Check it out

If you’re buying or selling real estate in El Dorado County, you should become acquainted with the property information resources available at the county offices. Whenever I am hired to sell a property or representing a buyer with their purchase, I start with a visit to the county offices. Every home has a hidden story and part of that story is filed away in the county’s archives.

The County Tax Assessors Information is usually the first piece of a property puzzle and easily collected on the county’s web site. In addition to the assessed value, I can quickly verify property information such as: size of the property, number of bedrooms, baths, zoning, the previous selling price, the original amount of the recorded mortgages and historical sales information. A last name or property address will produce a plethora of recorded information about any property in the county.

Not all property information can be found on the county’s web site. If the property is serviced by an individual well and septic system, a trip to the Department of Environmental Management is required. For a small fee, county staff will furnish copies of any information that they have on these two important systems.

The location of a well is easily identified when previewing a property but its most critical characteristics require additional scrutiny. Where is the well location in relationship to the septic tank and disposal field? What are the well depth and its production? Has there been a bacteria analysis of the water? The county, prior to 1990, did not always require well drilling permits but well drilling informational filings were a requirement by the state Water Resource Board located in Sacramento. The Board’s information is confidential and even with a property owner’s permission the filing information is difficult to locate.

Currently, the county does not require a well inspection or potable water sample upon the sale of a home but should and probably will in the future. Although regulations have not been implemented, our county’s General Plan requires safe drinking water for all county residents. A well inspection, production flow test and bacteria analysis insures that a property has an adequate water supply and is free from obnoxious microorganisms. Investigating only the past history of the well, however, is no guarantee of its current condition; subsequently, a well inspection should be on every homebuyer’s checklist.

Septic systems in various forms have been around for a few thousand years and 33,000 exist in our county. Like wells, the location of the system, including disposal fields, is important. Over the years, the septic tank location may be forgotten and disposal fields become gardens and pastures. As long as the system is functioning properly, they are mostly forgotten. Disposal areas should remain undisturbed but I frequently discover they are fenced for livestock, driveways cross over them and I have seen barns and other outbuildings built above them.

The county has information on some septic systems dating back to the 1960s. More detailed engineered systems and permits have been a requirement since 1990. Like wells, the county does not require periodic inspection of a septic system or certification upon a sale but every buyer should. The system must first be located, the tank risers or opening exposed and the septic tank pumped prior to a though inspection by a courageous qualified individual.


After collecting any available information on the well and septic, an interested party will want to preview the Department’s soils map. Serpentine is a common green rock common in 44 of 58 counties throughout the state including El Dorado. Our official state rock contains asbestos, a natural mineral fiber used in many commercial applications including insulation and fire protection. Although there are no known state or federal standards for quantifying the potential risk associated with prolonged exposure to naturally occurring asbestos, research has shown that breathing high levels of the fibers isn’t all that healthy. The California Air Resource Board found that most people living in the county are not exposed to significant risks of naturally occurring asbestos but areas located near dusty roads, old quarries or veins of asbestos may have a higher content of the noxious fibers in the air. A quick check of the soils map may help you breath a little easier.

The county has been requiring some type of building permits since 1961. Over the years the permitting process has become more complex, comprehensive and expensive resulting in many homeowners bypassing the permitting process entirely. I once came across an entire house that was built without any permits. Unpermitted barns, decks, workshops and even room additions are not uncommon. When selling a home, sellers need to disclose any unpermitted work but often sellers are not aware of a homes previous history. Fortunately, the County Building Service Department maintains the historical building and permitting records on most homes. In addition to reviewing permitting history, a check of the property file will reveal any outstanding issues such as a notice of non-compliance, expired permits or permits issued but not finalized.

If I am researching a rural property or one with questionable lot lines or easements, a stop at the County Surveyor’s office is in order. The Surveyor’s office reviews all parcel maps, corner records and lot line adjustments. The office also issues “Certificate of Compliance” certifying a parcel of land is in compliance with the Subdivision Map Act and local ordinances.
Performing a thorough property investigation will prevent costly mistakes when making a buying decision. It may be okay to buy a property that has defects and unresolved issues but buyers should know the full story before writing the check.

Adjustable rate tax payer bond

Politicians have been quick to point the finger of distain at the lowly adjustable rate mortgage. How could mortgage brokers and lenders be so callused and greedy as to put borrowers into this financial calamity?

Borrowers were offered an initial low teaser interest rate allowing them to qualify for a home loan. Later the low interest rate would expire and ratchet up, increasing interest payments by hundreds of dollars a month. Adjustable loans were an oncoming train wreck for borrowers. Between 2005 and 2006 one-third of all mortgage loans were adjustable rate loans.

Hillary Clinton has proposed freezing the interest rates on all adjustable mortgages for five years. Many lenders have stopped offering adjustable rate mortgages and 80 different state, federal, and private agencies have been formed over the last year to assist borrowers who have these toxic loans.

But wait a minute. Our elected and appointed county officials also favored the adjustable interest rates over fixed rates and is now costing taxpayer hundreds of thousands of dollars in increased interest payment. Monday, the Sac Bee published a story in their Business Section about a monthly $500,000 increase in a single bond fund. The increase was the result of the interest rate jumping from 6.5 percent to 8.5 percent on a $346 million Sacramento County obligation bond.

The bond is (or was) a popular class of variable rate bonds (another nomenclature for adjustable rate) called auction-rate securities. The interest rate hike has resulted in the county’s monthly interest obligation to climb from $1.77 million to $2.29 million. Where is the outrage? When does the investigation begin? How could our smart elected officials and astute financial managers be so naïve as to finance long-term county obligations with adjustable rate securities? And how many other county bonds were financed with adjustable rate securities? Sacramento’s debt officer, Chris Marx, said of the $500,000 monthly increase in payment “it is within budget parameters.”

Easter New Beginnings

Forty years ago today, I was in Daytona Beach with a few other school buddies. We had taken our quarterly exams at the University of Florida and left Gainesville early, headed for the beach. I owned a 1965 Opal station wagon that would seat six and carry our surfboards tied to the luggage rack.

Thirty years ago this week, I had signed the a contract with Century 21 Real Estate Corporation to acquire the first Century 21 real estate franchise for the state of Alaska. Century 21 pioneered the real estate franchise concept in Southern California. At the time there were no franchises in Alaska but I thought the concept of a national affiliation was worth the investment. Within 5 years Century 21 had 7,000 real estate offices in the US and Canada and between 1981 and 1985 our office was the top producing sales office in the country.

