbosa says she was pretty fair to her clients and got them the best deal she could in the marketplace. But she says there was plenty of incentive not to put the customer first: Lenders would offer her 1 percent or 2 percent of the price of the loan as a kickback if she persuaded her client to take a higher interest rate. That was legal and commonplace.

Then there were the negative-amortization or “pick-a-payment” loans. Those offered low payment options to begin with but often exploded on the homeowner. As interest rates reset, often at much higher levels, homeowners faced larger payments. That’s because the minimum payment required at the introductory rate didn’t even cover the interest on the loan, let alone the principal.

“The bottom line is that the lender offered an incentive of 3 percent to the broker if they put [a client] into that particular loan,” Barbosa says.

On a $500,000 home in California, brokers could make $15,000 to $20,000 or more in kickbacks on every single one of these risky loans.

“Obviously, tons of people got pushed or thrown in that direction,” Barbosa says.

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As the falling real-estate and stock markets erode their savings, many aging Americans are delaying retirement, electing labor over leisure in uncertain times.

A three-decade veteran at International Business Machines Corp., Dick Boice had planned to sell his house, pack up and move to Arizona with his wife, Lauren, to take early retirement. But two months after the January date he set to exit the work world, Mr. Boice, who is 59 years old, is still on the job. He figures he’ll stay put for another couple of years.

The Boices had counted on proceeds from the house sale to boost their retirement income. After a year on the market, the roomy colonial in Blue Springs, Mo., didn’t move, forcing the couple to cut the asking price by $40,000 to around $250,000. The house remains unsold. Meanwhile, Mr. Boice has watched the value of his 401(k) and individual retirement accounts fall by roughly 20 percent so far this year, to a combined $240,000.

“Everything is just heading south,” says Mr. Boice, who works in client support for IBM in Kansas City, Mo. “You can’t hardly make any kinds of plans because you don’t know what you can count on.”

Mr. Boice has plenty of graying company at the grindstone. Millions of retirement-age Americans, stung by the recent economic pall, suddenly are having to reassess their plans ”” with many forced to quickly change course. In February, the proportion of people ages 55 to 64 in the work force rose to 64.8 percent, up 1.5 percentage points from last April. That translates to more than an additional million people in the job pool, according to the U.S. Labor Department. The ranks of those 65 and over in the work force rose to 16.2 percent from 16 percent in the same time span ”” meaning 212,000 more hands on deck. So far, the numbers for March continue to show a “sharp” increase, says Steve Hipple, a department economist.

Read it all (originally from the front page of this past Tuesday’s Wall Street Journal).

For more than a decade, Scott and Lori Pustizzi did everything right. They have two happy children, a good marriage and a beautiful house that they got with a manageable mortgage.

They also have good jobs. He is a human resources director; she’s a pharmaceutical sales representative.

The couple earned their comfortable life through hard work. They met 15 years ago at a local Publix Grocery store, where he was stocking shelves and she was working the cash register. They paid for their own college education and their own wedding. Now they’re both in their 30s, and they figured this was the time to start doing some wise investing.

So back in 2004, when Florida was seized with condo fever, Scott and Lori wanted a piece of the action.

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Dr. Michele Morgan migrated last fall from Detroit to Phoenix, taking a job as a psychiatrist. She expected her husband, Sam Kirkland, to soon join her, since he was accepting an early retirement package from his employer, General Motors. But he cannot move, he says, because he has not been able to sell the four-bedroom family home.

“As things now stand,” said Mr. Kirkland, who is 51 and intends to seek work in Phoenix, if he ever gets there, “my wife might decide to give up her job in Phoenix and come back to Detroit for a while, until we can sell the house.”

The rapid decline in housing prices is distorting the normal workings of the American labor market. Mobility opens up job opportunities, allowing workers to go where they are most needed. When housing is not an obstacle, more than five million men and women, nearly 4 percent of the nation’s work force, move annually from one place to another ”” to a new job after a layoff, or to higher-paying work, or to the next rung in a career, often the goal of a corporate transfer. Or people seek, as in Dr. Morgan’s case, an escape from harsh northern winters.

Now that mobility is increasingly restricted. Unable to sell their homes easily and move on, tens of thousands of people like Mr. Kirkland and Dr. Morgan are making the labor force less flexible just as a weakening economy puts pressure on workers to move to wherever companies are still hiring.

Signaling an incipient recession, nearly 85,000 jobs disappeared in the United States from December through February, and the Bureau of Labor Statistics is expected to announce on Friday that March failed to produce a turnaround in hiring.

“You hear a lot about foreclosure and the thousands of families who are being forced out,” said Joseph S. Tracy, director of research at the Federal Reserve Bank of New York. “But that is swamped by the number of people who want to sell their homes and can’t.”

