September 23, 2021

Home Prices Still Rising, but at Slower Pace

The leveling was not unexpected as more sellers ventured into the market and may have set less ambitious asking prices in the face of higher mortgage rates.

The Standard Poor’s Case-Shiller home price index, which tracks sales in 20 cities, showed prices up 12.4 percent from July 2012 to July 2013, and a separate index of mortgages backed by Fannie Mae and Freddie Mac showed an 8.8 percent gain in prices over the same time period.

But the month-to-month increase in the Case-Shiller index slowed to 0.6 percent, after gains of 1.7 percent in April, 0.9 percent in May and 0.9 percent in June.

Robert Shiller, the housing economist who helped develop the home price index, cautioned that despite double-digit gains in many cities, prices are still low compared with their prerecession peaks.

“It might be slowing down because the thing that’s driving this doesn’t seem to be excitement about a new era,” he told CNBC. “That’s what we saw eight years ago. But now it’s a rebound, interest rates are still maybe lower than they’ll be in a year — it’s that kind of thing.”

Still, the housing market recovery has exceeded expectations. Activity has been spurred by such factors as increased pressure to buy before prices rise further, a gradual relaxation of tight lending standards, inventory shortages and large-scale purchases of homes for the rental market by institutional investors, analysts said.

Higher home prices help the economy not just by strengthening the home building and real estate industries, but by making homeowners feel wealthier and more likely to spend. While the number of Americans who lost all the equity in their homes because of falling values is still huge by historical standards, rising prices have helped nudge more and more households back above water. According to CoreLogic, 2.5 million households regained equity in their homes in the second quarter.

Years of pent-up demand and emboldened consumers should continue to fuel the market, analysts said. But politics, including a looming battle over federal spending and the debt ceiling, could rein in the gains. “The real test will come over the next few months, given the sharp drop in mortgage demand and the potential for a rollover in consumers’ confidence as Congress does its worst,” wrote Ian Shepherdson, an economist with Pantheon Macroeconomics.

Mortgage rates went from about 3.4 percent on 30-year fixed-rate loans in January to about 4.4 percent in July, according to a survey by Freddie Mac, in anticipation of a wind-down of stimulus programs by the Federal Reserve. But this month, the Fed decided to delay the wind-down, which may lead to a dip in rates. Mortgage rates have much smaller impact on home sales than other factors like the employment rate, Mr. Shiller said.

But mortgage rates have put the brakes on refinancings, which helped ease pocketbooks by lowering monthly payments. On Monday, Citigroup became the latest of several banks in recent months to announce layoffs in its mortgage division.

Home prices are still almost 25 percent lower than their peak, and some economists cautioned that major factors — like slow job and wage growth — will limit their recovery.

“While recent results have been considerably better than those seen earlier in the cycle, and also better than we had anticipated,” wrote Joshua Shapiro, the chief United States economist for MFR Inc., “we have not given up on the argument that a large supply overhang of existing homes (factoring in all those in foreclosure or soon to be) promises to keep pressure on prices for some time.” Still, the share of all sales that are foreclosures continues to decline.

Prices were up for the year in all 20 cities tracked by Case-Shiller, but the gains varied widely, from 3.5 percent in New York and 3.9 percent in Cleveland on the low end to a frothy 24.8 percent in San Francisco and 27.5 percent in Las Vegas.

But prices in San Francisco are still only at 2004 levels, cautioned Steve Blitz, chief economist for ITG Investment Research. “For those who bought and still hold homes in 2005, ’06 and ’07, they may still be in a negative equity position, depending on the terms of their mortgage,” Mr. Blitz wrote. “Don’t let those double-digit year-over-year percentage gains bias opinion to believe all is all right.”

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Budget Office Says Obama Plan Would Cut Deficit by $1 Trillion

But the proposal, which was released just last month, has already been mostly forgotten in Washington. Senate Democrats and House Republicans have not agreed to come to the table to split the difference between their budgets, either. After two years of knock-down, drag-out fights over taxes and spending, the budget has been put on the back burner, at least for now.

