Housing construction plunged to a record low in April as a steep drop in apartment building offset a rebound in single-family construction. Permits for new projects also hit a new low.

The Commerce Department said Tuesday that construction of new homes and apartments fell 12.8 percent last month to a seasonally adjusted annual rate of 458,000 units, the lowest pace on records going back a half-century.

Even in last month's big decline, there were some signs of stabilization. Construction of single-family homes rose 2.8 percent to an annual rate of 368,000, following a 0.3 percent gain in March and no change in February. The stability in single-family construction likely will be viewed as a hopeful sign that the three-year slide in housing could be bottoming out.
The weakness last month came in the more volatile multifamily sector where construction plunged 46.1 percent to an annual rate of 90,000 units after a 23 percent fall in March.
Housing construction fell 30.6 percent in the Northeast, the largest drop for any region. Housing starts dropped 21.4 percent in the Midwest and 21.1 percent in the South.

The nation's top three homebuilders reported financial results earlier this month that give little hope the spring selling season will be strong enough to stop the red ink.

While all this sounds gloomy, it's a process that we must go through if we are going to get to a bottom. We need to work off the current supply of unsold homes. We do not need builders building tons on new inventory that just sits vacant.

Well the details are out. Wait no their not. Ok well maybe. HUD published the details of using the future tax credit in ML09-15 on May 11th and then pulled in 2 days latter.

Maybe they are having second thoughts. Maybe they overlooked some key points like the fact that the borrower has nothing into the deal.

In any case you can read a copy of the original ML Letter here

WASHINGTON, DC, May 12, 2009 - Today the secretary of the U.S. Department of Housing and Urban Development, Shaun Donovan, said that the Federal Housing Administration is going to permit its lenders to allow homeowners to use the $8,000 tax credit as a downpayment.
Donovan's remarks came in an address to several thousand Realtors(R) gathered this morning at The Real Estate Summit: Advancing the U.S. Economy, a special daylong session at the Realtors(R) Midyear Legislative Meetings & Trade Expo.

"We all want to enable FHA consumers to access the home buyer tax credit funds when they close on their home loans so that the cash can be used as a downpayment," Donovan said. According to Donovan, the FHA's approved lenders will be permitted to "monetize" the tax credit through short-term bridge loans. This will allow eligible home buyers to access the funds immediately at the closing table.

Donovan said the Obama administration plans to further stabilize the housing market. "I do think we have some early signs that the market overall is stabilizing," said Donovan. "Since January we've seen both home sales moving up and down around a relatively stable number and we are seeing the first signs that the rapid decline in home prices is starting to abate."

As with anything the "Devil will be in the Details". How will the Lender "monitize" the downpayment? What this sounds like is that the Lender will make a 2nd mortgage loan to the buyer secured against the tax refund. Hey does this sound anything like the "tax refunds loans" that pop up each year at tax season?

I'm also pretty sure that these won't be free. Most likely there will be a payment or interest rate associated for "monitizing" the credit.

So we are coming back to 100% loans for those that have no money into the property, no savings and may have a shaky employment or credit history. While this type of arrangement might make sense for some borrowers, ie. those with the funds that just don't want to use them and have shown an ability to save and manage their finances, it will probably be opened up to the masses and we will see those first time buyers with little or no savings and now nothing in the deal buying the biggest house they can get. Are we just setting up for a crash in the future?

Why not do something simpler like making the tax credit available to anyone purchasing a 1-4 unit property. Whether a fist time buyer, owner occupant or investors. Even if it is not forgivable by opening it up to a greater list of buyers you will help eliminate the inventory of unsold house.

It's simple economics, supply and demand.

The Los Angeles City Council has made it illegal for mortgage and real estate brokers to charge an upfront fee when offering to help distressed homeowners obtain loan modifications. So why is this important? Because it basically puts these companies out of business.

Once a mortgage is modified, how would a loan modification company expect to get paid? There is no escrow company and generally the people are not bringing money to the table. The lender is certainly not going to become the collection agent for the modification company. Oh yeah, they could sue them in court or threaten to put a collection account on their credit which would harm their credit score.

That's too funny. You thing these people would care if their credit get trashed?

While there are scam operation out there, unfortunately the LA City Council has painted a broad brush that included legitimate operations. In the LA times it said: “Some of the services are legitimate, officials said, but others are not.” So we just make them all illegal. That makes sense!!