Twenty years ago I was in negotiations to sell my Independent real estate and financial services corporation. At the time we had six offices and 200 agents and employees. I was also involved in commercial and land development, served as Vice Chairman of the Alaska Real Estate Commission and Vice Chairman of the Alaska Housing Finance Commission.

In the spring of 1998, Vicki and I completed the sale of our interest in a small mortgage bank in Rancho Cordova and we decided to work from our home in Pilot Hill. Vicki is still making pottery that is featured in several galleries and gift shops in the foothills and I continue my small individual practice of real estate and mortgage loans. We have no idea where the path of life will take us but eagerly look forward to the many twists and turns along the way. Spring is an exciting time of the year and we wish you and your family a Happy Easter and wonderful new beginnings.

Employment up for January

Last month I chastised the Sac Bee for sensationalizing the California jobs report for January. Their front-page (above the fold) weekday story had to do with the disappearance of 29,000 jobs for the month. The writer’s slant was: jobs would continue to disappear, unemployment would continue to rise, the sate was in a recession and our economy was on the verge of collapsing. It was all a little too much subjective hyperbole (should normally be located on the editorial page) for what should have been an objective reporting of the facts.

Jobs traditionally are off in January as they are traditionally up in December. Many seasonal temporary employees are hired in December and discharged in January. I further pointed out that the employment number would look better the next month and when they picked up, the favorable news would be reported some other place than a front page cover story.

I was not disappointed when the Bee in their Section D on Saturday (slowest readership day of the week) reported 25,600 jobs were created in February according to the Employment Development Department. The state’s unemployment rate fell to 5.7 percent. The Sacramento Region gained 3,000 jobs and unemployment also fell to 6.2 percent. Employment gains were reported in 8 of the 11 major economic sectors including construction. Our economy is certainly not as rosy as it was a year ago. We still have some tough times ahead in the financial, real estate and construction sectors. The economy passes through normal economic cycles and it is important to keep all things in proper perspective. If the loss of jobs in January merits front-page weekday headlines shouldn’t the addition of 25,000 jobs in the short month of February get the same attention.

National sales increase for month

We don't want to overplay the significance of this, but we actually got some positive economic news this week: Sales of existing homes last month rose for the first time in half a year, adding fresh evidence that the housing cycle may finally be bottoming out after nearly three years of correction.

The national gains in resales announced on Monday were not huge 2.8 percent for single family homes and 3.7 percent for condominiums. Total sales hit 5.03 million units, though Wall Street economists had predicted another DECLINE to a consensus estimate of around 4.8 million units. So breaking the 5 million mark is pretty good, given where we are in the overall economy.
Now in fairness, the latest sales gains were accompanied by a decline in the national median price of homes sold down by 8.2 percent from year-earlier numbers. You might think an 8 percent drop in prices is terrible. But let's face it: The only way we're going to burn off that 10-month overhang of unsold houses on the market is through more affordable, more realistic prices pulling buyers off the sidelines.

There's another factor at work pulling down the national median number: Relatively more houses are selling in places like Texas, North Carolina and Utah, where prices are moderate and affordable, while there are relatively fewer sales in ultra-high-cost California. So the median price may be lower, but it's not just because home values across the country are crashing. The mix is different, so the median price is a lower number.

Low-cost mortgage money is also definitely helping to fire up sales. Average 30-year rates declined to 5.875 percent last week -- and any time mortgage money is under 6 percent, you're going to see more homebuying.

By the way, sales in California, which have been a leaden weight dragging down national market numbers for more than a year, are likely to improve in the coming months as the new "super-jumbo" FHA, Fannie Mae and Freddie Mac mortgages start hitting the street.
FHA's mortgages should be especially popular in California, where the median home price in some local areas like San Francisco exceeds $700,000. Thanks to FHA's low 3 percent minimum downpayment requirement, Californians should be able to buy a $700,000 house with just $21,000 down -- and walk away with a 6.5 percent 30-year fixed rate. Fannie Mae and Freddie Mac, by contrast, want a minimum 10 percent down for their new jumbos. So let's take our good news about sales and interest rates … and look to better days as the Spring buying season kicks off.

Californina sales drop in February

Home sales decreased 28.5 percent in February in California compared with the same period a year ago, while the median price of an existing home fell 26.2 percent, C.A.R. reported Monday.The median price of an existing, single-family detached home in California during February 2008 was $409,240, a 26.2 percent decrease from the revised $554,280 median for February 2007, C.A.R. reported. The February 2008 median price fell 4.8 percent compared with January's revised $429,790 median price."Although sales rose for the fourth straight month in February by 9.5 percent compared to the previous month, they continue to be dragged down by the ongoing effects of both the credit/liquidity crunch and tighter underwriting standards that have reduced the pool of qualified buyers who can obtain a loan," said C.A.R. President William E. Brown.

NAR Report

The U.S. Census Bureau and Housing and Urban Development Department on Wednesday released new-home sales statistics, which reveal that the slowing in housing sales inflated the supply of for-sale housing in January to its highest level since 1981.
Sales of new single-family homes fell to the lowest adjusted annual rate in about 13 years in January. And new homes spent a median 6.7 months on the market in January, which was the lengthiest time on market since May 1992, when the agencies reported a median 7.1 months on market.

Meanwhile, the National Association of Realtors has reported that the median price of single-family resale homes dropped 5.1 percent in January compared to the same month last year, with total sales for all resale home types dropping 23.4 percent.
U.S. foreclosure activity in January, as measured by the volume of total foreclosure filings, rose about 57 percent compared to January 2007, real estate data company RealtyTrac reported. And NAHB reported earlier this month that median-priced homes in about half of the 220 U.S. metro areas included in a housing affordability index study were unaffordable to median-income households during fourth-quarter 2007.
The U.S. home-ownership rate fell during the fourth quarter to 67.7 percent, which continues a slide that started in third-quarter 2004, and the wave of mortgage foreclosures that is a contributor to that decline "are sure to extend through 2008 and into 2009," Seiders wrote in the report.
Rate cuts by the Federal Reserve should continue in upcoming meetings in March and April, according to the report, "and the Fed could deliver even more monetary stimulus if conditions warrant."
He states that the Economic Stimulus Act of 2008, signed by President Bush on Feb. 13, does offer some glimmers of hope, as its temporary increases in loan-size limits "are bound to help the housing market in high-priced areas (like California) to some degree," though "it remains to be seen how much additional home buying will be stimulated over the balance of the year."
The report adds, "Expiration of the higher limits at year-end figures to be a serious problem in the likely event that the private secondary market for jumbo loans still is not functioning properly by then."And Seiders suggests that tax incentives for home buying could offer a boost to the housing market, if "coupled with policy measures that enhance the availability of mortgage credit," via federal and state housing finance agencies.

