Fast Facts

California Median Home Price – July 09 $285,480

California Highest Median Home Price by Region July 09: Santa Barbara South Coast - $885,000

California Lowest Median Home Price by Region July 09: High Desert $110,650

California First-Time Buyer Affordability Index – Second Quarter 2009: 67%

Mortgage Rates - Week Ending 8/20/09:

30 Year Fixed - 5.12% Fees/Points: 0.7%

15 Year Fixed - 4.45% Fees/Points: 0.7%

1 Year Adjustable - 4.69% Fees/Points 0.5%

Source: California Association of Realtors & Freddie Mac

Home Prices on the Upswing

A jump in the national S&P/Case-Shiller Home Price Index suggests that the very steep price drops of the past few years may be over.

After three years of declines, home prices increased 2.9% in the three months ended June 30, according to the latest S&P/Case-Shiller report. That is the first quarter-over-quarter improvement in three years.

Prices in the national index are down 14.9% compared with the second quarter of 2008, the report said. But that is better than the record 19.1% decline that was set in the first three months of 2009.

"We're seeing some positive signs," says David M. Blitzer, Chairman of the Index Committee at Standard & Poor's.

The Case-Shiller 20-city index rose quarter-over-quarter by 1.4% but fell 15.4% year-over-year. Still, that was a smaller loss than analysts were predicting: A consensus of experts compiled by Briefing.com had forecast a 16.4% drop.

"This is great news; prices may be starting to grow again" said Pat Newport, a real estate analyst for IHS Global Insight. "Three independent sources, the National Association of Realtors, the Federal Housing Finance Agency and Case Shiller are showing price improvement."

The slide may be over partially because prices have reached affordability levels not seen in a generation, drawing many buyers into the market.

Helping housing markets, too, is the government economic stimulus effort, which includes an $8,000 first-time homebuyers tax credit. That added discount has spurred many entry-level buyers into homeownership.

The rebound may mean that potential homebuyers will have more of a feeling of urgency, afraid that they'll miss the market bottom.

That's already happening in some of the markets that had gone through steep price declines over the past few years, such as the area east of Los Angeles that went through a severe boom and bust cycle. Home sales there are now booming again, according to Chuck Whitehead, a Coldwell Banker real estate broker.

"There's such a frenzy to get in before prices go up again," he said. "Buyers are more concerned about that than about getting the first-time homebuyers tax credit."

Among cities, Cleveland reported the biggest rebound; prices improved by 9.8% compared with the first quarter of 2009. Dallas prices rose 6.5% and San Francisco 5.9%. Prices declined in seven cities, including 7.8% in Las Vegas, 2.2% in Miami and 1.2% in New York.

Source: CNN

WHERE IS THE MARKET GOING???

On a national level I like the Standard & Poors/Case-Shiller Home Price Indices. Granted, it is always two months behind (May/2009) but I find it to be consistently reliable real estate market information. In the May 2009 report it stated:

The pace of descent in home price values appears to be slowing…. There is a clear inflection point in the year-over-year data, due to four consecutive months of improved rates of return, after the steep decline that began in the fall of 2005. This could be an indication that home price declines are finally stabilizing.

While many indicators are showing signs of life in the US housing market, we should remember that on a year-over-year basis home prices are still down about 17% on average across ALL (Emphasis Added) metro areas, so we likely do have a way to go before we see sustained home price appreciation.


Looking at the local South Coast County (Carpinteria thru Goleta), we see signs of market improvement, but like the overall national housing market we still have a ways to go before we once again see a strong real estate market.

For the month of July we note the difference between the Original List Price and Eventual Sales Price for the month of July to be -13.4%. This suggests a disconnect between real estate agents and their sellers and current market conditions. The second benchmark of note is the fact that we are currently running at about 7.9 months of housing inventory on the market. The tipping point between a Buyer’s Market and a Seller’s Market is 6 months signaling the fact that we are still in a Buyer’s Market but not overwhelmingly so. During the month of July the majority of sales centered between $550,000 and $1,100,000, or the lower end of the market resulting in a Median Sold Price of $885,000 compared to the 2008 July figure of $944,500.