In part that is because the gap between spending and revenue has started to shrink substantially, in response to earlier tax increases, spending cuts and a strengthening economy. Earlier this week, the budget office sharply cut its estimate of the current fiscal-year deficit by more than $200 billion, on higher-than-anticipated tax receipts and big payments to the Treasury from Fannie Mae and Freddie Mac, the mortgage financiers. Were Congress to do nothing and the economy avoid running into a ditch, the deficit would fall to just over 2 percent of economic output in 2015.

It is also because the series of automatic cuts, ceilings and self-imposed crises have for the most part ended. The so-called fiscal cliff was avoided when at the beginning of the year Congress managed to pass a more-moderate package of tax increases and cuts. The $85 billion in cuts to domestic and military programs known as sequestration has already hit, with lawmakers doing little to change them.

That has left nothing on the horizon to force Congress’s hand until it needs to raise the debt ceiling, a statutory borrowing limit. But because of strong tax receipts and the sequestration spending cuts, it might not need to tackle that issue until October or even later.

Separately, lawmakers and the White House have focused their attention on other priorities, particularly gun laws, immigration reform and a series of scandals. This week, for instance, it was a fracas over the revelation that Internal Revenue Service employees targeted conservative groups seeking tax-exempt status.

But some members of Congress, along with President Obama, are still vowing to tackle the country’s long-term deficits even though there is no imminent threat. Without Congressional action, the deficit, as measured as a proportion of economic output, could start rising again in the latter half of the decade, the Congressional Budget Office warned again this week. If health care spending starts rising again sharply and debt payments soar as interest rates rise, many experts fear that those costs will eventually crowd out financing for the government’s other priorities.

“It is encouraging to see that the president’s proposals would indeed begin to reduce the debt, and to lower levels than originally thought,” said Maya MacGuineas of the Committee for a Responsible Federal Budget, a budget watchdog, in a statement responding to the new budget office estimate. “Regardless, additional reforms will be needed over the long-term, especially to slow the growth of health care programs and shore up Social Security,” she said.

On some issues, Republicans and Democrats are closer than their heated rhetoric might let on. For instance, Mr. Obama included in his budget proposal cuts to Social Security and Medicare that are anathema for many Democrats, showing a willingness to spread the political pain as part of a larger budget deal in a bid to encourage Republicans to bargain. One major change would alter the calculation used to ensure that Social Security payments kept up with the pace of inflation, providing less money to seniors over time.

His proposal also includes almost $1 trillion in tax increases, by further limiting the deductions and exclusions high-income families can claim, increasing taxes on tobacco and introducing the so-called Buffett Rule, a new minimum tax on income over $1 million. Republicans have refused to consider changes to increase revenue, arguing that money raised from closing loopholes should be used to bring down overall tax rates.

Mr. Obama’s proposal would widen deficits slightly in the fiscal years 2013 through 2015, the budget office said, but trim them later on. Starting in 2014, his tax increases would lift revenue gradually from about $27 billion to $155 billion a year. Spending would increase by as much as $142 billion a year until 2018, when it would decline beneath the levels indicated by current law.

The two parties are principally at odds over priorities like infrastructure, science, agriculture and education, and on Medicaid, the health care program for the poor and disabled.

In 2023, the House Republicans plan would put the level of Social Security and Medicare spending very close to where the White House would — about 8.7 or 8.8 percent of economic output, according to an analysis by Douglas W. Elmendorf, the director of the budget office. Mr. Obama is calling for modestly smaller military spending, at 2.4 percent of economic output, compared with the House Republicans’ 2.7 percent.

The White House would spend 7.7 percent on everything else, including housing programs, unemployment insurance, Medicaid, health insurance subsidies and education. The House would spend just 5.2 percent.

The Congressional Budget Office does not analyze Congressional budget resolutions. The House and Senate budget committees put forward revenue and spending estimates of their own plans based on Congressional Budget Office data, but both plans lack a lot of detail.