Spring forward

Real estate activity will start picking up this spring as first time homebuyers and investors begin making deals on bank owned homes. There are a number of reasons besides the longer daylight hours and hint of spring for my cautious optimism.

It has taken a year but lenders are finally getting organized. Banks deal in money, paper and credit pretty well. They buy and sell notes, service mortgages, extend lines of credit and pay and collect interest for the use of money. But they do a poor job of liquidating a large number of properties scattered around the country. Lenders were not prepared for the extent of the mortgage default crises and don't have the expertise or other resources necessary to manage a large number of foreclosures. A cautious beauacratic mentality is an asset when managing other people's money but a liability when attempting to make quick decisions and deals on real estate. They are learning.

Lenders have increased their staff of asset managers and are discovering what's required to sell homes in different regional markets. They are conditioning some properties, discounting the price of others and discovering which real estate brokers they can depend upon for honest advice and results. It has been an extended learning curve for lenders but starting to pay off with increased sales.

In addition to cutting their loses by selling foreclosed homes at discounted prices, lenders are doing what they can to prevent owning another one. Earlier this month Henry Paulson, the Treasury Secretary and Alphonso Jackson, Secretary of HUD, announced yet another new program to stem the tide of foreclosures. "Project Lifeline," is designed to keep seriously delinquent borrowers in their homes. Six of the country's largest financial institutions, representing over half of all home mortgages, have initiated measures that allow borrowers 90 days or more delinquent, the opportunity to put the foreclosure process on hold while lenders look for a way to make the loan more affordable. The program is an alternative to foreclosure for anyone serious about keeping their home.

The economic stimulus package will make it easier to buy or sell a home by increasing the conforming and FHA lending limits. Congress sets the maximum "conforming" loan limits for loans purchased by Fannie Mae and Freddie Mac and "government" insured loans for FHA. Currently, the maximum conventional loan limit is $417,000. Conforming loans receive the best interest rates while loan amounts above the Congressionally set maximum, considered "jumbo loans," carry substantially higher interest rates. The economic stimulus package will temporarily increase the maximum loan limits for conforming loans to $729,750.

The increase in the maximum loan limit will decrease the interest rate on home mortgages under $729,750. It will also help existing borrowers who currently have high interest jumbo loans and may want to refinance to a lower interest rate under the conforming loan program. Jo Perkins, president of the Home Building Association of Northern California, estimates an additional 350,000 homes nationally will be sold or about $44 billion in economic activity from this stimulus.

The new loan limits will not be much help for Sacramento County or the Central Valley where the average selling price of a home is under $350,000 but many other areas of the state have significantly higher average home prices including El Dorado County. Our county would also benefit if more Bay Area sellers could sell their home and become potential buyers for El Dorado County.

A sign of light at the end of the dark housing tunnel is the affordability factor. California housing is still the most expensive in the country but it is becoming more affordable. Our current housing situation was the result of many factors; one was the price of an average home became too expensive for entry-level homebuyers. The affordability factor dropped to the lowest level in 2006 when only 25 percent of California first-time families could afford to buy a home. This year the index has jumped to 33 percent. More potential homebuyers will translate into increased sales.

Another factor that got us into trouble was the excessive exuberance of the building industry, by publicly owned corporations based outside the Capital Region. The building industry over the last 25 years has transformed from small local builders who reside and work locally, to national corporations and their land development subsidiaries. These large national firms have capital commitments totaling millions of dollars, extending years into the future. Their stockholders and share price are driven by increased production, which lowers the cost of every home built by creating certain economies of scale and therefore increased profitability.

With evaporating profits from selling new homes below cost, builders are beginning to realize that less could be more (less building = more profit). Builders are reevaluating their expansion plans. They have put many projects on hold, downsized their existing commitments and are allowing options on land previously designated for development to expire. Large corporations have a tendency for inaction when adjusting to a changing market and usually over compensate when they do. Don't expect a shortage of new construction in the future but standing inventory is half what it was 1-year ago. In the immediate future, builders will be more cautious about out-producing sales. Fewer new homes will be less competition for existing ones.
If interest rates remain under 6 percent, home sales will start improving this spring. Savvy investors are already taking serious interest and many of my colleagues are reporting first time buyers are making great deals on well-priced bank-owned homes. It's going to be a long way back for real estate but should start this spring.

Economist for builders speaks out.

The chief economist for the National Association of Home Builders, in his latest annual forecast, said he expects total housing starts to fall 25 percent this year, with single-family starts plummeting 31 percent. The decline will be steeper in the Capital Region. "We still expect starts to begin edging up in the final quarter of this year, but we've also trimmed the outlook for 2009," Seiders stated in a forecast report released last week.

Seiders acknowledged that there is "a nearly even chance" that the economy will slip "into the red zone during the first half of the year." He anticipates "further deterioration of labor market conditions in February, and the unemployment rate almost certainly will be moving up in coming months." He also expects gross domestic product growth of less than 1 percent in the first half of 2008, "and a mild recession certainly is possible during that period," the report states.

A record volume of vacant homes for sale "inevitably will put persistent downward pressure on home prices, further sapping the quality of outstanding mortgage credit and making it even more difficult to refinance or restructure adjustable-rate mortgages facing payment resets," the report states. Financial market turmoil is continuing, Seiders noted, as "the stock market is being battered and the markets for longer-term credit remain under considerable strain.
"The freezing-up of private securities markets, both here and abroad, has shifted credit demands to government-related securities markets and to depository institutions -- resulting in higher loan volume and pressures on capital positions at the depositories."The banking system will have to take up a good bit of the slack in the credit creation process." That has led the banking system to tighten lending standards, which has "afflicted all components of the conventional home mortgage market," he stated in the report.

No to refinancing option

Last week I received a number of calls from past clients asking me about refinancing their existing home loans. I told each one the same. No, I wish I could help but the recent changes in loan underwriting guidelines and the decrease in your home’s value will not allow you to take advantage of the lower interest rates.