The figures are even more telling if we take an average of the previous 4 years for the months of January thru July and compare them with this year for the same time frame. Doing so we note a -21% drop in sales, and a -29% drop in median sales price. If we look at the median sales price for the last ten years for the months of January thru July compared to 2009 we note that we are slightly higher than the 2003 year figure ($822,500 vs. $850,000).

The good news is that houses are becoming more affordable, interest rates are low and houses going into escrow are picking up steam, while lenders and appraisers for the moment are somewhat relaxing their overreaction following the self-induced severely inflated housing market. Those studying the market are keeping their eyes on such things as the brittle consumer confidence, interest rates, unemployment, inflation, and how long homeowners can hold on or whether we will have another round of foreclosures.

One factor does shine thru as we study neighborhoods and prices is that at the lower end of the market housing inventories are thinning out and it is edging more toward a Seller’s market in this arena with multiple offers occurring on many properties that are aggressively priced in today’s market.

Strong Gain in Existing-Home Sales Maintains Uptrend

For the first time in five years, existing-home sales have increased for four months in a row, according to the National Association of Realtors®.

Existing-home sales - including single-family, townhomes, condominiums and co-ops - rose 7.2 percent to a seasonally adjusted annual rate of 5.24 million units in July from a level of 4.89 million in June, and are 5.0 percent above the 4.99 million-unit pace in July 2008. The last time sales rose for four consecutive months was in June 2004, and the last time sales were higher than a year earlier was November 2005.

Lawrence Yun, NAR chief economist, said he is encouraged. "The housing market has decisively turned for the better. A combination of first-time buyers taking advantage of the housing stimulus tax credit and greatly improved affordability conditions are contributing to higher sales," he said.

The monthly sales gain was the largest on record for the total existing-home sales series dating back to 1999.

"Because price-to-income ratios have fallen below historical trends, there are more all-cash offers. In some recovering markets like San Diego, Las Vegas, Phoenix, and Orlando, the demand for foreclosed and lower priced homes has spiked, and a lack of inventory is becoming a common complaint," Yun said.

According to Freddie Mac, the national average commitment rate for a 30-year, conventional, fixed-rate mortgage fell to 5.22 percent in July from 5.42 percent in June; the rate was 6.43 percent in July 2008.

An NAR practitioner survey showed first-time buyers purchased 30 percent of homes in July, and that distressed homes accounted for 31 percent of transactions.

NAR President Charles McMillan, a broker with Coldwell Banker Residential Brokerage in Dallas-Fort Worth, said the first-time buyer tax credit is working. "In addition to first-time buyers, we're also seeing increased activity by repeat buyers. While many entry-level buyers are focused on the discounted prices of distressed homes, they're also freeing some existing owners to sell and make a move," he said.

"Realtors® are the best resource for consumers in these changing market conditions because the transaction process has become more complex. Since it's now taking longer to complete a home sale, first-time buyers who want to take advantage of the $8,000 tax credit should try to make contract offers by the end of September," McMillan said. "Otherwise, they may miss the November 30 closing deadline."

Total housing inventory at the end of July rose 7.3 percent to 4.09 million existing homes available for sale, which represents a 9.4-month supply at the current sales pace, which was unchanged from June because of the strong sales gain. Raw inventory totals are 10.6 percent lower than a year ago when the number of unsold homes was at a record.

The national median existing-home price for all housing types was $178,400 in July, which is 15.1 percent lower than July 2008. Distressed properties continue to weigh down the median price because they typically sell for 15 to 20 percent less than traditional homes.

Single-family home sales increased 6.5 percent to a seasonally adjusted annual rate of 4.61 million in July from a pace of 4.33 million in June, and are 5.0 percent higher than the 4.39 million-unit level in July 2008. The median existing single-family home price was $178,300 in July, which is 14.6 percent below a year ago.