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An impending foreclosure is a highly stressful situation ”” certainly for the people that could lose a home, and sometimes for the people trying to help them. Richard Pittman, a counselor with a HUD-approved agency, talks about the challenges of being a mortgage counselor these days.

What a difficult job–listen to it all.

The usual economic truism ”” as demand goes down, the prices go down”” doesn’t seem to apply in the current troubled housing market. Many homeowners prefer not to sell their home than to take a penny less than their inflated asking price.

Hersh Shefrin, professor of behavioral finance at Santa Clara University, breaks down the economic conundrum for Andrea Seabrook.

A very good piece on the psychology of selling. It all comes down he says to one word, ego. I would say sin. People don’t want to sell at a loss because the loss will hand them defeat of which they are afraid. Listen to it all.

The financial market crisis could cause losses of up to $600 billion at banks and other financial institutions worldwide, a German magazine reported on Saturday, citing an internal report by German financial watchdog BaFin.

The $600 billion figure represents a worst-case scenario for losses linked to the financial turmoil sparked by the meltdown in the U.S. subprime mortgage market, Der Spiegel magazine said in a story released in advance of publication on Monday.

“Based on current knowledge and the market situation, we believe $430 billion is more likely,” the magazine quoted what it said was a 16-page report by BaFin as saying.

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In a sweeping accusation against one of the country’s largest accounting firms, an investigator released a report on Wednesday that said “improper and imprudent practices” by a once high-flying mortgage company were condoned and enabled by its auditors.

KPMG, one of the Big Four accounting firms, endorsed a move by New Century Financial, a failed mortgage company, to change its accounting practices in a way that allowed the lender to report a profit, rather than a loss, at the height of the housing boom, an independent report commissioned by a division of the Justice Department concluded.

The result of a five-month investigation, the report is the most comprehensive and damning document that has been released about the failings of a mortgage business. Some accusations echoed claims that surfaced about the accounting firm Arthur Andersen during the collapse of Enron, the energy giant, more than six years ago.

The 580-page report documents how New Century lowered its reserves for loans that investors were forcing it to buy back even as such repurchases were surging. Had it not changed its accounting, the company would have reported a loss rather a profit in the second half of 2006. The company first acknowledged that its accounting was wrong in February 2007 and sought bankruptcy protection less than two months later as its lenders stopped doing business with it.

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Little by little, millions of Americans surrendered equity in their homes in recent years. Lulled by good times, they borrowed ”” sometimes heavily ”” against the roofs over their heads.

Now the bill is coming due. As the housing market spirals downward, home equity loans, which turn home sweet home into cash sweet cash, are becoming the next flash point in the mortgage crisis.

Americans owe a staggering $1.1 trillion on home equity loans ”” and banks are increasingly worried they may not get some of that money back.

To get it, many lenders are taking the extraordinary step of preventing some people from selling their homes or refinancing their mortgages unless they pay off all or part of their home equity loans first. In the past, when home prices were not falling, lenders did not resort to these measures.

Such tactics are impeding efforts by policy makers to help struggling homeowners get easier terms on their mortgages and stem the rising tide of foreclosures. But at a time when each day seems to bring more bad news for the financial industry, lenders defend the hard-nosed maneuvers as a way to keep their own losses from deepening.

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Signs of distress are piling up in the California housing market, where prices are falling at three times the national rate of decline.

–Statewide, median sales prices fell by a stunning 26% in February, with home prices dropping at a rate of nearly $3,000 a week, the California Association of Realtors reports. Further, the CAR says the Fed’s interest rate-cutting campaign “will have little near-term direct effect on the housing market.”

–In the San Fernando Valley, losing a home to foreclosure is now almost as common for families as buying a home.

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Demand for new homes continues to erode and one reason is that high-profile builder bankruptcies have made people anxious to sign on the dotted line. And with good reason: People like the Carias family in north suburban Chicago are getting stuck with half-finished houses and thousands of dollars locked up in bankruptcy proceedings.

Analysts say as more builders declare Chapter 11, this fear could hobble any housing market recovery ”” especially in the area of new home construction.

A good piece about one example of the collateral damage caused by the current credit and housing crisis. Listen to it all[/i].

Home prices across the country continued to fall in January at record rates while one measure of consumer confidence reached a five-year low, sending Wall Street shares down in early Tuesday trading.

The value of single-family homes plummeted 10.7 percent in January compared with a year earlier, as measured by the Case-Shiller index, a closely watched survey of 20 major metropolitan regions.

It was the steepest year-over-year decline since the index began eight years ago, and economists said the slump was probably worse than at the height of the last housing recession in the early 1990s.