The real looser here will be the residents of the City who will no longer have access to firms that may be able to help them. While they can still try and work with the Government HOPE hotline at 888-995-HOPE. Last I heard they were getting somewhere around 13,500 calls per day. I'm sure they won't mind sitting on HOLD. Once they reach someone do they actually think they will be able and motivated to work on THEIR case.

The city would be better off trying to regulate or better yet, enforce the current laws than alienate an industry. Unfortunately if your don't pay your mortgage, you may have to pay someone to help you solve the problem you caused.

Why wouldn't they? Nobody is going to introduce a bill for higher mortgage rates. It's just like all those bill that were proposed to eliminate Predatory Lending. Gee who wouldn't vote for that.

But what does it mean?

1) Mortgage services get some incentive and protection to try and work more with borrowers? -Good
2) Requires mortgagor certification to HUD that the mortgagor has neither intentionally defaulted on an existing mortgage, nor provided false information, nor (as under existing law) been convicted for fraud during the 10-year period ending upon the insurance of the mortgage under this Act. -- This pretty much handles all those "Stated Income" Loans. If you lied on your application about your income then you don't deserve the help. Let's take a look at those tax returns verses the loan application to see if there is some differences.
3) Bans from the HOPE program mortgagors whose net worth exceeds $1 million. -- Ok so rich people don't get the deal. Probably shouldn't have defaulted.
4) Authorizes the Secretary to establish a payment of up to $1,000 per insured loan to the loan servicer of the existing senior mortgage for every loan insured under HOPE. -- not a huge incentive but at least it is something.
5) Directs the Secretary to establish, if feasible, an auction to refinance eligible mortgages on a wholesale or bulk basis. -- at least they put in the feasible statement. Can you picture Christies packed with people for this auction. 2,2,2% ,now 1, how about 0% any takers
6) Nationwide Mortgage Fraud Task Force Act of 2009 - Establishes in the Department of Justice the Nationwide Mortgage Fraud Task Force to address mortgage fraud in the United States. -- Nothin' like big government. Yeah let's create another department -- that always works.
And my favorite to points for last:
7) Expresses the sense of Congress that mortgage holders, institutions, and mortgage servicers should not initiate a foreclosure proceeding or a foreclosure sale on any homeowner until foreclosure mitigation provisions of title II of this Act, and the President's "Homeowner Affordability and Stability Plan," have been implemented and determined to be operational.

8) States that the foreclosure moratorium should apply only for first mortgages secured by the owner's principal dwelling. Sets forth duties of the consumer to maintain property and to respond to reasonable inquiries.

Let stop everything and let people live for free in homes they could not afford until we see if government plans are working. Then we can pump all this property on the market that should have been foreclosed on and see how it affects things. And by the way Mr. In Forclosure who can't afford to make a payment... be sure that you cut the lawn and keep the place looking neat.

This was such a common sales pitch to many subprime borrowers, "This is just a band aid loan". "We'll just refinance you in a couple of years once your credit clears up." The problem is that there is no way to refinance most of these folks.

Now the problem has hit the jumbo market as well. Since Jumbo mortgage were not sold to Freddie Mac or Fannie Mae there is hardy a market left for buyers of these types of mortgage on Wall Street.

[Borrowers] are becoming trapped by the same issue facing the poorest subprime homeowners: falling home prices erase equity and make it impossible to sell or refinance without losing money.
The number of U.S. homes valued at more than $729,750, the jumbo-loan limit in the most affluent areas, entering the foreclosure process jumped 127 percent during the first 10 weeks of this year from the same period of 2008, data compiled by RealtyTrac Inc. of Irvine, Calif., show. The rate rose 72 percent for homes valued at less than $417,000 and 78 percent for all homes, RealtyTrac said.
“It’s the trickle-up effect,” said David Adamo, chief executive officer of Luxury Mortgage Corp., a home-loan bank in Stamford, Conn. “Just like homeowners in smaller homes, these homeowners anticipated being able to refinance mortgages to continue making payments and at a future date sell for a gain and put it toward their next home. That strategy backfired when the market for jumbo mortgages dried up.”
……..

Many of these borrowers took out loans they really could not afford. Loans like ARM's with low teaser rates or Pay-Option ARMs where they did not even make payments that covered the monthly interest. These people committed financial suicide when they signed their loan documents. Most should have know better but they let greed and keeping "up with the Jones" drive their decisions to live in McMansions. Others have had unexpected things happened to them such a job loss or illness but I would venture that the majority just bought the biggest house they could get at the time.

As more of these jumbo loans default, prices will continue to drop and Banks will continue to have losses. It's a simple supply and demand equations with the job outlooks as the wild card.