When it released its plan, the Obama White House claimed that it saved $1.8 trillion over 10 years. The divergence between its estimate and the budget office’s stems from the fact that the White House assumed the $85 billion in automatic budget cuts would be repealed or replaced with a new policy. The budget office did not.

Other than that, the independent office’s assessment of how the budget proposal would affect spending and revenue differs only marginally from the White House’s own.

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Mortgages: The Seller Chooses a Lender

Some sellers are finding lenders willing to provide financing for an eventual sale even before they put their condos or co-ops on the market; they then add language to the sales contract requiring buyers at least to obtain preapproval from the seller’s preferred lender.

The advance legwork can save sellers’ wasting time on buyers who can’t find financing on their own, said Rolan Shnayder, a partner and the director of new development lending for H.O.M.E. Mortgage Bankers in Manhattan. “Never is there going to be the excuse that I went to the bank and I was a great credit risk but they wouldn’t approve the building.”

The strategy is akin to a developer’s tactic of working with a preferred lender on a new condo offering. It cropped up in resales as banks became more careful about the types of buildings they would finance.

For sellers, “it’s not enough for the purchaser to be credit-worthy,” said Neil Garfinkel, a Manhattan real estate lawyer. “You have to make sure the building is warrantable.”

A warrantable building is one eligible for backing by Fannie Mae. Under Fannie’s guidelines, a building is nonwarrantable if one entity owns more than 10 percent of the units, or fewer than 70 percent are owner occupied, Mr. Shnayder said.

Also, the maximum allowable commercial space in a building is no more than 20 percent. And the building ownership must be putting in reserve at least 10 percent of yearly maintenance. “Newer buildings have that 10 percent in the budget,” he said, “but a lot of the older ones don’t.”

Being nonwarrantable doesn’t make a building “bad,” Mr. Garfinkel said. It just means it doesn’t fit the Fannie Mae criteria. He advises sellers to determine whether their building is warrantable before listing a unit. If it is not, then sellers should ask their real estate agent or other professional to recommend other potential lenders.

With a lender in place, the seller can add language to the sales contract that requires buyers to be preapproved by that lender. The buyer can still apply for a mortgage with another lender, but if that doesn’t work, “they agree to apply to this source which we know will lend in this building,” Mr. Garfinkel said.

A fair deal for buyers? Mr. Shnayder maintains that having a lender in place that has already approved the building can save a buyer time and the frustration of dealing with management companies.

But Daniel Gershburg, a real estate lawyer who frequently represents clients buying in new buildings in Brooklyn, warns that merely being preapproved does not guarantee that your mortgage application will sail through the process.

In working with developers’ preferred lenders, for example, he has seen applications held up long enough that his clients’ rate locks expire, costing them additional fees. “Once you’re at the whim of this lender, if they don’t follow through, there’s nothing you can do,” he said.

Jason Auerbach, a divisional manager of First Choice Loan Services, also notes that a preferred lender evaluating a buyer for preapproval is not allowed to share the buyer’s personal financial information with the seller. “The mortgage banker or broker has a fiduciary responsibility to their client,” he said, “not the seller.”

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DealBook: Bank of America to Pay $10 Billion on Loan Claims

8:44 a.m. | Updated

Bank of America agreed on Monday to pay more than $10 billion to Fannie Mae to settle claims over troubled mortgages that soured during the housing crash, mostly loans issued by the bank’s Countrywide Financial subsidiary.

Under the terms of the pact, Bank of America will pay Fannie Mae $3.6 billion, and will also spend $6.75 billion to buy back mortgages from the housing finance giant at a discount to their original value.

The settlement will resolve all of the lender’s disputes with Fannie Mae, removing a major impediment to Bank of America’s rehabilitation. The bank had settled its fight with Freddie Mac, the other government-owned mortgage giant, in 2011.

Both Fannie and Freddie, which have posted billions of dollars in losses in recent years, have argued that Countrywide misrepresented the quality of home loans that it sold to the two entities at the height of the mortgage bubble. Bank of America assumed those troubles when it bought Countrywide in 2008.