As I have written before in this column, the Federal Reserve Discount rate does not directly apply to residential mortgages. Unless you are a federally chartered bank or S&L the Federal Funds rate will not affect you immediately. The interest rates on 30-year home mortgages actually increased after the Feds lowered their rate. The rate that the Federal Reserve charges member banks will have an affect on home equity lines of credit and maybe long-term mortgages in the future but not immediately and not directly.

Here are three examples why I am saying no to clients who want to refinance.

I helped Gary purchased a home in Roseville several years ago for under $200,000. Three years ago Gary decided he needed a larger home but he decided to remodel and add a room addition rather than buy a different one. To finance the remodel and room addition, Gary took out a $125,000 home equity line of credit. Now, he was interested in paying off the line of credit with a total refinance of both mortgages. This would convert the adjustable interest rate home equity loan to an amortized fixed rate and he could take advantage of the 5.5 long-term interest rates.

A refinance didn’t work for Gary. Here’s why. Lenders treat paying off a Home Equity Line of Credit as a “cash out refinance.” Refinancing to obtain a lower mortgage rate “Rate & Term” is considered a prudent financial move and lenders offer their lowest interest rates. But refinancing to pay off consumer debt or when converting a home’s equity to cash for other uses, is considered a “cash out” refinance and lenders charge higher interest rates and demand a borrower have a higher equity in their property.

A year ago “cash out” refis were common regardless of a homeowners equity position. Today, lenders require a borrower have a 25 percent equity position in their home. With Gary’s $125,000 home equity loan he did not have sufficient equity to warrant a refinance even at a higher interest rate.

Joan called about refinancing. She had purchased her home in 2005 with a 5 percent down payment. Her low adjustable rate was still fixed for another two years but she wanted to convert the entire loan to a fixed-rate now before the interest rate increased in another two years. I did a search of recent neighborhood sales and informed Joan that her house was worth about what she had paid for it back in 2005. Since she did not have sufficient equity, she could not refinance.

Bill is an investor that I had helped find a rental in early 2006. At the time and against my advice, Bill wanted a 90 percent adjustable rate loan with an interest start rate of 1 percent. This would allow him to have initially low payments for a year or two until he sold the house at a profit. After Bill purchased the property he took out a home equity loan in order to pay off some credit card debt. Now that Bill’s adjustable rate had ratcheted up he was desperate to refinance to a lower rate. I don’t usually remind my clients about not heading my advice but could not resist the urge to remind Bill that we had discussed the potential for this situation when he was considering a mortgage. Few lenders like financing an investment that has a negative cash flow.

There are a number of variables with every loan. Property values and owner’s equity is prohibiting most refinancing. This is a short-term situation. Hopefully, borrowers who extracted cash from their home’s equity loan spent the money wisely. They may be paying the bill for a long time.

More bad news for January

January’s weather isn’t the only thing that’s cold, dark and wet. First the retail sales numbers were reported down for the holiday shopping season. Economists said that Christmas shoppers were dismayed with higher gasoline prices. Spending $50 to fill up your tank of gas is enough to dampen any Christmas spirit. Then the new construction numbers were published by the building industry. It was no surprise that home builders were not building as many new homes. New construction dropped 30 percent from last year.

By mid-month the Realtors reported national and statewide resales lagged behind last year. The Labor Department reported that unemployment increased for December and that started everyone talking about a recession. The discussion of the “R” word caused the stock market to drop and then the new foreclosure numbers got reported by Data Quick.

The number of homes that were foreclosed upon by lenders holding a mortgage in Sacramento County increased 482 percent from 1,283 in 2006 to 7,472 during 2007. Placer County had 1,016 foreclosures in 2007 up from the 171 in 2006 and El Dorado County finished the year with 387 foreclosures up from 41 in 2006.

Across the state, foreclosures totaled 31,676 for the fourth quarter of this year and 84,375 for the entire year. In our 8-county region 1,686 homes were foreclosed upon during 2006 and 10,049 homes were lost in foreclosure during 2007.

In light of all the foreclosures, the median sales price for a home in Sacramento fell to $280,000 in December a 28 percent decline from its peak in 2005. Half of all home sales in Sacramento County are bank owned properties.

In addition to the number of foreclosures, the number of homeowners missing their scheduled monthly payments is increasing. Across the state 254,824 default notices were filed with county recorder’s offices during 2007, up from the 104,977 filed in 2006. In the eight-county region 10,101 notices of default were filed in 2006 and 24,787 for 2007. “We’re still climbing to a peak in foreclosure activity,” said Data Quick analyst Andrew LePage. “We don’t even have a sign of the peak.”
I think I will go back to bed, cover my head and wait for spring.

Weak December sales

The Commerce Department reported that new home sales in December dropped to the lowest level in nearly 13 years. Instead of the million or two we're used to hearing reported at year's end, new home builders only sold about 774,000 new homes in 2007. That's 26.4 percent below 2006, and the biggest year-over-year drop since 1963, when new home sales were first tracked by the government.

Prices fell dramatically in December for both the average (-11.5 percent to $267,300) and the median (10.9 percent to $219,000) price fell 10.9 the biggest drop in prices since 1970. The median is the point at which half the sales are under and half the sales are over.
Completed homes were 40 percent of the inventory on hand, which is a 26-year-high in relation to the pace of sales. There is now a 9.6-month supply of homes for sale at the December sales pace.

The National Association of Realtors had recently reported the first year in decades that the median sales price fell.
New homes costing more than $400,000 fell 50 percent from a year earlier, illustrating that the credit crunch isn't over yet for jumbo loans. And sales financed by conventional loans fell 27 percent. Home sales with VA or FHA loans fell 16 percent. Homes purchased with cash fell 24 percent.

But as bad as all that sounds, things could turn around. Clearly buyers are waiting for prices to come down, but since December, mortgage interest rates have softened a full percentage point to near record lows. Consumers can save approximately $100 a month in payments, and qualify for homes that might have been out of reach a month ago. The government is feverishly working on solutions that will raise the conventional loan limit from $417,000 to $625,000, allowing more people to finance without resorting to jumbo loans. In addition, new home standing inventory has caused existing home sales to soften. If more inventory is absorbed in new homes, that improves the outlook for existing homes. Look for a much better spring. Home sale trends are identified over several months.

Borrowers stuck with existing loans

The National Association of Realtors reports that both sales and prices were down in 2007, but there's another measure, which has also fallen -- and this one is good news.
Interest rates are down. Freddie Mac reports that toward the end of January rates for 30-year fixed-rate financing reached 5.48 percent with .4 points. This interest level is not only ridiculously good when seen in the context of the last five decades; it may also be the key to containing the foreclosure mess.

