Mark Phillips

Frugality is finally showing up in new home developments.

Although the number of new single-family houses sold this year will probably be down about 68 percent from the peak of almost 1.3 million sold in 2005, there will still be about 420,000 households buying new homes this year, according to the National Association of Home Builders.

But recession-chastened house hunters are looking for different things than the boom-era buyers who snapped up homes that grew bigger, fancier and pricier by the month.

Because they aren't held back by the need to sell an old home, first-time buyers now make up a greater share of the market. They're trying to stretch their dollars at every turn, and many are concerned about the cost of heating and cooling, especially after having experienced the surge in fuel costs last summer.

Builders say buyers are judging a home in terms of how comfortable it will be as a living space for the long term, rather than as an investment they can flip for a profit after a couple of years.

Choices they are making are just starting to appear in statistics. In the July-September quarter of 2008, the average size of a house under construction fell 7.3 percent, to 2,438 square feet from 2,629 square feet in the previous quarter, said Gopal Ahluwalia, vice president for research at NAHB in a recent article. "This is the first time we have seen such a significant decline," he said.

It may be only one quarter's worth of data, but Ahluwalia has other reasons to think the drop may be more than a fluke. He surveyed builders early this month, and 90 percent reported that they were building smaller homes. Eighty-nine percent said they were building lower-priced homes.

Until recently, builders have focused mostly on grand houses loaded with upgraded counter tops, flooring, cabinets and bath fixtures. Heading into the spring, which is usually peak season for home sales, many builders are calling attention to the ways their homes save money and energy. Smaller size is one way they're lowering the cost to purchase.

Builders are also paying more attention to energy-conserving and environmentally friendly features such as efficient appliances, programmable thermostats, compact fluorescent lights and paints that emit less toxic fumes, all of which are now standard features.

The smaller homes also happen to be more efficient (and less expensive) to build. That's no small matter for builders that are struggling through the worst market of their lifetimes.

The times have definitely changed from the average buyer looking for a huge home with no lot, to smaller homes with eco friendly upgrades. Wind turbine, solar, geothermal heating and cooling systems, and recycled newspaper insulation are upgrades while granite counter tops and push button gas fireplaces are becoming standard.

Change is all around us. Go with the flow. Sell what the client wants.

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If you don't take yourself to seriously and like to laugh this is for you. I know times are tough and people are going through many different types of hardships right now. This video shows the hardships that CEO's are going through.

Mark Phillips

Superior Home Loans

The Obama administration is promising an aggressive fight against the rising tide of home foreclosures, but officials have yet to decide what strategy -- or combination of strategies -- they will use.

Among the possibilities being pushed by various interest groups are a six-month foreclosure moratorium, a doubling of the mortgage interest deduction, a tax credit for those who buy homes and a federally sponsored mortgage refinancing program.

But it's been almost three years since foreclosures began to mount. And government and the financial industry have been unable to agree on a plan largely because they cannot resolve a central issue: How should losses be divided between borrowers and lenders?

The challenge for the White House will be crafting a foreclosure prevention package that promotes refinancing without unfairly benefiting irresponsible borrowers or lenders.

Last week, Lawrence H. Summers, the former Treasury secretary who is Obama's pick to direct the National Economic Council, wrote a letter to congressional leaders stating the administration would commit $50 billion to $100 billion "to a sweeping effort to address the foreclosure crisis."

The fine print of the letter, however, indicates that the administration does not plan to help everyone with mortgage trouble. It specifies that "preventable foreclosures" will be targeted and states that aid will go to "economically stressed but responsible homeowners." Just how the administration will separate those worthy of assistance from the lost causes is among the details yet to be determined.

"They're just getting started," said Steven Adamske, spokesman for the House Financial Services Committee. It's too early to know, he said, what foreclosure relief measures may emerge as law.

UC Berkeley economist Kenneth Rosen met with the Treasury Department's transition team this month to present his ideas for addressing the housing crisis.

Rosen presented a plan to declare a six-month foreclosure moratorium during which officials could figure out criteria for determining which mortgages could be saved and which couldn't. For worthy borrowers, he favors government-sponsored mortgage refinancing at an interest rate of 4.5%. To encourage home purchases, he proposes a tax credit for those who buy homes this year.

But Rosen said he was unable to pick up any hints about specific changes that might come to fruition. "There's so much going on, negotiating with the House and Senate," he said.

Last year a $7,500 federal tax credit was created for first-time home buyers, but the credit must be repaid. Various industry groups such as the National Assn. of Home Builders and National Assn. of Realtors have called for eliminating the repayment requirement and adopting a tax credit based on a percentage of the home purchase price, with a maximum amount of $22,500. The groups also favor allowing all home purchasers, not just first-time buyers, to receive the credit.

