I found this article very interesting on what is going on in the purchase of the foreclosed inventory.

by Amy Bickers

provided by: http://www.kiplinger.com/

The price may be right, but be prepared for the hassles.

Michael Lappano knows a home bargain when he sees one. Last year, the Bellevue, Wash., real estate agent purchased a condominium for only $255,000 (including an outstanding lien). That’s $65,000 less than what comparable units were selling for, he says. To get the steep discount, he bid on the home at an auction for foreclosures. “The location was perfect, just two traffic lights from my office,” says Lappano. He now lives in the sunny two-bedroom, two-bathroom condo with his new wife, Stephanie. And the property is still worth about $315,000, even in the face of a nationwide slump in home prices.

Just over a year after Lappano purchased his home, buyers looking for bargains are eyeing an unprecedented selection of foreclosed luxury houses and condos, in addition to more modest homes. Foreclosures were up 60% in February from a year earlier, according to RealtyTrac, an online listing service. Arizona, California, Florida and Nevada have been hit hardest, but foreclosures are on the increase just about everywhere.Rick Sharga, marketing director for RealtyTrac, says he hears from brokers that many buyers now begin their home search with a request to look at foreclosures and bank-owned properties. But there’s no guarantee that buying a foreclosure will save money compared with buying the traditional way. Discounts vary tremendously depending on where you live. In fact, many foreclosed homes are priced higher than their true value because sellers are trying to pay off the mortgage and cover taxes and transaction costs.

Plus, buying a foreclosure involves homework, patience and often a good measure of luck. If you’re buying at auction, you usually need to pay cash. You may face long waiting periods to take possession of the property and move in, and the property could require extensive repairs. Sometimes the former occupants strip the house of all appliances and vandalize the property.

You may also have problems getting accurate information before you buy, says Seattle real estate attorney Richard Llewelyn Jones. “There could be judgments and liens attached to the property or more than one note or deed of trust being foreclosed.” In the end, most buyers are turned off by the risks. “If you don’t know what you’re doing, you could lose your shirt,” says Jones.

Getting a discount. If you’re game, find an agent who deals with foreclosures. Your agent can locate properties and establish their market value — which could be very different from the asking price. You will have to pay for any repairs, so build in a generous estimate of what they could cost. Also, you may need a lot of cash because traditional financing may not be an option.

Each state has its own rules governing foreclosures: whether the transaction goes through the court system, what taxes you pay and how much cash you need upfront. To get a summary of your state’s law, visit the resource center at online listing service ForeclosurePoint.com.

Also, you generally cannot get title insurance until you take ownership, nor can you expect the title warranties that usually kick in during a traditional home purchase. You need to inspect the title thoroughly, which means paying several hundred dollars for a title search and combing through it to ferret out all outstanding debts. Even so, says Jones, there may be title problems that aren’t of record or that appear on the record between the time of your title search and the public sale. Be prepared to pay off old tax liens attached to the home — and to buy title insurance as soon as you take ownership.

Three ways to buy. Wherever you live, there are three ways to buy a foreclosure: in a presale (before the lender forecloses), at auction or directly from the bank. In a presale, you negotiate with homeowners directly, before their home goes into foreclosure. Although the discount can be as much as 20% to 40% off the property’s value, a presale is the riskiest way to buy because deals frequently fall through and title problems are rife. And pre-foreclosure buyers have to add in the cost of an inspection and fork over real estate excise tax, as do those who buy bank-owned property. (Buyers at auction may avoid these costs in some states.)

Buying at a public auction is the most common type of foreclosure purchase. Buyers can expect a discount of 10% to 25% compared with buying a home through traditional channels, says Dean Street, an agent and 30-year veteran of foreclosure buying in the western U.S. But the road to auction can be bumpy, too. For starters, you often cannot inspect the interior of the home. Street says it’s vital to see the property even if you can’t gain entry. “If there is 300 pounds of garbage in the front yard, there is probably 600 pounds inside,” he says. One way to research the interior is to check the local building department’s permit records, or have your agent see if a recent listing has information on appearance, layout and previous remodelings.