By removing part of the bank’s mortgage albatross, the move on Monday is a continued retreat from home lending by Bank of America, even as rivals including JPMorgan Chase and Wells Fargo compete for the profitable refinance business that has boomed with interest rates persistently low.

Bank of America also agreed to sell the servicing rights on about $306 billion worth of home loans to other firms. In separate statements, Nationstar Mortgage Holdings and the Newcastle Investment Corporation announced they were buying the rights. Those servicing costs, which were roughly $3.4 billion in the third quarter, have weighed on the bank’s profits, especially as borrowers fall behind on their bills.

Brian T. Moynihan, the bank’s chief executive, said in November that he intended to sell off about two million loans the bank currently serviced.

“Together, these agreements are a significant step in resolving our remaining legacy mortgage issues, further streamlining and simplifying the company and reducing expenses over time,” Mr. Moynihan said in a statement on Monday.

Bank of America said it expected the settlement to hurt its fourth-quarter earnings by $2.5 billion because of costs tied to foreclosure reviews and litigation. The firm also expects to record a $700 million charge, an accounting move known as a debt-valuation adjustment, related to an improvement in the prices of its bonds.

The deal on Monday helps the bank move away from its troubled mortgage business. Still, the bank’s attempts to resolve other costly mortgage litigation have so far been stymied. Looking to appease investors that sued the bank for losses when mortgages packaged into securities imploded during the financial crisis, the bank agreed to pay $8.5 billion in June 2011. But the settlement, which would help mollify investors including the Federal Reserve Bank of New York and Pimco, has been stalled.

Further thwarting Bank of America’s retreat from the mortgage business, federal prosecutors sued the bank in October, accusing it of churning through loans so quickly that quality controls were virtually forgotten. The Justice Department sued the bank under a law that could mean Bank of America could pay well more than $1 billion to settle.

Bank of America is among 14 banks said to be negotiating with federal regulators to resolve such claims related to foreclosure abuses.

Ben Protess contributed reporting.

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DealBook: Embattled Fortress Chief Takes Leave of Absence

Daniel H. Mudd, the former head of Fannie Mae, before a House panel in 2007.Mark Wilson/Getty ImagesDaniel H. Mudd testifying before a House panel in 2007, when he was head of Fannie Mae.

Daniel H. Mudd, who faces accusations that he misled investors while he was the top executive of Fannie Mae, is taking a leave of absence from his role as chief executive of the Fortress Investment Group, the company announced on Wednesday.

Last week, the Securities and Exchange Commission sued Mr. Mudd and five other former executives at Fannie Mae and Freddie Mac, the two mortgage-finance giants brought low by the housing bubble. In one of the most significant federal actions taken against crucial players in the mortgage crisis, the S.E.C. accused Mr. Mudd of playing down Fannie Mae’s exposure to risky loans.

Mr. Mudd and the other executives have vowed to challenge the accusations, noting that Fannie and Freddie routinely disclosed their exposure to risky loans in regulatory filings. Mr. Mudd has said that the suit is driven by politics, not substance.

But while he fights the S.E.C., Mr. Mudd has decided to step away from Fortress. It is unknown how long his leave of absence will last.

“I have requested a leave of absence from my position as chief executive officer to ensure that any time or attention I need to focus on matters outside of Fortress will not affect the business or operations of the company,” Mr. Mudd said in a statement.

Mr. Mudd started at Fortress in July 2009, after the government pushed him out of his role as the chief executive of Fannie Mae.

While Mr. Mudd has helped revive Fortress after its shares suffered a sharp decline, certain businesses have continued to struggle and the stock is trading at about $3.30. The firm has about $44 billion in assets under management in a variety of hedge funds, private equity funds and mutual funds.

He will be succeeded, at least temporarily, by Randal A. Nardone, who co-founded Fortress. Prior to starting Fortress, Mr. Nardone worked at UBS and BlackRock Financial. While Mr. Nardone does not have the public profile of Mr. Mudd, he is known for his deep knowledge of the private equity business, which is one Fortress’s main focuses.