Figures from RealtyTrac.com show that foreclosures in November were 68 percent higher than a year earlier. No less important, foreclosure numbers are expected to rise because millions of additional toxic loans remain outstanding.

In such circumstances it certainly makes sense for borrowers with exploding ARMs to refinance into stable, fixed-rate mortgages. But many such borrowers have loans where mortgage balances have grown while home values have fallen. Such borrowers can only refinance if they bring cash to the table, cash they don't have. We also have borrowers who paid soaring mortgage costs but skipped other debts. Now with damaged credit, they no longer qualify for the best mortgage rates.

What can be done? Lenders had no trouble changing traditional underwriting standards when it meant big profits, now they're using ignored standards to lock borrowers into high-cost loans. Surely borrowers with significantly-lower monthly payments are a better risk than borrowers who are slowly drifting into bankruptcy. And certainly lenders are best served avoiding the big costs represented by foreclosures. But what if lenders are not responsive to new marketplace realities? Then one very-real possibility is that an inflamed political process will impact the financing arena in a way that will comfort no lender.

A little unreported good news

If you stand back and only look at the negative economic and housing news this week, you might feel a bit numb -- and a little discouraged. But if you focus on the bigger economic picture, you might be surprised at some of the good news that's lurking out there -- especially the forward-looking factors.

On the negative side, you probably know the numbers: New homes sales down 4.7 percent in the latest month. Median home resale prices down 1.8 percent for the full year of 2007 -- the first times prices have dropped on a national basis since 1968. Foreclosure filings up 75 percent for the year, leaving dozens of major markets clogged with bank-owned real estate for sale at depressed markets.

What about the positives? Some of them are probably in the category of "news you never heard about because it never got reported." For example: The most comprehensive national index measuring home price movements, covering almost 7,500 Zip codes and 662 counties in all 50 states and the District of Columbia -- the First American-Corelogic Index -- found prices flat or positive in 31 of the 50 states.

The national numbers are being dragged down primarily by sizable declines in a couple of big states: California and Florida, along with Arizona, Nevada and -- here's a little surprise -- Rhode Island. Among the 60 percent of states with positive performance are the current top performers of the pack: Texas, Utah, New Mexico, the Carolinas and Montana.
Then there are what we call the forward-looking factors: Mortgage interest rates continue to hover just above 40-year lows and the Federal Reserve keeps pushing down short term rates -- twice this month alone.

The economic stimulus package coming from Washington by mid February should be another plus: It promises to raise loan limits for Fannie Mae, Freddie Mac, and FHA well above $600,000 -- maybe even higher than $700,000.
According to estimates from the National Association of Realtors, pushing the limits to just $625,000 could stimulate 350,000 more home sales this year alone -- and lead to $44 billion in new economic activity -- all with no expenditure of taxpayers' money. How about THAT for a cost-efficient stimulus plan for real estate?

Market turn-around

Legend has it that if the Groundhog emerges from its borrow tomorrow (Groundhog Day, February 2nd) and fails to see his shadow, winter will soon end. But if he sees his shadow he will return to his burrow and winter will last another six weeks. Foreseeing the end of our chilly real estate market should be so easy as predicting the winter forecast in Punxsutawney, Pennsylvania. Despite all the negative publicity from the national press, most people are beginning to ask “when” and not “if” the real estate market will turn around. That’s actually a good first sign but there are other indicators of when the real estate market will find its floor.

This is my fourth market correction in 35 years of practice. They all have similarities but a specific predetermined termination date isn’t one of them. Nobody blows a whistle and yells “End of Slump… Time to buy”. Free markets are as unpredictable as the weather can be in the foothills and I have seen narcissus bud in a February’s frost, snowflakes during an Easter weekend and cherry blossoms in early March.

Attempting to buy a home at exactly the bottom of the market isn’t always possible. Life’s major decisions are made despite economic cycles. Families grow, incomes improve or decline, we move for environmental, health and economic reasons. Forrest Gump puts things into perspective in the 1994 Tom Hanks movie, when he said “Life is like a box of chocolates…you never know what you’re gonna get ”. Although we all understand the concept of buying low and selling high, most homebuyers cannot put their life on hold while waiting for the official end of the real estate slump.

There are a number of prospective homebuyers waiting for some significant event or official pronouncement before they commit to buying a home. Obsessed market-timers usually wait too long to buy and miss out on current opportunities under their noses. Making money in real estate is not all about when you buy or sell but often how long the investment was held. We have yet to see any signs that the real estate market is seeking equilibrium but here are a few traditional and non-traditional turnaround indicators that I will be looking for this year.

When the number of homes for sale starts declining, it’s a good sign that the market has ended its trip south. When housing inventory is leaving the market faster than it is being replaced, it indicates that the best listings have already been sold. It also may indicate that discressionary sellers have decided not to panic and move but to remain in their homes. The record number of listings that we have witnessed in the county throughout 2006 and 2007 is partly responsible for driving down selling prices. When inventory declines, prices will rise.
The average time it takes to sell a home is another gauge of the strength of the market. Currently, our multiple listing service has no accurate information on the actual time it takes to sell a listing. If one agent has a listing for six months and it fails to sell and then another agent lists the same property and it sells in 60 days, the time it took to sell that property is reported as 60 days. It should have been eight months. That inaccuracy of reporting market time will be corrected. When it does, we will be able to obtain an accurate average time that it takes to sell an average home. The fewer days required, the better the market.

One of the first signs of declining interest in a new home development appears when builders begin to offer incentives to their buyers. Many builders begin by crediting buyers for closing costs if they use the builder’s in-house lender for a mortgage. Then landscaping and builder interior upgrades become popular. Soon, builder incentives become a creative free-for-all with offerings ranging from new SUVs to swimming pools. When elaborate builder incentives begin to disappear, the market has turned.

Tracking the county’s average monthly selling price might appear to be a good idea in judging the market but averages can be deceiving. Just as individual stocks will decline while the composite indexes are rising, so will individual house values rise and fall despite statistical averages. Higher end home sales have held up the county’s average selling price. A better indication of market turn-around would be the relationship between the listed price of a home and its sold price. When homes begin to sell closer to their listed price, the market is on the mend.

In addition to traditional market trackers, here are some other indicators that the market has bottomed out. When your neighbor, who got into the real estate or mortgage business within the past four years, tells you that they are getting out of the business, the market will start improving. When you no longer get phone calls or e-mail from lenders soliciting your refinance or home equity loan, it’s a good sign.