Another hassle: Most foreclosures that go to auction get postponed, usually due to bankruptcy or loss mitigation (when the bank tries to compromise with the borrower), says Chris Matty, marketing director of ForeclosurePoint.com. He notes that opening bids also change frequently, especially as home values are marked down further.

The winning bidder will pay for the property and take ownership within a set period of time, which varies according to state law. But you’re not out of the woods yet. Some states, such as North Carolina, give former homeowners a chance to buy the property back. Sometimes foreclosure buyers have to start eviction proceedings; once the house is vacant, you usually have to schedule repairs.

Work with the lender? If no one buys a property at the auction, it usually ends up back with the bank. Banks have a lot of these real estate owned, or REO, properties in their portfolios and are actively trying to sell them through agents. And unlike buying at auction, you can usually get a traditional mortgage for an REO. Unfortunately, lenders often list the property at or near market value to recover the outstanding loan amount along with legal fees, property taxes and maintenance costs.

But an experienced foreclosure broker can negotiate aggressively with a bank, especially when the property has been listed for a year or more. Plus, banks trying to sell foreclosures sometimes offer highly competitive financing packages to buyers, including low down payments and attractive rates. As home values decline, some lenders are willing to negotiate a “short sale,” in which the property is sold for less than the debt owed on the house. That’s one way foreclosure buyers can profit. In some markets, the discount is as much as 25%; but where there’s less inventory, the discount can be smaller.

You can find REOs through real estate agents. Or approach local banks or mortgage brokers directly and let them know you are prepared to buy a property “as is” with cash and request a discount from the asking price. Banks sometimes pay to remodel properties to improve their value. But with so much inventory on their books right now, most lenders want to unload foreclosed homes quickly, without having to refurbish them.

NEW YORK - The U.S. government is signaling it won’t throw a lifeline to struggling financial companies — except for mortgage linchpins Fannie Mae and Freddie Mac — marking a shift to a new and potentially more volatile phase of the credit crisis.

Such an approach could mean beaten-down investment banks like Lehman Brothers Holdings Inc. and regional banks must now fend for themselves as they try to recover from billions of dollars in mortgage-related losses — unlike Bear Stearns Cos., whose buyout the government helped orchestrate in March. That is bound to unnerve an already turbulent Wall Street and make investors even more anxious as they await financial companies’ earnings expected to be down a stunning 69 percent from a year ago when all the numbers are in.

And, for consumers already squeezed by tightening credit standards, it could mean getting a mortgage will become even harder.

The short-term uncertainty about Freddie Mac and Fannie Mae — which together hold or guarantee half the nation’s mortgage debt — was to an extent relieved on Sunday. Federal officials again threw their support behind the government-sponsored enterprises; the Treasury pledged to expand its current line of credit to the two companies and Treasury Secretary Henry Paulson also said the government could, if needed, buy equity capital in the companies, whose stocks lost half their value last week. The Treasury’s moves would require congressional approval.

Meanwhile, the Federal Reserve said it will provide additional loans if needed.

But some of Wall Street’s biggest investors believe there was another message in the government’s announcement — the rest of the financial sector seems unlikely to get a helping hand. Global banks and brokerages have already written down nearly $300 billion in soured mortgage investments — a number projected to ultimately reach $1 trillion.

“The credit crisis has obviously entered into a new phase — the government has one bailout left in them, and this is it,” said Jeffrey Gundlach, chief investment officer of TCW Group in Los Angeles, which invests $160 billion.

“One consequence of Freddie and Fannie is that other firms are allowed to go under,” he said. “If you couldn’t get your act together after four months of unprecedented financing terms, maybe you don’t deserve to be thrown yet another lifeline.”

Worries about financial companies failing intensified after a run on IndyMac Bancorp Inc. led to the bank’s takeover by the government on Friday. It wasn’t the Treasury or Fed helping to keep IndyMac in business, but a transfer of control to the Federal Deposit Insurance Corp. — which backs deposits on all the nation’s banks.

Analysts said these kind of failures will curtail competition among financial institutions, which might in turn make it even harder for some borrowers to get mortgages, personal or auto loans or credit cards.