Existing condominium and co-op sales jumped 12.5 percent to a seasonally adjusted annual rate of 630,000 units in July from 560,000 in June, and are 5.9 percent above the 595,000-unit level a year ago. The median existing condo price was $178,800 in July, down 18.9 percent from July 2008.

Existing-home sales in the West slipped 1.7 percent to an annual rate of 1.13 million in July, but are 1.8 percent above a year ago. The median price in the West was $202,300, which is 28.0 percent below July 2008.

Source: NAR

So, Is Our Long National Nightmare Over? Has The Housing Market Finally Hit Bottom?

There has been some muted -- albeit exhausted -- cheering from homeowners in recent weeks. But before we break out the champagne, look out for further potential problems just down the road.

The good news? According to the closely watched Case-Shiller Home Price Index, which tracks home prices across 20 major cities nationwide, the three-year housing slump slowed sharply in April and May.

May's decline was just 0.2%, the slowest in two years. And several cities actually saw prices rise -- among them Denver, Washington, D.C., Chicago, Boston, Cleveland and Dallas.

Even Miami only fell about 1% in May. That's a great month down there. Previously, prices had been falling 3% a month.

We'll get an even better picture of the situation when the Case-Shiller figures for June are released on Aug. 25.

But these data aren't the only hopeful signs.

Inventories of unsold homes have come down. According to the National Association of Realtors, there were about 3.8 million unsold homes on the market at the end of June. That's down a long way from 4.5 million a year ago.

And yes, housing affordability is dramatically better. People, obviously, need to live somewhere. At some point, housing gets cheap enough that the fundamentals start to look good.

The average home is about a third cheaper than it was at the peak three years ago, a plunge unprecedented since the Great Depression. In the hardest-hit places, such as Phoenix, Las Vegas and Miami, average prices have been halved or better from their bubble peaks.

Cheap Mortgages, Too

Factor in falling mortgage rates as well, and housing starts to look cheap by many measures. Thirty-year mortgage rates, at around 5.5%, are still low by historic standards. A few months ago, when they fell below 5%, they were very cheap.
There's some other good news for homeowners from the rest of the economy. July's job losses were better than feared: The unemployment rate, which was heading vertical a few months ago, eased to 9.4% last month from 9.5%.

Some are saying the worst is behind us, for the economy and the housing market. No wonder the iShares Dow Jones U.S. Home Construction exchange-traded fund (ITB), which tracks shares of home-building stocks, has bounced sharply since early July.

So, is that it?

Not so fast.

Prices may -- may -- be nearing the bottom in many markets. But beyond the headlines, there are plenty of reasons to stay cautious. There may even be fresh dangers just ahead.

And even if prices have stopped falling, it may be years before they start rising sharply again.

First, late spring is traditionally the strongest season in the real-estate market.

And it's hardly a surprise the market saw some green shoots this time around. It's enjoying not one, but two, gigantic taxpayer subsidies -- an $8,000 refundable tax credit, or gift, for first-time buyers, as well as those cheap mortgage rates. The Federal Reserve has been spending billions of dollars to keep interest rates down.

Both are only short-term fixes. Any sustained economic upturn would be expected to send long-term mortgage rates rising again, dousing the real-estate market with fresh cold water.

Glut of Empty Houses

The picture on inventories isn't as good as it sounds, either. A lot of unsold homes have simply been put up for rent instead, especially in the most difficult markets like Miami. The result? A glut of empty rentals as well.

New waves of foreclosures and distressed sales may be coming, too. In states such as California, it can take many months for delinquencies to turn to foreclosures, which means last winter's bad news may still be coming
down the pike. Meanwhile, vast tranches of teaser-rate mortgages are due to reset later this year and in 2010.

As for the economy: Both unemployment and household debt levels remain at extremely high levels by the standards of postwar history. Either is bad news for housing. The combination is very bad.

Dean Baker, co-director of the Center for Economic and Policy Research, argued in a recent paper that the fundamentals still aren't great. It still remains cheaper to rent than to own in many markets, he says.

