Dean Tucker

Idaho Business Review

After three months of constant record-breaking in foreclosure starts, April finally bucked the trend. April's 712 foreclosure starts made for a 10.4 percent decrease from March in Ada and Canyon counties, according to Charlie Nate, president of IdahoDataProviders.com.

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(Home Loan Boise)

Shanna Wroten-Tucker of Prime Equity Mortgage in Boise Idaho shares good refinance news for responsible homeowners as provided in the Obama plan. Customer and firefighter Shane Lowe talks about his refinance success.

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By Julie Schmit, USA TODAY Prices of single-family homes in 20 U.S. metropolitan areas in February were down 18.6% from a year earlier, yet the fact that the rate of decline slowed signaled some hope for the housing market, a report said Tuesday.

In 15 markets, annual declines were in excess of 10% and average home prices nationwide hit 2003 levels, according to the Standard & Poor's/Case-Shiller index.

Yet the drop in the 20-city index was less than the 19% year-over-year decline in January. Also, it was the first time in 16 months that annual declines didn't set records. "We ... need a few more months of data before we can determine if home prices are finally turning around," says David Blitzer of S&P's index committee.

The National Association of Realtors said last week that home prices rose more than normal from February to March and that the market may be stabilizing. Still, price drops remain brutal, especially in areas where they rose fast. The Case-Shiller index shows the hardest-hit cities in February were Phoenix, Las Vegas and San Francisco.

Prices continue to fall amid a glut of unsold homes, including foreclosed ones, says Lawrence Yun, NAR chief economist. He says prices will keep falling in regions with many foreclosures and strengthen where there are few.

On that front, the Obama administration Tuesday unveiled a plan that it says may reduce payments for up to 1.5 million at-risk homeowners.

Under the plan, the government would tap a $50 billion housing fund to entice mortgage servicers to modify second mortgages and cut monthly payments for borrowers.

Half the troubled mortgages have second loans, given by lenders to help buyers avoid mortgage insurance and reduce their down payments. The second loans make it harder to modify first loans, because more parties are involved, and the home may still be unaffordable even if a first loan is changed, the administration says.

The plan would pay mortgage servicers $500 to modify second loans at 1% or 2% for five years, if first loans are modified. Servicers would also get $250 a year for three years if borrowers don't default. Borrowers could get $1,000 over five years to pay down principal.

The plan may encourage modifications because second loans would likely be worthless in a foreclosure, says Ellen Harnick of the Center for Responsible Lending. It could have a significant impact on prices if foreclosures are curbed, she says.

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May 4 (Bloomberg) -- Berkshire Hathaway Inc. Chairman Warren Buffett lambasted bankers, insurers and regulators for being blind to the possibility home prices could fall, and said their shortcomings caused the worst recession in half a century.

Buffett and Vice Chairman Charles Munger said Wall Street sold subprime mortgage "sewage," blamed the media and regulators for missing the danger and said the government stress tests of financial firms won't advance Berkshire's understanding of the stocks the company owns. Buffett hosted a record 35,000 people at the Omaha, Nebraska-based firm's annual meeting May 2 and spoke at a news conference yesterday.

"I think that virtually everybody associated with the financial world contributed to it," Buffett said of the crisis. "Some of it stemmed from greed, some from stupidity, some from people saying the other guy was doing it."

Home foreclosures have advanced to a record, U.S. unemployment rose to its highest in 25 years and Berkshire shares plunged 31 percent since shareholders gathered at Omaha's Qwest Center arena last year. The U.S. government and the Federal Reserve have spent, lent or committed $12.8 trillion -- an amount that approaches the value of everything produced in the country last year -- to stem the recession.

Buffett, 78, used the five-hour question-and-answer session at the meeting and the press conference to promote the long-term prospects of his derivative bets and explain his stock picks. He said that San Francisco-based Wells Fargo & Co., the second- largest holding in Berkshire's portfolio, will prosper regardless of the results of the test of top U.S. lenders.

Wells Fargo

"Wells Fargo has a dramatically different business model," than competitors, Buffett said yesterday. He said the public has a distorted perception of lenders because of losses at Citigroup Inc., once the largest U.S. bank. Minneapolis-based U.S. Bancorp and Buffalo, New York-based M&T Bank Corp., which are in Berkshire's portfolio along with Wells Fargo, avoided the riskiest bets, he said.

"We would buy stock in any of the three banks at the present prices," he told reporters. In a Bloomberg Television interview, Buffett dismissed the importance of stress tests in helping him assess those firms, saying "I think I know their future, frankly, better than somebody who comes in and takes a look."

Stephen Cohen, a spokesman for New York-based Citigroup, declined to comment.

Buffett said most of the companies undergoing stress tests aren't too big to fail. "The top four get to be more special cases," he said. Results of the examinations may be released this week.

‘That's Poison'

Buffett told shareholders he expects Berkshire will eventually profit from derivative bets on world stock markets that caused a $10 billion liability as of the end of 2008. Berkshire will only have to make payments on the contracts if markets are below agreed-upon levels when the terms expire, which is 10 years from now at the soonest. Berkshire has received about $4.9 billion in payments on the derivatives.

Life insurers that made similar bets with customers by guaranteeing returns on equity-linked retirement products "didn't get paid appropriately," Buffett said yesterday.

When insurers "tell the policyholder that he gets some of the up side and you take all the down side, that's poison," Buffett said. "That would be like a stockbroker telling you that he'll pay you back if your stocks lose money."

Buffett said the media failed to adequately report on the housing bubble, and singled out regulators of mortgage companies Fannie Mae and Freddie Mac for missing the danger their loans would pose if home prices fell. Munger said the firms that packaged subprime mortgages into securities "were either delusional or flim-flam artists."

‘Sewage-like Qualities'

"They were going to take a lot of sewage and mix it up in a different way and said it's not sewage," Munger said. "The laws of nature are such that it keeps its sewage-like qualities."

Berkshire's first-quarter operating earnings fell to about $1.7 billion from $1.9 billion in the same period a year earlier, Buffett said May 2. The figure, which doesn't count some investment results, declined as the recession pressured Berkshire businesses that make building materials and sell jewelry and furniture.

Net income has fallen in five straight quarters through the end of 2008, and book value, a measure of assets minus liabilities, dropped by the most last year in Buffett's four decades leading the company. Berkshire is scheduled to release complete first-quarter results on May 8.

Future Gains

Munger said the recession gives Berkshire, which had $25.5 billion in cash at the end of 2008, a chance to bolster the company while competitors are hobbled.

"These times when it looks terrible are the times when you are laying your foundation" for future gains, Munger said. "If you think we are in trouble because the stock price went down, you don't understand the situation."

Buffett has been investing in preferred shares of Goldman Sachs Group Inc. and General Electric Co. and buying corporate debt. Buffett reached an agreement in February for a 3 billion Swiss franc ($2.6 billion) investment in Swiss Reinsurance Co.

"That wouldn't have happened" without the recession, Buffett said.

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