Julie Staradumsky CREN

By Mark Felsenthal

WASHINGTON (Reuters) - U.S. bank regulators breathed a huge sigh of relief in early April when improving financial markets looked set to push the nation's 19 largest banks through the gauntlet of tough "stress tests" in reasonably good shape.

In early March, a month after Treasury Secretary Timothy Geithner announced the tests on February 10 to help restore investor confidence in the major banks, the scene was much bleaker: major stock indexes had slumped to 12-year lows on persistent fears about the financial weakness. It looked possible that a major bank might need an emergency government rescue even before the stress test results could be announced.

But since the trough, markets improved steadily with rising share prices and volumes, better liquidity and other signs of stabilization, and regulators gained comfort that capital markets would be willing to fill any holes the stress tests unearthed at banks.

"It looked to us by mid-March, and early April, that this might work," said a senior U.S. regulatory official, who spoke on condition of anonymity because of the sensitivity of the tests.

Stress tests released on Thursday showed the largest banks had a $74.6 billion gap to make up to ensure they could withstand a worst-case scenario regulators set for them. Nine of the 19 banks tested already had the necessary buffer and would not need to raise any more.

Morgan Stanley and Wells Fargo sold more than $15 billion of shares and bonds the next day, and Bank of America Corp announced plans to sell 1.25 billion shares as investors reacted positively to the relatively small size of the shortfall.

If by the middle of next week banks are half-way to raising the needed capital, and a half dozen or so of the banks needing to augment their buffers have done so, regulators would be pleased, the official said. In particular, such a development would likely signal the administration would not have to ask Congress to replenish its bailout war chest.

TEST IDEA TOOK SHAPE IN SEPTEMBER

The stress testidea germinated in early September as officials at the Federal Reserve and the New York Fed, including Geithner who was then president of the New York Fed, took part in conference calls to discuss deteriorating financial markets.

But the crisis intensified with the collapse of Lehman Brothers and the Fed rescue of American International Group, and the stress testidea was put on the backburner. By the time the administration of President Barack Obama took office, however, there was breathing room to try the idea.

Regulators at the Fed, the Office of the Comptroller of the Currency and the Federal Deposit Insurance Corp teamed with researchers and statisticians to design a model that would test the 19 banks at once according to the same standards, and then make the results public, an unprecedented undertaking.

As regulators refined the model, they ironed out bugs in the test and settled disputes among officials at different regulatory agencies including at regional Fed banks.

Disagreements included whether a particular bank's assets were of higher quality than average and what bank earnings were likely to be over the next two years, particularly if a bank had acquired a troubled asset, such as another financial institution that was in trouble.

Regulators shared the all-but-final version of the tests with all 19 banks on April 24 at the regional Feds that govern the districts in which the banks are headquartered. Regional Fed bank presidents participated in most sessions, but Fed board officials did not.

Early market reaction this week showed the announcement of the stress test results, which some had feared would destabilize vulnerable banks by exposing weaknesses, had stoked enthusiasm. U.S. stocks rose on Friday, led by financial shares.

The release of the stress testresults "has given people a little bit of confidence that the government can help to solve this part of the financial crisis," said Richard Sparks, senior equities analyst and options trader at Schaeffer's Investment Research in Cincinnati.

"There's a sense that the government actually has a logical plan ... even if things got worse, these companies will be able to survive," Sparks said.

(Additional reporting by Ellis Mnyandu and Chuck Mikolajczak in New York; editing by Mohammad Zargham)

The deep contraction in the economy and in the housing market has created devastating consequences for homeowners and communities throughout the country. Millions of responsible families who make their monthly payments and fulfill their obligations have seen their property values fall, and are now unable to refinance to lower mortgage rates. Meanwhile, millions of workers have lost their jobs or had their hours cut, and are now struggling to stay current on their mortgage payments. As a result, as many as 6 million families are expected to face foreclosure in the next several years, with millions more struggling to stay current on their payments.

The present crisis is real, but temporary. As home prices fall, demand for housing will increase, and conditions will ultimately find a new balance. Yet in the absence of decisive action, we risk an intensifying spiral in which lenders foreclose, pushing area home prices still lower, reducing the value of household savings, and making it harder for all families to refinance. In some studies, foreclosure on a home has been found to reduce the prices of nearby homes by as much as 9%.

The Obama Administration's Making Home Affordable program will offer assistance to as many as 7 to 9 million homeowners making a good-faith effort to make their mortgage payments, while attempting to prevent the destructive impact of the housing crisis on families and communities. It will not provide money to speculators, and it will target support to the working homeowners who have made every possible effort to stay current on their mortgage payments. Just as the American Recovery and Reinvestment Act works to save or create several million new jobs and the Financial Stability Plan works to get credit flowing, the Making Home Affordable program will support a recovery in the housing market and ensure that these workers can continue paying off their mortgages.

By supporting low mortgage rates by strengthening confidence in Fannie Mae and Freddie Mac, providing up to 4 to 5 million homeowners with new access to refinancing and creating a comprehensive stability initiative to offer reduced monthly payments for up to 3 to 4 million at-risk homeowners, this plan brings together the government, lenders, loan servicers, investors and borrowers to share responsibility towards ensuring working Americans can afford to stay in their homes.

for more info click here: www.SJshoreRealtor.com

By RUTH SIMON

The Obama administration on Thursday laid out additions to its housing-rescue plan that are designed in part to make it easier for financially troubled homeowners to sell houses that are worth less than their mortgages.