The biggest bubbles usually produce the deepest busts. And the 2002-2006 bubble was a doozy. The bad news may have ended after three terrible years, but maybe not. Japanese housing prices still haven't recovered from the late 1980s bubble. Western U.S. markets took six or seven years to recover after the last big bubble burst there in the early 1990s.

Yes, there are some hopeful signs, but don't let them fool you into thinking it's all clear. It might not be. As ever, anyone making a major financial decision needs to think more about his or her own situation than what "the market" is doing. A real-estate purchase needs to make sense on its own terms. And measure it on cash flow today, not the hope for capital gains tomorrow. When you factor in all the costs, is the purchase cheaper than renting?

If you get a cheap mortgage and you are aggressive on price, you may get a bargain. That's especially true if the owner has to sell. Foreclosures and other distressed sales are selling for about 20% below the rest of the market. There are opportunities out there. But you can afford to take your time to shop around.

Scorce: Wall Street Journal

Fast Facts

Calif. median home price - June 09: $274,740

Calif. highest median home price by C.A.R. region June 09: Santa Barbara So. Coast - $850,000

Calif. lowest median home price by C.A.R. region June 09: High Desert - $108,600

Calif. First-time Buyer Affordability Index - First Quarter 2009: 69 percent

Mortgage rates - week ending 8/6/09
30-yr. fixed: 5.22% Fees/points: 0.6%
15-yr. fixed: 4.63% Fees/points: 0.6%
1-yr. adjustable: 4.78% Fees/points: 0.5%

Source: Source: C.A.R. & Freddie Mac

Federal Reserve Maintains Target Range for Federal Funds Rate

The Federal Reserve today announced it will “maintain the target range for the federal funds rate at zero to 0.25 percent, and continues to anticipate that economic conditions are likely to warrant exceptionally low levels of the federal funds rate for an extended period.”

“Conditions in financial markets have improved further in recent weeks. Household spending has continued to show signs of stabilizing but remains constrained by ongoing job losses, sluggish income growth, lower housing wealth, and tight credit,” according to a statement by the Federal Open Market Committee.

“Although economic activity is likely to remain weak for a time, the Committee continues to anticipate that policy actions to stabilize financial markets and institutions, fiscal and monetary stimulus, and market forces will contribute to a gradual resumption of sustainable economic growth in a context of price stability.”

Source: Board of Governors of the Federal Reserve System

California’s Popularity Fading for New Immigrants

California’s popularity as a destination for immigrants has declined significantly, according to a study recently released by the Public Policy Institute of California (PPIC). In a shift that began in the late 1990s and has accelerated this decade, new arrivals to the U.S. have increasingly chosen to live in states with little history of immigration.California’s immigrant population is still the largest in the nation and continues to increase, but that growth has slowed. The percentage of immigrants choosing to live in the state declined by seven points between 1990 and 2007, from 33 percent of the nation’s immigrants in 1990 to 26 percent in 2007, according to the U.S. Census data analyzed in the study.

This trend is mirrored within the state, with immigrants increasingly likely to settle outside traditional immigrant enclaves. Although Los Angeles is home to far more immigrants than any other county in California, its immigrant population grew by just 1.8 percent per year between 1990 and 2007, compared with 11.9 percent growth per year in Riverside County and 9.9 percent in Kern County.

“Many immigrants—particularly Latinos—are moving to new destinations that have less established social networks but growing economic opportunities,” says Sarah Bohn, PPIC research fellow and author of the study. “Immigrants are increasingly likely to base their decisions about where to live on wages and jobs.”

Scource: Public Policy Institute of California

Making Home Affordable Program on Pace to Help Millions of Homeowners

The Obama Administration recently released its first monthly Servicer Performance Report detailing the progress to date of the Making Home Affordable (MHA) loan modification program. The purpose of the report is to document the number of struggling homeowners already helped under the program, provide information on servicer performance, and expand transparency around the initiative.

More than 400,000 modification offers have been extended and more than 230,000 trial modifications have begun, according to the report. At the current pace, the program is on track to offer assistance to up to 3 to 4 million homeowners over the next three years.