“We are grateful to Dan for his service and leadership over the past two and a half years and support his decision to take a leave of absence at this point in time,” Mr. Nardone said in a statement. “We look forward to Dan’s return in the hope that matters are resolved favorably and expeditiously.”

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Op-Ed Columnist: An Inconvenient Truth

In their heyday, these strange hybrids — part corporation, part government agency — were the biggest bullies in Washington, quick to bludgeon critics who dared suggest that their dual missions of maximizing profits while making homeownership affordable for low- and moderate-income Americans were incompatible. They steamrolled their regulator and pushed back at any suggestion that their capital was inadequate.

For years, they essentially wrote most of the legislation that affected them, which they larded with loopholes. In the mid-2000s, they had giant accounting scandals. Eventually, their quest for profits led them to make a belated, disastrous foray into subprime mortgages, which ended with their collapse, and which has cost taxpayers about $150 billion. Tragically, Fannie and Freddie could have led a housing recovery — if they hadn’t become crippled wards of the state instead.

Yet these real sins have been largely overlooked in favor of imagined ones. Over at the conservative American Enterprise Institute, two resident scholars, Peter Wallison and Edward Pinto, have concocted what has since become a Republican meme: namely, that Fannie Mae and Freddie Mac were ground zero for the entire crisis, leading the private sector off the cliff with their affordable housing mandates and massive subprime holdings.

The truth is the opposite: Fannie and Freddie got into subprime mortgages, with great trepidation, only in 2005 and 2006, and only because they were losing so much market share to Wall Street. Among other things, the Wallison-Pinto case relies on inflated data — Pinto classifies just about anything that is not a 30-year-fixed mortgage as “subprime.” The reality is that Fannie and Freddie followed the private sector off the cliff instead of the other way around.

Nevertheless, Wallison, who was a member of the Financial Crisis Inquiry Commission — charged with investigating the root causes of the crisis — wrote a 99-page dissent when the F.C.I.C. issued its final report, claiming it was all Fannie and Freddie’s fault. In a column I wrote at the time, I described Wallison’s dissent as a “lonely, loony cri de coeur.” He’s been trying to get me to take it back ever since.

On Friday, the Securities and Exchange Commission waded into the Fannie/Freddie wars by filing a lawsuit against three executives from each company. The complaint charges them with making “materially false” disclosures about the size of the companies’ subprime portfolios.

In unveiling the lawsuit, Robert Khuzami, the agency’s enforcement chief, said that the S.E.C.’s action showed that “all individuals, regardless of their rank or position, will be held accountable.” Not really. What it shows is how desperate the S.E.C. has become to bring a crowd-pleasing case.

The complaint is extraordinarily weak. Taking its cues from the Wallison/Pinto school of inflated data, it claims that Fannie and Freddie failed to reveal to investors the true extent of their subprime portfolios. To make this claim, however, the S.E.C. has included categories of loans, such as so-called Alt-A loans, that may have had a subprime characteristic, such as low documentation, but which were often made to borrowers with high credit scores.

There are no damning internal e-mails in the complaint, with executives contradicting their public statements, and no examples of sleazy insider stock sales. A quick look at Fannie and Freddie financial disclosure statements shows that they clearly laid out the credit characteristics of their mortgage portfolios, even if they didn’t label every non-30-year-fixed loan as subprime. More than a year ago, a federal judge presiding over a shareholder lawsuit against Fannie Mae threw out the allegations surrounding lack of disclosure. Why? Because, he said, the company’s disclosure of its subprime portfolio had been adequate.

There is something else missing from the S.E.C. complaint, which Wallison and Pinto also conveniently ignore: default data. The truth is, for all their mistakes, Fannie and Freddie had some scruples about the nonprime loans they did make — and they have the default numbers to prove it.