On Wall Street, Monday could be a critical day, with investors quite nervous amid the uncertainty in the financial sector. Friday, as investors tried to assess the health of the mortgage financiers, the Dow Jones industrial average dropped below 11,000 for the first time in nearly two years, and the overall market was left with its fourth straight weekly loss. The government’s support of Fannie and Freddie in part was meant to assuage investors around the world.

Wall Street will get a better sense of how concerned investors are with Fannie Mae and Freddie Mac’s future immediately Monday morning. Freddie Mac is scheduled to hold its weekly debt auction beginning at 8 a.m. EDT. The auction closes at 9:45 a.m., shortly after U.S. markets open.

Successful completion of the debt auctions allows both lenders to remain liquid — replacing old debt with new. Liquidity has been one of the key questions facing financial companies during the credit crisis.

Freddie Mac is auctioning off a combined $3 billion in three- and six-month securities. Wall Street will be looking very closely at the number of bidders and the rate at which the securities are auctioned, said Bert Ely, a banking consultant who has been critical of the companies in the past.

“I’ll be surprised if the results aren’t strong,” he said, noting the government was likely heavily encouraging investors throughout the weekend.

The banking industry was already dealt a severe blow in March when Bear Stearns nearly collapsed amid the evaporation of its liquidity. JPMorgan Chase & Co. stepped in to purchase Bear Stearns in a deal orchestrated by the Federal Reserve.

Bear Stearns was unhinged by mounting losses tied to investments in bonds backed by mortgages. As the mortgages increasingly defaulted, the value of bonds backed by the troubled loans tumbled. After Bear collapsed, investment banks were given the opportunity to borrow directly from the Fed, an option that was previously only granted to retail banks.

Financial companies’ reports of write-downs of troubled debt are likely to increase this week as some of the country’s largest institutions, including JPMorgan Chase, Merrill Lynch & Co. and Citigroup Inc., report second-quarter results. That trio has already taken a combined $73 billion in write-downs since the credit crisis began last summer.

Lehman Brothers, whose shares have lost 78 percent since this year’s peak in February, is considered to be on the shakiest ground because it is the smallest Wall Street bank and has significant mortgage holdings. Last month, the investment bank announced it lost nearly $3 billion during the second quarter and was forced to offset that by raising $6 billion of fresh capital.

Meanwhile, analysts believe regional banks in areas hardest hit by the real estate downturn are also at risk for failure. Some of the most bandied about names include Washington Mutual Inc., National City Corp., and Fifth Third Bancorp.

“Fannie and Freddie are too big to fail only because of the repercussions, not to just the mortgage and housing markets but the entire financial market,” said Joe Balestrino, fixed-income market strategist at Federated Investors. “The U.S. is in disarray … these regionals could be gone, they are in a tough spot with housing and employment going south.”

Sunday July 13, 8:59 pm ET
By Jeannine Aversa, AP Economics Writer

Fed offers to lend to mortgage companies, Treasury plans possible equity investment

WASHINGTON (AP) — The Federal Reserve and the Treasury announced steps Sunday to shore up mortgage giants Fannie Mae and Freddie Mac, whose shares have plunged as losses from their mortgage holdings threatened their financial survival.

The steps are also intended to send a signal to nervous investors worldwide that the government is prepared to take all necessary steps to prevent the credit market troubles that started last year from engulfing financial markets and further weakening the economy and housing markets.

The Fed said it granted the Federal Reserve Bank of New York authority to lend to the two companies “should such lending prove necessary.” They would pay 2.25 percent for any borrowed funds — the same rate given to commercial banks and Big Wall Street firms.

The Fed said this should help the companies’ ability to “promote the availability of home mortgage credit during a period of stress in financial markets.”

Secretary Henry Paulson said the Treasury is seeking expedited authority from Congress to expand its current $2.25 billion line of credit to each company should they need to tap it and to make an equity investment in the companies — if needed.

“Fannie Mae and Freddie Mac play a central role in our housing finance system and must continue to do so in their current form as shareholder-owned companies,” Paulson said Sunday. “Their support for the housing market is particularly important as we work through the current housing correction.”