The report also shows that although servicers covering more than 85 percent of loans in the country are already modifying loans under the program, servicer performance has been uneven. The Administration has asked servicers to ramp up implementation to a cumulative 500,000 trial modifications started by Nov. 1, 2009. This would more than double in three months the number of trial modifications started in the first five months of the program.

Scource: U.S. Department of the Treasury

The Conference Board Consumer Confidence Index ® Retreats Again

The Conference Board Consumer Confidence Index®, which had retreated in June, declined further in July. The Index now stands at 46.6 (1985=100), down from 49.3 in June. The Present Situation Index decreased to 23.4 from 25.0 last month. The Expectations Index declined to 62.0 from 65.5 in June.

The Consumer Confidence Survey® is based on a representative sample of 5,000 U.S. households. The monthly survey is conducted for The Conference Board by TNS. TNS is the world's largest custom research company. The cutoff date for July’s preliminary results was July 21st.

Says Lynn Franco, Director of The Conference Board Consumer Research Center: "Consumer confidence, which had rebounded strongly in late spring, has faded in the last two months. The decline in the Present Situation Index was caused primarily by a worsening job market, as the percent of consumers claiming jobs are hard to get rose sharply. The decline in the Expectations Index was more the result of an increase in the proportion of consumers expecting no change in business and labor market conditions, as opposed to an increase in the percent of consumers expecting conditions to deteriorate further. However, more consumers are pessimistic about their income expectations, which does not bode well for spending in the months ahead."

Consumers continued to rate current conditions unfavorably in July. Those saying business conditions are "bad" increased to 46.3 percent from 45.3 percent, however, those saying conditions are "good" increased to 9.1 percent from 8.1 percent. Consumers' assessment of the labor market deteriorated further. Those claiming jobs are "hard to get" increased to 48.1 percent from 44.8 percent, while those claiming jobs are "plentiful" decreased to 3.6 percent from 4.5 percent.

Overall, consumers remain quite pessimistic about the short-term outlook. The percent of consumers anticipating an improvement in business conditions over the next six months decreased to 18.0 percent from 20.9 percent, however, those expecting conditions to worsen decreased to 18.9 percent from 20.4 percent.

The labor market outlook was also mixed. The percentage of consumers expecting more jobs in the months ahead decreased to 15.0 percent from 17.5 percent, however, those expecting fewer jobs decreased to 26.3 percent from 27.6 percent. The proportion of consumers expecting an increase in their incomes declined to 9.5 percent from 10.1 percent.

Scource: The Conference Board

First-Time Homebuyer Tax Credit Faces Increased IRS Scrutiny

The two versions of the credit have helped stimulate home sales nationwide. But they've also become temptations for dishonest taxpayers to claim bogus refunds.

The IRS has an urgent message for would-be home purchasers: Make the most of the $8,000 first-time buyer tax credit before it disappears Dec. 1 -- but only if you qualify.

If you don't truly qualify, don't try to play games with the credit. The Internal Revenue Service already has 24 criminal investigations of suspected fraud underway around the country and has executed seven search warrants. Last month a tax preparer in Florida entered a guilty plea on federal charges of fraud in connection with the first-time buyer credit. He's awaiting sentencing and faces up to three years in prison, a $250,000 fine or both.

Congress' two versions of the first-time buyer credit -- a repayable $7,500 credit in 2008 and this year's more generous $8,000 non-repayable credit -- have helped stimulate home sales nationwide. But they've also become temptations for dishonest taxpayers to cash in and claim bogus refunds.

Claiming the credit looks so easy: You just fill out IRS form 5405, list the address of the house you bought, mail it in and wait for your money. Who's going to check on whether you really qualify under the definition of first-time buyer -- someone who hasn't owned a principal residence during the previous three years -- and whether you're eligible on income and other criteria?

And with thousands of people buying houses and claiming tax credits, who's going to be able to check on all those filings? The answer from the IRS: We are.

In a statement released at the end of July, the agency said it uses "sophisticated computer screening tools to quickly identify returns that may contain fraudulent claims for the first-time home buyer credit."