When an entire month passes without the evening news featuring some poor soul loosing their home to foreclosure, you know things are improving. When home prices are not the favorite topic of water-cooler chatter, it’s getting better. When you hear first time buyers talking about saving for a downpayment or paying off their credit card debt in order to buy a home, the end of the correction is at hand.
A more stable real estate market is likely to occur within the next 18 months. The exact time is uncertain but its occurrence is as certain as spring in the foothills.

Still the best investment

If more people thought of their home as a place to live, rather than a financial investment there would be a lot less turmoil in the real estate market. Despite what Wall Street wants you to believe, owning a home isn’t the same type of investment as owning stocks or bonds. A homes value can’t be totally calculated as a percentage point. Thinking of the family home as an investment opportunity is partly to blame for our current predicament. It’s confusing to view homeownership and high-risk investments as the same. Owning a home requires an investment of money but is more than a financial transaction. It’s a use asset. No other investment vehicle provides us as many tangible and inherent benefits.

We seem to be using the term “investment” more often and for more things that traditionally have been considered an expense. Purveyors of goods and services have discovered Americans prefer to use the term investing when parting with their hard earned dollars. It somehow justifies our purchase if we are investing rather than spending. So we no longer spend money on anything; we invest it. Today we invest in clothes, entertainment-technology, health care and beauty products. Is buying an expensive car really an investment or just an expense? What about my wine collection?

Owning a home is both an investment and an expense just as it is an asset and a liability. It’s a hybrid. Owning a home isn’t as risky as owning stock in a subprime mortgage company but having a mortgage is a greater responsibility than owning common stock. An investment in a home has more in common with an investment in a savings or retirement account than it does with day trading in stocks. It’s a long-term commitment. Tracking the monthly percentage increase or decrease of the national housing market and then relating it to an individual property is fruitless and frustrating. Every home is unique and a personalized use investment.

Some real estate purchases are indeed traditional financial investments. Buying vacant land, rental or commercial property for future resale value or income production should be strictly an objective financial decision. A true real estate investor will analyze income and expenses of a property to make a determination as to its value. Investors are objective when deciding where to invest their dollars while homebuyers make subjective decisions based on personal preferences.

My stock portfolio averaged a 6 percent return last year. I have had better years but worse also. My home value fell too but overall I think I did better in my home than in mutual funds, here’s why. I have never seen one of my stock certificates but I have seen some beautiful sunsets from our back deck. I have never visited the corporate offices of any of the companies where I own stock but I have walked peacefully through our pasture and oak woodlands. I don’t know any corporate executives of publicly held corporations but I know all my neighbors by their first name. I have never been to a shareholder’s meeting but I have never missed a neighborhood picnic. Experiencing life at home is worth more than a positive decimal point on a balance sheet. In addition to lifestyle, here are a few other differences to think about when comparing a traditional financial investment to owning a home.

Years ago I purchased a substantial number of shares in a high tech company that was on the verge of going public. Prior to their public offering and my “guaranteed earnings”, the CEO skipped the country with his self-proclaimed severance package and my money. The company declared bankruptcy, dropping my stock value to zero in an afternoon. Barring catastrophe, a homes value will never be as worthless as was my high-flying stock. Long-term value and the security of a real estate investment are well worth occasional fluctuations in home prices.

Controlling one’s investments is a comforting feeling. When buying stocks you put all your money into a company and have no influence or control of its direction. You’re paying some CEO 500 times the average worker’s salary for results that you would lose your job over. Homeowners have complete control of their investment making decisions. We determine when to buy, sell, improve and expand our home. The only board of directors we need to answer to is our family members.

Leverage is another investment advantage. With stocks, all of your investment ends up owning a small piece of the company. With real estate, a buyer is able to own 100 percent of the investment for often a small downpayment. There are still many loan programs available that offer 100 percent fixed rate loans. A few will even advance the closing costs.

Buying stocks provide no tax advantage, while buying a home has several. What other investment can you purchase by using none of your own funds, be provided a federally subsidized below market interest rate loan, reap all the appreciation, deduct all interest and taxes during ownership and when you sell, pay no capital gains. The federal government subsidizes homeownership and farmers. If you’re not one, you should be the other.

Chance of market declines

Mortgage Insurance Companies make money by providing mortgage insurance to borrowers who have less than 20 percent for a downpayment on a home. They pay money out to a lender when a borrower defaults on a loan for a percentage of the lender’s loss. One of the largest mortgage insurance companies is PMI. They produce a quarterly report with their best guesstimate as to the direction of the real estate market.

PMI's Winter 2008 U.S. Market Risk Index showed a greater than 50 percent chance of price declines in 13 of the nation's 50 largest housing markets, up from 10 in the previous quarter.
PMI said some of the increase in house-price risk was due to changes to its model, which now includes data on foreclosure rates provided by the Mortgage Bankers Association. But in many cases, higher risk scores reflected "a significant deterioration of the housing market in the third quarter."

There is a "high likelihood that home prices will be lower in many of these MSAs two years from now," the report said. Although the number of MSAs with relatively low home-price risk continues to outnumber those with relatively high risk, that could change if the economy and financial markets worsen further, PMI warned.

All but two of the 13 highest-risk markets were in California and Florida. In California, the report noted, markets in the Central Valley and Southern California are weaker than those in the Northern California MSAs, where employment continues to be strong.
The metropolitan statistical areas (MSAs) with the highest risk scores were Riverside, Calif., where PMI forecasts a 94 percent chance of a two-year price decline; Las Vegas (89 percent); and Phoenix (83 percent).

Markets that saw significant price increases from 2002 to 2005 are "at much higher risk of price declines" than those where prices appreciated more modestly, said David Berson, chief economist for PMI's parent company, The PMI Group Inc., in a statement.
Although housing affordability improved in 161 of 381 MSAs studied, it declined in the remaining 220 markets. Nationwide, the affordability index was 95.53, compared with 95.96 in the second quarter of 2007.