The Treasury’s plan also seeks a “consultative role” for the Fed in any new regulatory framework eventually decided by Congress for Fannie and Freddie. The Fed’s role would be to weigh in on setting capital requirements for the companies.

The White House, in a statement, said President Bush directed Paulson to “immediately work with Congress” to get the plan enacted. It also said it believed the plan outlined by Paulson “will help add stability during this period.”

Investors may not be as sanguine, however, according to Chris Johnson, an investment manager and president of Johnson Research Group in Cleveland. Stocks of financial institutions “are going to get clobbered,” he predicted. “It is a situation where regulators and the government are trying to play catch up, and that means everything is not discounted in the stock prices yet.”

The Dow Jones industrials on Friday briefly fell below 11,000 for the first time in two years and Johnson expects shares of investment banks and regional banks could fall even lower as investors react to this weekend’s developments.

Fannie Mae and Freddie Mac either hold or back $5.3 trillion of mortgage debt. That’s about half the outstanding mortgages in the United States.

The announcement marked the latest move by the government to bolster confidence in the mortgage companies. A critical test of confidence will come Monday morning, when Freddie Mac is slated to auction a combined $3 billion in three- and six-month securities.

Fannie was created by the government in 1938 to provide more Americans the chance to own a home by giving financial institutions an outlet to sell mortgage loans they originated, freeing more cash to make more home loans. It moved from government to public ownership in 1968 and Freddie was started two years later.

Sunday’s announcements are likely to raise anew criticism that the government should have moved sooner to rein in the two companies, especially since investors widely assumed they would be bailed out if they got into trouble.

The government denied it, but what was seen by investors as an implicit guarantee of support allowed Fannie and Freddie to borrow at rates only slightly higher than the Treasury — and lower than what their banking competitors had to pay.

“This really blows away the notion of an implicit guarantee,” independent banking consultant Bert Ely said of the Treasury’s plan to ask Congress to allow it to make equity investments in Fannie Mae and Freddie Mac. “It suggests a greater concern about how these companies are doing. It says the problems are deeper. It gets to the solvency of the companies, not just the liquidity.”

Paulson’s goal is to get his plan attached to a sweeping housing-rescue package. The Senate and House have each passed bills and a final package has to be hammered out. The centerpiece of the legislation is to help strapped homeowners avoid foreclosure legislation but it also contains provisions to revamp oversight of Fannie Mae and Freddie Mac.

Senate Majority Leader Harry Reid, D-Nev., said “Senate Democrats stand ready to work with the administration to quickly and effectively address the situation currently facing these institution.”

Democratic presidential contender Barack Obama, speaking with reporters before the plan was announced, said he favored congressional action to shore up the housing market, as well as legislative consultation about any taxpayer dollars used to support the mortgage companies.

House GOP leader John Boehner, R-Ohio, and Republican Whip Roy Blunt, R-Mo., said they “stand ready to work with Secretary Paulson and congressional Democrats to take appropriate steps to ensure the soundness of our mortgage markets.”

Officials from Treasury, the Fed and other regulators worked in close consultation throughout the weekend after growing investor fears about the companies’ finances sent their shares and the overall market plummeting last week.

Shares of Fannie Mae plunged 45 percent last week and are down 74 percent since the beginning of the year. Freddie Mac shares fell 47 percent last week, and have fallen 77 percent so far this year.

A senior Treasury official said any increase in the line of credit — now at $2.25 billion for each company– would be at the Treasury secretary’s discretion. The same would apply to any equity investment made by the government.

The official, who spoke on condition of anonymity, also sought to send a calming message about Fannie’s and Freddie’s financial shape, saying: “There’s been no deterioration of the situation since Friday.”

The Fed’s offer of funds is viewed as a temporary backstop until Treasury can get its plan in place. The collateral they would have to pledge — Treasury securities and federal agency securities — is more narrow than the collateral commercial banks and Wall Street firms must pledge for emergency lending privileges.