The IRS won't discuss the nature of the screening it does, but it's clear from the number of investigations going on that claims for the credit are getting special scrutiny.

In the case of the Florida tax preparer, one tip-off evidently was the sheer number of clients who claimed credits as first-time buyers. James Otto Price III of Jacksonville entered a plea of guilty to charges that he fraudulently submitted returns claiming tax credits for 15 clients, some of whom apparently did not understand what he was doing.

According to a summary of the facts agreed to by Price as part of his plea agreement, he admitted that in February of this year, he met with a client who told Price that she didn't plan to buy a house. But Price insisted that she qualified for the credit because "she had two jobs." He then wrote in a house address on the form 5405, claiming the client closed on the purchase Jan. 5. When she received her $7,500 credit, Price took $1,000 of it for himself.

In the plea agreement, Price admitted following a similar pattern for 14 other tax returns -- fraudulently claiming the credit and then siphoning off part of the refunds.

IRS spokesman Terry Lemons declined to discuss the criminal investigations of taxpayers claiming the homebuyer credit. He did say the investigations involved individuals as well as tax-return preparers.

Lemons emphasized that "we don't want to discourage people from taking advantage of the credit," but that the IRS also wants taxpayers to be certain that they've read through the eligibility rules so they don't end up with audits, back taxes and late penalties.

Among the key requirements that may disqualify unwary buyers:

● Even if you haven't owned a home during the last three years, you won't qualify for the credit if you purchase your house from a "related person." That's a broad category of people and entities, including family members -- a spouse, parents, children, grandparents, grandchildren -- as well as a corporation or partnership in which you have more than a 50% ownership stake.

● You are eligible individually, but your spouse, who purchased the house with you, is not.

● The house you are claiming was acquired through an inheritance or a gift.

● You are otherwise eligible but you financed the house through a tax-exempt mortgage bond program.

● You make too much money -- in excess of $95,000 of modified adjusted gross income for singles, $170,000 or more for married joint filers.

Bottom line: Don't let this year's tax credit pass you by if you meet the criteria. And if you don't, beware of slick-talking professional tax preparers who tell you that you do.

Source: Los Angels Times

Real Estate Outlook: Case-Shiller Reports Reversing

When the Case-Shiller index reports that home prices have reversed course and are finally rising again, and you know that Case-Shiller has been the gloomiest, scariest-headline-producing monitor of the real estate market for the past three years -- some say: We have truly turned the corner here.

Not only are home sales up, new housing starts up, new permits up, but now the last of the doomsayers say that home prices are moving up.

For the month of June, in fact, the Standard & Poor's Case-Shiller index found prices up in 14 of the 20 major markets it covers -- and up nationally by one half of one percent.

That's the first monthly gain in the heavily publicized Case-Shiller index in three years!

Other indexes that get less attention on the evening news began trending more positive a few months earlier, such as the federal government's "FHFA" index.

But the Case-Shiller news, late though it was, should send a loud message to consumers: We're past the low point of the cycle on prices: If you were waiting to buy at the bottom, well - we've
passed that point.

So don't sit on the sidelines if you're serious about buying a house this year.

Case-Shiller found prices in Cleveland up 4 percent for the month, Dallas up by close to 2 percent, San Francisco, Washington DC and Chicago up by a percent or more.

But the bottoming out on prices is hardly the only sign of the housing recovery underway:

• New home building is beginning again even in the hardest-hit markets. In California, June bullding permits soared by 17 percent over May. In the high-cost San Francisco area they were up by 20 percent.

• In Florida, sales of existing homes jumped by 28 percent, according to the Florida Association of Realtors. Condo sales were up by an average 37 percent for the month. And despite the foreclosures still weighing down Florida transactions, average prices in June managed to rise by two and a half percent!!

• The share of distressed homes as a percentage of total sales is also on the decline -- thirty one percent of sales in June versus 45 to 50 percent earlier this year, according to the National Association of Realtors.

• Meanwhile, the mortgage market continues to help sellers and buyers on the affordability front: According to the Mortgage Bankers Association, new applications for loans to buy homes remained steady last week. Thirty year fixed interest rates averaged 5.4 percent, while fifteen year loans went for an average 4.8 percent.