The number of MSAs experiencing year-over-year price declines during third quarter -- 89 -- was also up from 67 in the previous quarter, the report said, citing numbers from the Office of Federal Housing Enterprise Oversight (OFHEO).
Among the top 50 MSAs, the 13 judged by PMI to be facing a greater than 50 percent chance of price declines in the next two years were:

Riverside-San Bernardino-Ontario, Calif. (94 percent)
Las Vegas-Paradise, Nev. (83 percent)
Phoenix-Mesa-Scottsdale, Ariz. (83 percent)
Santa Ana-Anaheim-Irvine, Calif. (81 percent)
Los Angeles-Long Beach-Glendale, Calif. (79 percent)
Ft. Lauderdale-Pompano Beach-Deerfield Beach, Fla. (78 percent)
Orlando-Kissimmee, Fla. (74 percent)
Sacramento-Arden-Arcade-Roseville, Calif. (73 percent)
Tampa-St. Petersburg-Clearwater, Fla. (72 percent)
West Palm Beach-Boca Raton-Boynton Beach, Fla. (71 percent)
San Diego-Carlsbad-San Marcos, Calif. (69 percent)
Oakland-Fremont-Hayward, Calif. (65 percent)
Miami-Miami Beach-Kendall, Fla. (58 percent)

The markets identified by PMI as the least risky, with a less than 1 percent chance of price decline during the next two years, were Charlotte-Gastonia-Concord, N.C.-S.C.; Kansas City, Mo.-Kan.; Austin-Round Rock, Texas; Columbus, Ohio; Cincinnati-Middletown, Ohio, Ky., Ind.; Indianapolis-Carmel, Ind.; San Antonio, Texas; Houston-Sugar Land-Baytown, Texas; Pittsburgh, Pa.; Dallas-Plano-Irving, Texas; and Fort Worth-Arlington, Texas.

Economic considerations

The Commerce Department finally has those much-talked-about Christmas spending numbers. Consumers spend 0.4 percent less than a year ago, the worst consumer showing since June 2007, and that's accelerating fears of recession. We're not there yet, but many pundits believe we're about to be. Consumer spending accounts for approximately 71 percent of the gross national product. If the consumer doesn't spend, the country is headed for recession.

The question is: why are we surprised? Jobs are contracting; unemployment is up half a percent over a quarter ago. Housing is in a holding pattern with the first loss in home prices in decades, and gas prices at the pump have risen 10 cents a gallon in the last two weeks

Energy prices have finally impacted wholesale prices by a whopping 6.3 percent over 2007 -- the biggest gain in 26 years. And it's safe to say that consumers are already feeling it.
Tighter credit hasn't helped. Consumers are no longer able to turn their homes into ATMs unless they have lots of equity and good credit. What the impact will be for spring on the housing market is anyone's guess.

During the last mild recession following the technology stock meltdown and the horrors of 9/11, consumers surprised the economy by cocooning. They made buying a home a statement about needing to feel secure. If nothing else is secure, they want to be secure at home. Those homebuyers kicked off a six-year record-breaking run in housing.

However, unlike the previous recession, inflation is a greater threat this time. Mortgage interest rates aren't as likely to be as obliging as they were in 2002 when new record lows were reached. We're already close to those record lows now. Inflation risks are likely to cause the mortgage bond market to react, and mortgage interest rates will rise. Not by much, but they will rise.
That means homebuyers will need more convincing, particularly that they'll be financially safer in a different home. And that won't be easy to do in a rising interest rate environment. So, home sellers will have to step up to the plate with better prices, more improvements and other incentives. The other possibility is that people could stay put, afraid to make the wrong move. That also could impact housing negatively. Either way, housing is likely to be pivotal in determining whether the economy recedes or moves forward.

Rollercoaster Economy

Rollercoaster aficionados had a field day last week, for up-and-down volatility was the norm, not the exception. Countrywide Financial, the country's largest mortgage servicer, spent most of the week pressuring capital markets with rumors of bankruptcy, but then Bank of America rallied the markets by stepping forward and announcing it was purchasing the beleaguered mortgage giant in a $4 billion stock-exchange transaction.

Earlier in the week, the National Association of Realtors reported that pending home sales decreased 2.6% in November following a larger-than-expected 3.7% gain in October. But the grim outlook was tempered by Lawrence Yun, the NAR's chief economist, who said that “although there could be some minor slippage in the first quarter, existing home sales should hold in a narrow range before trending up.”

The disappointing pending-sales report was further mitigated by good news in the mortgage markets, where application volume – both refinance and purchase – surged 32.2% during the holiday shortened week ending Jan. 4, according to the Mortgage Bankers Association's weekly application survey.

What's more, application activity could surge again in coming weeks, thanks to plunging mortgage rates. By week's end, the prime 30-year fixed-rate mortgage averaged 5.87%, the 15-year fixed-rate mortgage averaged 5.43%, and the five-year Treasury-indexed hybrid adjustable-rate mortgage averaged 5.63%, according to Freddie Mac's weekly survey. Mortgage rates are now at levels unseen since Sept. 2005.

Bank of America's rescue of Countrywide was received positively last week, as it should have been; no one wants to see the country's largest mortgage servicer go under. But there was a disconcerting acknowledgment in the accompanying press release: “The combined company won't make subprime mortgages and will limit its purchases of large packages of loans from other lenders.”

That's too bad, because the current mortgage crisis has never been about subprime mortgages per say: It has been about the pricing of subprime mortgages, which didn't reflect the risks involved. Down payments, interest rates, and fees have to reflect borrower risk. This is the economic rationale for giving someone with an 800 FICO score a 6% loan with nothing down and giving someone with a 600 FICO score a 9% loan with 20% down. That paradigm broke down, and needs to be revisited. As homes become more affordable, the last thing we want is to exclude qualified people from the housing market, and that includes people who only qualify for subprime mortgages. The key to successful lending is to appropriately price the risk of lending. Hopefully more people will embrace that economic maxim once the credit crisis subsides.

Californians dreaming of someplace else to live

My attraction to California began fifty years ago. The Rose Parade on New Years Day brought back old memories of deep snow and long pointed icicles hanging from our farmhouse roof in Northeastern Ohio. Watching the Rose Parade was a family tradition for us and millions of others living in the Snow Belt. After the cows had been fed, the porch and sidewalk shoveled of snow and grandma had her New Year’s goose in the oven, we would all gather around our old 12” black and white RCA TV to watch thousands of smiling Californians parading down the sunny streets of Pasadena. I remembered thinking how much fun it must be to live in such a wonderful land of sunshine, palm trees and parades.