Freddie Mac Chairman Richard Syron said Sunday that preliminary second-quarter results show that his company had “a substantial capital cushion” above the 20 percent minimum surplus it is required to maintain.

Fannie Mae President and CEO Daniel Mudd said he believes the steps could send a calming message. “Given the market turmoil, having options to access provisional sources of liquidity if needed will help to strengthen overall confidence in the market. We will continue to do our part to provide liquidity, stability and affordability to the housing market now and in the future.”

Last week Fed Chairman Ben Bernanke and Paulson, appearing before the House Financial Services Committee, made a point of saying that the regulator of Fannie and Freddie, the Office of Federal Housing Enterprise Oversight, has found both companies adequately capitalized.

AP Business Writers Stephen Bernard and Joe Bel Bruno in New York contributed to this report.

Saturday July 12, 7:21 am ET
By Alex Veiga, AP Business Writer

Office of Thrift Supervision steps in and closes IndyMac Bank; FDIC takes over operations

LOS ANGELES (AP) — IndyMac Bank’s assets were seized by federal regulators on Friday after the mortgage lender succumbed to the pressures of tighter credit, tumbling home prices and rising foreclosures.

The bank is the largest regulated thrift to fail and the second largest financial institution to close in U.S. history, regulators said.

The Office of Thrift Supervision said it transferred IndyMac’s operations to the Federal Deposit Insurance Corporation because it did not think the lender could meet its depositors’ demands.

IndyMac customers with funds in the bank were limited to taking out money via automated teller machines over the weekend, debit card transactions or checks, regulators said.

Other bank services, such as online banking and phone banking were scheduled to be made available on Monday.

“This institution failed today due to a liquidity crisis,” OTS Director John Reich said.

The lender’s failure came the same day that financial markets plunged when investors tried to gauge whether the government would have to save mortgage giants Fannie Mae and Freddie Mac.

Shares of Fannie and Freddie dropped to 17-year lows before the stocks recovered somewhat. Wall Street is growing more convinced that the government will have to bail out the country’s biggest mortgage financiers, whose failure could deal a tremendous blow to the already staggering economy.

The FDIC estimated that its takeover of IndyMac would cost between $4 billion and $8 billion.

IndyMac’s collapse is second only to that of Continental Illinois National Bank, which had nearly $40 billion in assets when it failed in 1984, according to the FDIC.

News of the takeover distressed Alan Sands, who showed up at the company’s headquarters in Pasadena, Calif., to find out when he could withdraw his funds.

“Hopefully the FDIC insurance will take care of it,” said Sands, of El Monte, Calif. “I’m also kind of kicking myself for not taking care of this sooner, sooner as in the last couple of days.”

A couple of dozen customers could be seen outside the building, reading fliers handed out by FDIC staff. The agency set up a toll-free number for bank customers to call.

IndyMac Bancorp Inc., the holding company for IndyMac Bank, has been struggling to raise capital as the housing slump deepens.

IndyMac had $32.01 billion in assets as of March 31.

A spokesman for the lender referred media queries to the FDIC.

The banking regulator said it closed IndyMac after customers began a run on the lender following the June 26 release of a letter by Sen. Charles Schumer, D-N.Y., urging several bank regulatory agencies that they take steps to prevent IndyMac’s collapse.

In the 11 days that followed the letter’s release, depositors took out more than $1.3 billion, regulators said.

In a statement Friday, Schumer said IndyMac’s failure was due to long-standing practices by the bank, not recent events.

“If OTS had done its job as regulator and not let IndyMac’s poor and loose lending practices continue, we wouldn’t be where we are today,” Schumer said. “Instead of pointing false fingers of blame, OTS should start doing its job to prevent future IndyMacs.”

The FDIC planned to reopen the bank on Monday as IndyMac Federal Bank, FSB.

Deposits are insured up to $100,000 per depositor.

As of March 31, IndyMac had total deposits of $19.06 billion.

Some 10,000 depositors had funds in excess of the insured limit, for a total of $1 billion in potentially uninsured funds, the FDIC said.

Customers with uninsured deposits could begin making appointments to file a claim with the FDIC on Monday. The agency said it would pay unsecured depositors an advance dividend equal to half of the uninsured amount.