John Burns, a prominent Irvine consultant to home builders, has proposed a more targeted tax credit that would match down payments up to $15,000. Burns contends that such a credit would encourage the borrower to put up a greater personal stake in the purchase, and he favors making the credit subject to "recourse" if the borrower defaults. In some states, such as California, home mortgages are generally treated as non-recourse loans, which means that when borrowers default, they can lose their home and collateral but are not required to repay the full loan amount.

Burns also proposes temporarily doubling the mortgage interest deduction for all homeowners. He says such a measure would help those who may be on the brink of default, but it would also give others more disposable income, which would stimulate the overall economy.

Many of those proposals would help builders and lenders, which would still be repaid the full amount of mortgage principal owed to them.

It is not clear, though, how much such proposals would help borrowers whose mortgage debt is higher than their home is now worth.

In Congress, Rep. Barney Frank (D-Mass.), chairman of the House Financial Services Committee, tried to address the problem of such homeowners last summer with his "hope for homeowners" program, but it has had limited effect. This month, he proposed using funds from the $700-billion federal financial bailout program to address foreclosures through a number of measures, including a program to guarantee loan modifications. Another proposed program would pay down second mortgages that may be hindering a workout of a troubled first mortgage.

The Obama administration has recently been more specific in supporting one foreclosure prevention measure viewed by backers as among the most powerful tools to help distressed borrowers, but long opposed by most lenders. It's a proposal to allow bankruptcy judges to order banks to reduce the principal that people owe on their homes.

President Obama has said he supports such reform. Most mortgage bankers oppose giving judges such power, saying it would lead to higher mortgage interest rates. But fair-housing groups say it would prevent hundreds of thousands of foreclosures.

Industry opposition to the idea has faded recently, as the National Assn. of Home Builders said last month it would remove its opposition, and this month, Citigroup Inc. said it would back such bankruptcy reform.

Still, with the banking industry in an ever more fragile condition, it is possible that the government will hesitate to force lenders to take the losses on the bad loans they hold without causing an even more widespread financial collapse.

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Not long ago, no-down-payment loans were the height of fashion for home buyers. But now that lenders have tightened their standards, borrowers once again are expected to "put some skin in the game," to use a favorite industry catchphrase.

That "skin" refers to the borrower's own cash, and it means down payments are definitely back in style.

The chief advantage of a down payment today is simply the ability to qualify for a loan, as only a handful of so-called zero-down loan programs still exist. Yet down payments have other benefits, too.

The more money you put down to buy a home, the smaller your monthly payments will be.

Buyer's down payment becomes a home owner's instant equity when the purchase closes, and that equity can be borrowed against with a home-equity loan or line of credit. Guidelines to qualify for these loans have become much stricter, however.

Many first-time homeowners are surprised by the true cost of owning and maintaining their home. They should keep some reserves rather than allocate every dollar to their down payment. Some loan programs require cash reserves for this reason.

Other benefits of a down payment include:

• Borrowing less money to buy the home.
• Shopping among more lenders, loan originators and loan products.
• Getting a lower interest rate.
• Paying less for mortgage insurance.
• Avoiding mortgage insurance altogether if the down payment is at least 20% of the home's purchase price.

How to get a down payment

Many home buyers have difficulty coming up with a down payment. Here are a dozen ways to do it:

• Set up an automatic saving plan.
• Get a gift from your parents, grandparents, other relatives or friends.
• Sell a car, boat, motorcycle, collectibles or other assets.
• Liquidate stocks, mutual funds, savings bonds or other investments.
• Allocate your income tax refund.
• Take a loan from your 401(k) retirement plan and repay yourself with interest.
• Withdraw funds from your 401(k) plan, subject to taxes and penalties.
• Collect on a loan that you made to someone else.
• Get a bonus from your employer.
• Explore home buyer programs for public servants if you qualify.
• Apply for a state or local government down-payment program.
• Use a private down-payment assistance program.

A down payment needs to be. That means the lender needs to know how you obtained the funds and that you've had control of those funds for at least several months.

Gifts and seller's concessions are acceptable, up to the percentage allowed by the loan program, but borrowed money can't be used as a down payment, as it is debt that has to be repaid.

Government-backed programs

Two government-run programs are designed to aid home buyers who haven't saved much for a down payment. The Federal Housing Administration offers mortgage insurance that allows qualified buyers to purchase a home with a 3.5% down payment, all of which may be a gift. The U.S. Department of Veterans Affairs offers a home-loan guarantee program that helps military veterans buy homes with no down payments.

Down-payment programs run by state and local housing authorities offer grants and low-interest deferred-payment loans to home buyers, though the restrictions can be pretty severe. Some programs require borrowers to live in a disadvantaged neighborhood. Others have income limitations, for example.

The biggest problem tends to be that if you make enough money to qualify for a loan, you probably make too much money to get the down-payment assistance.

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