The newest initiative creates a standardized process and adds incentives for so-called short sales, in which a borrower -- with lender approval -- sells the home for less than the amount owed.

Housing Developments Blog

• Short Sales Not Quite a Win-Win

The government also said it would make it simpler for borrowers to voluntarily transfer ownership of properties to mortgage companies through a "deed in lieu" of foreclosure, helping the companies avoid a potentially costly and time-consuming foreclosure process.

Administration officials said the new initiatives could help hundreds of thousands of borrowers or more.

The guidelines come nearly three months after the administration laid out its $75 billion housing-rescue plan, which uses financial incentives to encourage mortgage companies and investors to modify troubled loans. The latest announcement is aimed in part at borrowers who can't be helped by a loan modification.

Efforts to implement the programs are just getting off the ground. Government officials said Thursday that mortgage-servicing companies have offered more than 55,000 trial modifications to financially troubled borrowers and that thousands of those borrowers have begun making loan payments under the program.

In addition, roughly 3,600 borrowers have lowered their loan payments under a program that allows borrowers who have little or no equity to refinance, provided that their loan is owned or backed by government-controlled mortgage giants Fannie Mae and Freddie Mac. Fannie has received more than 51,000 applications for the program.

But not all borrowers can be helped by such efforts, often because they have too much total debt or not enough income or because modifying the loan may not be economical for an investor or lender compared with foreclosure.

The government will pay mortgage-servicing companies up to $1,000 and borrowers up to $1,500 for successful short sales or "deeds in lieu" transactions. It will also spend up to $1,000 to help defray the cost of getting holders of second mortgages to release their liens so these transactions can be completed.

Short sales have accounted for 15% to 20% of sales of existing homes this year, according to the National Association of Realtors. A short sale can result in lower losses to investors compared with a foreclosure but needs lender approval and can take three to four months to complete, said Bill Etchegaray, a real-estate agent with Century 21 Superstars in Yorba Linda, Calif.

The incentive payments to mortgage-servicing companies and streamlined process could help clear the logjam of distressed home loans, said Thomas Lawer, an independent housing economist, adding that "it's crystal clear" that short sales are often preferable to a foreclosure. But "giving borrowers money to encourage them to sell their homes without having to repay their debt is a slap in the face to everyone else," he added.

Another part of the program provides additional payments to lenders, servicers and investors for loan modifications in areas where home prices have been dropping. Payments under this program could in some cases total thousands of dollars per loan, administration officials said, and are designed to offset concerns that investors will face additional losses if the modified loans redefault.

So far, 14 mortgage-servicing companies have signed up to participate in the loan-modification program, and 75% of loans are now covered by the plan. The firms include Bank of America Corp., Citigroup Inc., J.P. Morgan Chase & Co. and Wells Fargo & Co. Other mortgage companies, including SunTrust Corp., PNC Corp. and American Home Mortgage Servicing Inc., said they are still evaluating the program. HSBC Mortgage Corp. said it has been implementing the Obama program for borrowers with Fannie or Freddie mortgages, but is still evaluating the program for loans it owns. PNC is applying the guidelines of the Obama plan to loans owned or guaranteed by Fannie and Freddie, but hasn't yet signed a contract with the government that would require it to apply those same guidelines to loans it owns or services for investors, a company spokesman said

In his speech at the National Association of REALTORS® Housing Summit on May 12, 2009, US Department of Housing and Urban Development (HUD) Secretary Shaun Donovan announced a program that allows borrowers to use the first-time homebuyer tax credit for a down payment or closing costs on a FHA-insured mortgage. The Secretary said "We think the policy is a real win for everyone, ensuring that borrowers can tap into the numerous organizations that are already part of the FHA network to receive this additional benefit."

The details of the program were announced today in Mortgagee Letter 2009-15. Government entities and instrumentalities of government may provide a second mortgage. Currently, 10 state housing finance agencies offer a product buyers can use that will effectively monetize the tax credit for down payment purposes. These states are Colorado, Delaware, Idaho, Kentucky, Missouri, New Jersey, New Mexico, Ohio, Pennsylvania, and Tennessee. State Associations are encouraged to work with their respective housing finance agency to implement similar programs. The 3.5 percent down payment may also be a gift from a family member, employer or nonprofit, charitable organization.

The original guidance permitted lenders and HUD-approved nonprofits and lenders to offer bridge loans via second lien financing or short term loans. Guidance released today allows lenders to offer the monetized tax credit for down payments in excess of 3.5 percent, closing costs and interest rate buy downs. Mortgage industry leaders have indicated that this type of product may not be immediately available to consumers. Lenders will need some time to develop documentation for what will effectively be personal loans to the home buyer.

Mortgagee Letter 2009-15: Using First-Time Homebuyer Tax Credits
NCSHA State HFA Programs

Existing-Home Sales Rise in April

WASHINGTON, May 27, 2009

Existing-home sales rose in April with strong buyer activity in lower price ranges, according to the National Association of Realtors^®.

Existing-home sales - including single-family, townhomes, condominiums and co-ops - increased 2.9 percent to a seasonally adjusted annual rate¹ of 4.68 million units in April from a downwardly revised pace of 4.55 million units in March, but were 3.5 percent below the 4.85 million-unit level in April 2008.