During a conference call with reporters, FDIC Chairman Sheila C. Bair said the agency would cover all insured deposits and then try to recover its costs by selling IndyMac’s assets.

“We anticipate trying to market the institution as a whole bank,” Bair said. “How much money we derive from that will depend on who gets paid what.”

Holders of unsecured IndyMac debt may not fully recover their investment, Bair said.

“Generally if a creditor is secured, they are at the top of the claims priority,” she said. “If they are unsecured, they’re pretty low on the claims priority and probably will take some type of haircut with this, but we have not had a chance to do a thorough analysis to know … how extensive those losses will be.”

IndyMac spent the last two weeks trying to reassure customers that it was not near default.

On Monday, IndyMac announced it had stopped accepting new loan submissions and planned to slash 3,800 jobs, or more than half of its work force — the largest employee cuts in company history.

In the letter to shareholders, IndyMac Chairman and Chief Executive Michael W. Perry said the drastic measures were made in conjunction with banking regulators to improve the company’s financial footing and “meet our mutual goal of keeping Indymac safe and sound through this crisis period.”

The plan was supposed to generate roughly $5 billion to $10 billion per year of new loans backed by government-sponsored mortgage companies, Perry said at the time.

But the run on its deposits ultimately short-circuited the strategy, prompting regulators to take action Friday.

Associated Press writer Raquel Maria Dillon in Pasadena contributed to this report.

Friday July 11, 6:55 am ET
By Alan Zibel, AP Business Writer

Fannie, Freddie shares drop as worries of government rescue build amid ongoing housing woes

WASHINGTON (AP) — Fears that the government will be forced to rescue Fannie Mae and Freddie Mac could well become a self-fulfilling prophecy.

Shares of the government-chartered mortgage finance giants plummeted Thursday and are trading at levels last seen in the early 1990s. If the prices don’t recover, it will be harder for the two companies to raise more money through stock sales to compensate for losses from the housing bust. Investors are afraid their stakes will vanish if the government is forced to rescue the companies.

“The government has to step in and do something,” said Friedman, Billings, Ramsey & Co. analyst Paul Miller.

Freddie Mac shares fell $2.26 or 22 percent, to $8, after sinking as low as $6.75 earlier in the day. Shares of Fannie Mae fell $2.11, or 13.8 percent, to $13.20, after earlier falling to $11.70.

Testifying on Capitol Hill, Treasury Secretary Henry Paulson and Federal Reserve Chairman Ben Bernanke sought to calm investor jitters about the financial health of Fannie and Freddie, while urging Congress to give them new regulatory tools to better protect the country from economic and financial havoc if a major Wall Street firm were to fail.

Both regulators endorsed creating new procedures for the government to guide an orderly liquidation of a failing investment bank to minimize any fallout inflicted on the overall economy. Such procedures, already in place for commercial banks, might have made for a more orderly dissolution of investment firm Bear Stearns.

Bernanke defended the Fed’s decision to provide about $29 billion in loan assistance in JPMorgan Chase & Co.’s takeover of Bear Stearns earlier this year, but said it “is not something I want to do again.”

Despite Wall Street’s questions about Fannie and Freddie, and concerns about other investment banks faltering, Congress has a full plate and is unlikely to give financial regulators new powers before the next administration takes over.

Paulson told lawmakers that Fannie and Freddie are “working through this challenging period,” but he would not say if they pose a risk to the U.S. financial system. “In today’s world, it is not helpful to speculate about any financial institution and systemic risk.”

James Lockhart, director of the Office of Federal Housing Enterprise Oversight, said the companies’ capital levels are “well in excess” of government requirements.

Meanwhile, politicians vowed to intervene if necessary. “They cannot and will not fail,” presumptive Republican presidential nominee Sen. John McCain told reporters.

“If they need additional support, Congress will act quickly,” Sen. Charles Schumer, D-N.Y., said in a statement.

The two companies are coping with worries that they won’t be able to withstand soaring losses from foreclosures and home loan defaults.