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Bloomberg News reports Federal Reserve Chairman Ben Bernanke’s Capitol Hill home is slipping in value and may soon be worth less than he paid for it. An economist quoted by Bloomberg estimates Bernanke’s house has lost $260,000 in value.

The current financial crisis in the US is likely to be judged in retrospect as the most wrenching since the end of the second world war. It will end eventually when home prices stabilise and with them the value of equity in homes supporting troubled mortgage securities.

Home price stabilisation will restore much-needed clarity to the marketplace because losses will be realised rather than prospective. The major source of contagion will be removed. Financial institutions will then recapitalise or go out of business. Trust in the solvency of remaining counterparties will be gradually restored and issuance of loans and securities will slowly return to normal. Although inventories of vacant single-family homes ”“ those belonging to builders and investors ”“ have recently peaked, until liquidation of these inventories proceeds in earnest, the level at which home prices will stabilise remains problematic.

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The subprime mortgage crisis continues to claim casualties, and some of them aren’t even homeowners.

In California, scores of renters are being kicked out of their homes, even when they haven’t missed a single rent payment.

Shirley and William Hayes love the house they’ve been renting in a comfortable subdivision outside San Francisco. Even so, they’re moving.

“I have been packing. I have almost all of the linen done. We’re eating out of paper plates, plastic forks, spoons and knives,” Shirley Hayes says.

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How bad will this downturn get? No one can know because we’ve never experienced such a headlong slide in the housing market””and this comes at a time when its current value of $20 trillion accounts for the vast majority of most families’ wealth. Right now most economists expect the U.S. to experience a mild, short recession in 2008. But there is at least a possibility of a steeper decline that the traditional recession remedies””interest-rate cuts here, deficit spending there””won’t be able to handle.

What should be done? For policymakers in Washington””Fed Chairman Ben Bernanke, Treasury Secretary Henry Paulson, and congressional leaders””the sensible course is to insure against the small but scary possibility that things could go very wrong. The potential “insurance policies” are government actions that have a real cost but lessen the risk that a mild recession turns into something worse. The International Monetary Fund endorsed that approach on Mar. 12 as First Deputy Managing Director John Lipsky urged policymakers globally to “think the unthinkable and guard against a downward credit spiral.”

Broadly speaking, policymakers have three options for putting a safety net under the economy. Each has its pros and cons, and the cons become most apparent when the measures are taken to an extreme. That’s why a three-pronged approach that uses each option in moderation may be the best way to go.

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A toxic blend of economic and financial developments is testing policy makers and lawmakers who are struggling to contain the slump brought on by the collapse of the mortgage market, a downturn that now looks sure to push the economy into a recession. Though current conditions are a far cry from the 1970s, resurgent inflation is raising the threat of stagflation ”” a condition in which unemployment and the price of goods and services both rise.

Since the credit markets began to seize up in August, the steps taken by the Federal Reserve and the rest of the federal government have often bolstered stocks briefly, but so far they have done little to stem the larger downward drift.

Many specialists say policy makers can do only so much to protect the economy and warn that the government should be careful not to exacerbate inflation and create a new bubble like the one in housing that has burst. Lower interest rates and increased federal spending may not be enough to shore up growth, and some suggest that the only remedy for the pain may be the pain itself. A Standard & Poor’s report predicted that subprime mortgage write-downs at banks were nearly done, though losses in other areas might continue.

“We have to be careful about what medicines we throw at this, whether it’s stimulus packages or a bailout,” said Liz Ann Sonders, chief investment strategist at Charles Schwab & Company. “A lot of what we are dealing with is a solvency problem. We need to let the system wash it out.”

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About two-thirds of 211 officials surveyed by the National League of Cities reported an increase in foreclosures in their cities in the past year, according to the online and e-mail questionnaire. A third of them reported a drop in revenues and an increase in abandoned and vacant properties and urban blight.

“There’s a reduction in revenues at the same time that more services are needed,” says Cynthia McCollum, president of the National League of Cities and councilwoman in Madison, Ala., a suburb of Huntsville. “Because of foreclosures, people are stealing, crime is on the rise and we don’t have more money for cops on the street.”

More than a fifth of city officials responding said homelessness and the need for temporary and emergency housing increased in the past year.

The ills of foreclosures are dominating the agenda of the league’s meeting with congressional lawmakers in Washington, D.C., this week to secure federal funding for local initiatives.

“The American dream for individuals has now become the nightmare for cities,” says James Mitchell, a Charlotte councilman and head of the group’s National Black Caucus of Local Elected Officials.

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Entertaining stuff from Bird and Fortune on the markets and the subprime mess.