Tuesday, September 23, 2008

Home prices slide 5.3% in July

Home prices in July fell 5.3% compared with a year ago, a government agency said Tuesday, and have now receded to October 2005 levels.
The home price index was down 0.6% from June on a seasonally adjusted basis, according to the Federal Housing Finance Agency.
The nationwide decline in home values coupled with reckless lending standards are the driving forces behind rising mortgage defaults and foreclosures, and the credit crisis that has shaken Wall Street to its core.
Lending standardsJames Lockhart, the head of that agency, suggested Tuesday that mortgage finance companies Fannie Mae (FNM, Fortune 500) and Freddie Mac (FRE, Fortune 500) could loosen lending standards to help more homebuyers qualify for a loan and stabilize the market. The government took control of Fannie and Freddie earlier this month.
"I expect any changes to reflect both safe and sound business strategy and attentiveness to the [companies'] mission," Lockhart said Tuesday in prepared testimony before a Senate Banking Committee hearing. He also said that modifying loans for troubled borrowers should be a "high priority."
Lockhart also said he has directed the companies' new chief executives "to examine the underwriting standards and pricing" of Fannie Mae and Freddie Mac-backed loans.
Over the past year, the companies have tightened requirements and raised fees substantially, making it hard for borrowers with any blemish on their credit reports to qualify for a loan.
Government interventionLockhart explained the government had little option but to seize control of Fannie and Freddie. Both companies, he said, were unable to raise money to gird against losses without aid from the government.

Without new money, the only other option was to do stop doing new business and shed assets in a weak market. "That would have been disastrous for the mortgage markets and mortgage rates would have continued to move higher," Lockhart said.
But rates are creeping back up.

The national average rate on a 30-year, fixed rate mortgage rose to 6.26% on Monday up from 6.11% on Friday as details of the government's rescue plan remained in flux, according to financial publisher HSH Associates. The rate had fallen as low as 5.87% last Tuesday.

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