Source: Realty Times

Consumer Financial Protection Agency: an overview

Reporting from Washington -- Healthcare reform has drawn most of the attention on Capitol Hill lately, but for home buyers, sellers and mortgage applicants, the legislative ballgame will really get underway in September, when Congress begins serious work on the proposed Consumer Financial Protection Agency.

Legislation creating the agency is pending in the House, pushed by Financial Services Committee Chairman Barney Frank (D-Mass.), who is its principal author. The Obama administration had outlined a similar plan at the end of June and considers passage of a bill a priority.

Why should you care? What might the agency do for you -- or to you? Here's a quick overview:

To begin with, be aware that the agency's powers and oversight would extend far beyond mortgages and real estate -- into all credit cards, debit cards, consumer loans, payday loans, credit reporting agencies, debt collection, stored-value cards and even investment advisory and financial advisory services, to name only part of the list.

It would have the authority to alter long-common practices that nettle consumers, such as mandatory arbitration clauses in the fine print of contracts that automatically send business-consumer disputes to arbitrators rather than to courts. The agency could ban or limit such clauses in specific products if they are shown to tilt against consumers' interests.

The agency would write the user-safety rules for virtually all consumer financial products and would have the legal firepower to levy huge fines -- tens of thousands of dollars a day per violation in some cases -- and prosecute lenders, brokers and others who break the rules.

The agency would be the dominant federal consumer protector in all home real estate settlements. It would regulate "affiliated" title, escrow and financing businesses connected with realty firms and builders. It would oversee equal credit opportunity and fair housing, and would set standards for all mortgage offerings, whether from the biggest national banks or the smallest local brokers. Generally it wouldn't seek outright bans on mortgage products that carry elevated risks -- interest-only loans, for instance -- but would require that lenders restrict such mortgages to well-informed applicants who can document that they understand the risks and can afford the payments.

Within its first year, the agency would be tasked with creating consumer-friendly, uniform disclosures for all home purchase and financing transactions, starting with a combined "good-faith estimates" and truth-in-lending statement.

The core idea behind the proposal, supporters say, is to pull together consumer oversight powers that are now scattered among various agencies, and to put consumer interests where they should be -- much higher on the priority list than they were during the years leading up to the housing and credit bubble and bust.

Banking and mortgage trade group leaders generally agree that the existing regulatory system failed badly -- for consumers and the industry itself.

"Are reforms needed? Yes, absolutely. We're in favor of better consumer protection," says Anne Canfield, executive director of the Consumer Mortgage Coalition, which represents major mortgage originators and banks. How to go about achieving those reforms is where Canfield's group and others part company with the administration and consumer supporters.

Canfield and other industry lobbyists are concerned about any radical shake-up of the way banks and mortgage companies traditionally have been overseen by the federal government. Currently the regulators responsible for checking on banks' "safety and soundness" also are empowered to look for risky, discriminatory or anti-consumer practices and products at those institutions.

Handing over consumer protection and enforcement powers to a separate agency that might not understand the business side of the ledger could be burdensome for lenders, they contend, and could add extra layers of bureaucracy and nightmarish legal liabilities. Mortgage Bankers Assn. President John Courson says the agency could "stifle innovation" and limit consumers' choices in home loans and other financial products.

But proponents such as Harvard Law School professor Elizabeth Warren say the industry's criticisms about stifling consumers' choices and reshaping banking industry regulation are simply efforts to preserve the status quo.

"If the status quo is about choice," Warren says, "then explain why half of those with subprime loans 'chose' high-risk, high-cost loans when they qualified for prime mortgages. The truth is, no consumer 'chose' to accept the tricks and traps buried in the legalese of financial products." She says they were steered to those loans by lenders, brokers and Wall Street promoters who were not required by regulators to explain the risks to their customers.

Outlook for the bill: Passage in the House appears likely. Count on the banks to mount their biggest battles in the Senate.

Source: Los Angeles Times