The weather didn’t being me to California but our mild climate has been a historic attraction for millions of people from other states. In addition to our sunshine, greater economic opportunities exist here than any other place in the country. The California economy, as measured by the production goods and services, is one of the top ten economies in the world. The state has an abundance of natural resources, our per capita personal income at $39,358 and median family income of $62,000, ranks high among other states, we are the technology center of the world; we lead the nation in agriculture production and enjoy a diversified ethnicity. So why is it that more people are moving out of California than moving here?

Our state’s population is growing. Its growth, according to state demographer Linda Gage, with the Department of Finance, was the result of 200,000 foreign immigrants (that we can account for) and 565,000 new births. The state’s demographics also show that 238,000 souls permanently departed this life, leaving the state’s population just under 38 million. The annual study by the Department of Finance also showed that 89,000 more people moved out of California than moved here from all other states. What’s up with that?

As an example, Los Angeles County increased its population by 91,000 births and an influx of 70,000 new residents from foreign countries but L.A County experienced a net loss of 115,000 residents to other California counties and other states. Since 2000, a half million more Californians have left Los Angeles County than have moved there from other places. Orange County had 22,000 more people moving out then moving in. Despite our lower housing prices, less congestion and a high quality of life, El Dorado County’s yearly population increase of 2,427 was the lowest in recent history, mostly attributed to 2,022 new births. Last year, according to the U.S. Census, California had the nation’s second largest domestic population outflow. The exodus, according to Gage, is in some ways similar to the early 1990s, when a national recession and tumbling housing market prompted 1.2 million people to move to other states.

A record eight million people moved from one state to another last year. Why are they passing on California? Since our current housing market has taken the blame for every social and economic ill imaginable over the last two years, it’s not surprising that some want to blame falling real estate prices for the high number of Californians leaving for other places. But to say Californians are leaving because home prices are falling is over simplifying the underlying problem. Besides, weren’t the high home prices and lack of affordable housing between 2001 and 2005 preventing people from moving to our Golden State?

California is not the only state experiencing increased foreclosures, lower property values and fewer sales. Florida, Ohio, Michigan, Illinois, Nevada and Arizona all have similar housing markets, yet they all reported more people moving into their state than moving out. Has California lost its national attraction and, if so, what can be done about it?

Noted author, former presidential advisor and free-market economist, Author Laffer, recently wrote an article for the Wall Street Journal about the causes of out-migration. The article discusses, why some states continue to attract people while others continue to loose residents to other states. “Former citizens are generally the highest achievers and those with the most wealth, capital and entrepreneurial drive, leaving the state much less economically productive.” Laffer’s new research publication “Rich States/Poor States” is an in-depth analysis of policies, which foster economic growth and prosperity in one state and economic malaise in another. By using 16 variables including: property, personal and corporate taxes, right-to-work laws, education, government debt and tort litigation treatment, Laffer ranks all the states from 1 to 50, with 1 as the best for economic growth and 50 the worst. California ranked near the bottom at 41. Laffer’s findings support the theory that states which keep spending and taxes low, exhibit the best economic results, while states that follow the tax-and spend path, lag behind in attracting people and capital.

Slower growth has its advantages. It allows us to catch our breath between the next sprint. Since the Gold Rush, California has experienced many booms and their subsequent letdowns. It is troubling, however, that California has developed the reputation of exporting more residents to other states than we are attracting. State and local leaders should examine polices that attract wealth, capital and the people who are responsible for bringing them into our state and county.

Builders ger optomistic forecast

If fence-sitting new homebuyers wait much longer for the bottom of the market, it could very well slip out from under them. California's new home market is due to begin its recovery this year, according to the California Building Industry Association.

Now, the housing market won't come back with boom, but the Golden State's new home sales in 2008 will outshine new home sales in 2007. Alan Nevin, chief economist for the state's new home building association, says you can count on a modest recovery in California's new home market this year. Nevin forecasts new, single-family home sales will increase enough in the last six months of 2008 to boost sales to more than 80,000 for the year. Buyers purchased 70,000 single-family homes in 2007.

Condo sales will edge up too. Buyers are expected to acquire 47,000 new condos in 2008, up from approximately 44,000 in 2007, according to Nevin. What's fueling the California comeback? Nevin says California's persistent population growth, shrinking new home inventories and a friendlier credit climate will give more consumers incentives to buy new.
However, before there's another real housing boom in the nation's largest western state, California has to tackle a host of issues. Dwindling land supplies, a gauntlet of environmental reviews before development, and what the association considers "capricious and arbitrary" impact fees all stand in the way of the kind of development necessary to keep prices affordable.
"Making more land available for new homes and controlling fees on homeownership will help stimulate the housing industry and ensure the projected gains in the market are realized and the dream of homeownership and economic prosperity are regained, said CBIA chairman Ray Becker.

For 2008, the projected total 128,000 new home sales pale by comparison to the peak level 213,000 new homes sold in 2004. The state needs to build 240,000 homes per year to develop the kind of affordable housing market that will meet the needs of its growing population, according to the CBIA.

I think the builders are a little too optimistic. Land use regulation will continue to increase and builders will need to pass along the cost of development. County impact fees regardless of their merit seldom decrease. Our current excess of existing inventory will discourage much new construction in the Capital Region.

Mortgage activity picks up.

Here is another item you won’t see reported by the major media. Mortgage application volume during the first week of January posted the sharpest rise in four years as borrowers jumped at falling interest rates, the Mortgage Bankers Association reported yesterday.

The group's market composite index, a measure of home loan application volume, jumped 32.2 percent on a seasonally adjusted basis between Christmas week and the first week of 2008. The last time the index rose this sharply in a one-week period was in January 2004 with a 30.4 percent gain.

By category, the index that tracks refinancings posted the strongest growth, rising 53.9 percent last week. The index tracking purchase loans grew 14.7 percent during the period.
Inspiring borrowers to action was a large decline in interest rates. According to MBA, the average contract interest rate on 30-year fixed-rate mortgages fell to just below 6 percent and the average rate on 15-year fixed loans tumbled to 5.21 percent.

Points, or loan-processing fees expressed as a percent of the total loan amount, averaged 1.1 on the 30-year loans, 1.18 on the 15-year, and 0.99 on one-year ARMs. These points include the origination fee and are based on loan-to-value ratios of 80 percent.

According to MBA, the refinance share of applications increased to 57.7 percent last week from 50.9 percent the previous week, while the ARM share dipped to 9.3 percent from 9.8 percent.The Mortgage Bankers Association survey covers approximately 50 percent of all U.S. retail residential mortgage originations, and has been conducted weekly since 1990. Respondents include mortgage bankers, commercial banks and thrifts.