Washington-based Fannie Mae raised $7.4 billion in May to fortify its balance sheet. McLean, Va.-based Freddie Mac plans to raise $5.5 billion, but has been waiting to initiate the offerings because its stock is not yet registered with the Securities and Exchange Commission.

Congress created Fannie in 1938 and Freddie in 1970 to keep money flowing into the home-loan market by buying up mortgages and bundling them into securities for sale to investors worldwide — thereby making home ownership affordable for low- and middle-income Americans.

Today the companies hold or guarantee around $5.3 trillion in home-loan debt, though under a 1992 law they are required to hold only a fraction of what is mandated for commercial banks as a financial cushion against risk.

Some say those capital requirements should be far higher, and believe Congress should mandate bank-like standards. “These guys were skating on such thin ice that, when the stress came, we’re starting to see some cracks” said Johns Hopkins University fellow Thomas Stanton.

While the government isn’t obligated to assist Fannie or Freddie in a financial emergency, there is a widespread perception that they would be bailed out if there is a collapse. The idea they are “too big to fail” enables the two companies to borrow relatively cheaply on global markets by issuing top-rated mortgage-backed securities.

Fannie and Freddie play a vital role in the U.S. mortgage market, one that has grown dramatically over the past year after the subprime mortgage market’s collapse. The companies issued about three-quarters of all new mortgage-backed securities in the second quarter of 2008, up from under 40 percent in 2006, according to trade publication Inside Mortgage Finance.

If fears about Fannie and Freddie’s health continue to grow — causing the cost of routine debt sales to soar even further — the Federal Reserve and Treasury Department would likely provide emergency support to ensure the companies can continue to buy loans, said Alexandria, Va.-based banking industry consultant Bert Ely.

“There would have to be some effort to salvage them,” Ely said.

Still, some question whether such anxieties are justified.

“It’s way overblown,” said mortgage industry consultant Howard Glaser. “Psychology is the major problem here.”

Glaser, a former housing official in the Clinton administration, says the companies’ government regulator could give them more flexibility — and reduce the need to raise money — by loosening capital requirements.

The Treasury Department has long worked on plans for what to do if a large financial firm such as Fannie or Freddie failed, but a department spokeswoman declined to comment on whether such plans have been accelerated recently.

Critics warn that the companies could threaten the economy and do not have enough capital to withstand financial turmoil. But Fannie and Freddie executives have consistently called such worries unfounded.

Freddie spokeswoman Sharon McHale said the company “continues to hold a surplus above its regulatory requirement that will enable it to continue to support the nation’s housing markets.”

Fannie Mae is “managing our business and maintaining a capital position that will allow us to fulfill our congressionally chartered mission now and in the future,” spokesman Brian Faith said, noting that Fannie has raised more than $14 billion in capital since last November.

Associated Press Writers Jeannine Aversa and Charles Babington contributed to this report.

Foreclosure filings continue to rise as US housing crisis drags on

WASHINGTON (AP) — The number of homeowners stung by the rout in the U.S. housing market jumped last month as foreclosure filings grew by more than 50 percent compared with June a year ago, according to data released Thursday.

Nationwide, 252,363 homes received at least one foreclosure-related notice in June, up 53 percent from the same month last year, but down 3 percent from May, RealtyTrac Inc. said. One in every 501 U.S. households received a foreclosure filing last month. Foreclosure filings increased from a year earlier in all but 11 states. Nevada, California, Arizona, Florida and Michigan continued to have the highest foreclosure rates.Irvine, Calif.-based RealtyTrac monitors default notices, auction sale notices and bank repossessions. More than 71,000 properties were repossessed by lenders nationwide in June, the company said.

While foreclosures continue to rise nationwide, efforts in some states to give borrowers more time before losing their homes appear to be working.

In Maryland, where a new law has increased the time to finalize a foreclosure to 150 days from just 15, foreclosure filings dropped by almost 18 percent from last year’s levels. In Massachusetts, which last year passed a similar law, filings dropped almost 3 percent.

Still, the combination of weak housing sales, falling home values, tighter mortgage lending criteria and a slowing U.S. economy has left financially strapped homeowners with few options to avoid foreclosure. Many can’t find buyers or owe more than their home is worth and can’t refinance into an affordable loan.

Economists project 2.5 million homes nationwide will enter the foreclosure process this year, up from about 1.5 million in 2007.

Analysts say the mortgage industry’s effort to assist troubled borrowers is being overwhelmed by the magnitude of the foreclosure crisis, and Treasury Secretary Henry Paulson said earlier this week that many foreclosures are “not preventable,” citing borrowers who “took out mortgages they can’t possibly afford and they will lose their homes.”

Lawmakers and government officials have been struggling to come up with a response to soften the blow for the U.S. economy. Congress is working on legislation that would permit the Federal Housing Administration to provide new, cheaper mortgages to distressed homeowners who otherwise would have difficulty refinancing into more secure government-insured loans. Lenders would have to be willing to take a substantial loss by reducing the amount owed on the loan.

The Bush administration announced Tuesday that it would be ready on Monday to implement an FHA expansion that lets borrowers who’ve fallen behind on their home payments — because of mortgage rate resets or other economic hardships — get more affordable loans.

In the RealtyTrac report, metropolitan areas in California and Florida accounted for nine of the top 10 areas with the highest rate of foreclosure for the third-straight month. That list was led by three California cities: Stockton, Merced and Modesto. The Cape Coral-Fort Myers area in Florida was fourth.

In Nevada, one in every 122 households received a foreclosure-related notice last month, more than four times the national rate.

In today’s market, about 50 to 60 percent of borrowers nationally who receive foreclosure filings are now likely to lose their homes, said Rick Sharga, RealtyTrac’s vice president of marketing, compared with a typical rate of about 40 percent.

“For more and more homeowners who are getting into foreclosure,” Sharga said, “there is a much higher likelihood that they are ultimately going to lose the properties to the bank.”

For a list of foreclosed properties in Florida go here!  http://fastfloridaappraisals.com/fl-foreclosure/home.html

Florida sued mortgage lender Countrywide Financial Monday for predatory lending practices, alleging the company at the center of the U.S. mortgage crisis made subprime loans to people who could not repay them.

The Florida attorney general filed the lawsuit, which names Countrywide Chief Executive Angelo Mozilo as a defendant, in state court in Broward County, Florida.

Last Wednesday, officials in Illinois and the company’s home state of California also sued Countrywide. On the same day, shareholders approved the company’s takeover by Bank of America.

A spokesman for Bank of America, which is expected to complete its planned acquisition of Countrywide in July, declined to comment on the Florida lawsuit.

The state alleged the company gave subprime loans to borrowers who could not repay them, loaned money at higher subprime rates to people who qualified for prime rate loans and engaged in other deceptive marketing and unfair trade practices, contrary to claims in its 10-K filings.

Underscoring the aggressiveness of its lending practices — aimed at maximizing the company’s profits regardless of credit risk — the complaint said Countrywide’s own underwriters were “threatened with termination for attempting to verify a borrower’s ability to pay, or otherwise impeding loan approval.”

It added managers were encouraged to approve subprime loan applications initially denied by underwriters who suspected fraud.

“Defendants did not adhere to its underwriting standards, allowed the origination of ‘no documentation or reduced documentation’ subprime loans and failed to ensure that borrowers had sufficient capacity to repay such mortgage loans,” the complaint said.

Countrywide made subprime adjustable rate loans “when they knew or should have known that the borrowers would not be able to repay the loan once the initial ARM period expired,” the state claimed.

The complaint also alleged Countrywide told customers the interest rates were fixed when they were not, misrepresented to borrowers the amount of time the initial fixed interest rates would be in effect and misrepresented how much payments would increase when the initial rate expired.

“It is unthinkable that a company would try to take advantage of someone’s dream of homeownership,” Florida Attorney General Bill McCollum said in a statement.

“Florida homeowners who are trying to protect their homes from foreclosures shouldn’t have to worry about their mortgage brokers or lenders unfairly profiting at their expense.”

Florida and California are among the leaders in mortgage defaults.

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