For instance, according to David Min, a leading Wallison critic at the Center for American Progress, as of the second quarter of 2010, the delinquency rate on all Fannie and Freddie guaranteed loans was 5.9 percent. By contrast, the national average was 9.11 percent. The Fannie and Freddie Alt-A default rate is similarly much lower than the national default rate. The only possible explanation for this is that many of the loans being characterized by the S.E.C. and Wallison/Pinto as “subprime” are not, in fact, true subprime mortgages.

After the S.E.C. filed its charges on Friday, I received an e-mail from Wallison, suggesting that the complaint proved that he had been right and that I had wronged him. I now concede that he is half-right. Loony though his theory may be, he’s sure not lonely anymore.

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Jumbo Loan Limits Changed, Again

Under the new guidelines, the F.H.A. would be able to back loans up to $729,750 for the next two years in the nation’s most expensive real estate markets, including New York City and the surrounding metropolitan area.

Before the change, according to rules that went into effect on Oct. 1, the maximum loan the F.H.A., Fannie Mae and Freddie Mac could back was $625,500. Congress decided to leave the lower loan ceilings for the mortgage giants Fannie Mae and Freddie Mac untouched.

Last year, there were 1,541 loans from $625,500 to $729,750 issued in New York City, all backed by the federal government, according to data analyzed by the Furman Center for Real Estate and Urban Policy at New York University. Fannie and Freddie accounted for the vast majority, with about 11 percent insured by the housing administration. Private lenders underwrote 1,737 loans above $729,750 with no federal backing.

The F.H.A. does not issue loans but instead offers private lenders guarantees against homeowner default. In 2006, the agency backed about 5 percent of the nation’s mortgages. In 2010, it insured a third of all loans. It backs loans in which down payments can be as low as 3.5 percent of the cost of the home.

Loans backed by the F.H.A. cannot be used to buy a co-op, according to the administration’s Web site. Condominiums need to obtain certification to be eligible, and in New York many have done that to broaden the pool of eligible buyers.

Steven Spinola, the president of the Real Estate Board of New York, which lobbied to have the loan limits raised, said it was good news for potential buyers across the city.

“We are thrilled that it is a two-year extension,” he said, describing the move as a recognition that the housing market still needed help. Had Congress not raised the limits, he said, “it would have been a disaster.”

If the lower limits had remained in place, private lenders would have needed to greatly increase the number of jumbo loans they backed, to make up for those no longer secured by federal agencies.

It remains to be seen if buyers will turn to the F.H.A. or whether private lenders will step back into the market, but the move ensures that the role of the F.H.A. is likely to grow in coming years.

Mark A. Willis, a research fellow at the Furman Center who helped analyze the data, said he was concerned that the private sector was not ready to increase lending so substantially, and that this reluctance would have made financing even harder to get. “Given the fragility of the housing market in general,” he said, “we worried that this might not be the best time to start pulling back government involvement.”

Beyond the specific question of loan limits, the question at the heart of the debate concerns the role the federal government should play in the mortgage market. About 90 percent of loans issued in the country are backed by the federal government.

While the growth of Fannie and Freddie has been well documented, the F.H.A., which traditionally helped first-time buyers or those with low to moderate income, has also greatly expanded its purview in recent years. There is broad agreement in Washington that the federal government should eventually have a smaller footprint in the mortgage market, but the question is how fast it can pull back without hurting the housing market.

The loan limits were increased in 2008 in direct response to the collapse of the housing market and the credit crisis. The Obama administration, in a position paper on the housing market released this fall, argued that lower loan limits would mean that “larger loans for more expensive homes will once again be funded only through the private market.”

But many in the real estate industry feared that with the private market not ready to fill the void, loans would be harder to get and home prices further depressed. They lobbied vigorously to reverse the lower loan limits.

The National Association of Realtors, which opposed lowering the limits, spent $17.6 million lobbying Congress last year, according to the Center for Responsive Politics.

This article has been revised to reflect the following correction:

Correction: December 2, 2011

In an earlier version of this article, the name of the president of the Real Estate Board of New York was misspelled. It is Steven Spinola, not Stephen Spinola.

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U.S. Mortgage Relief Program Widens Its Scope

Although he would appear to be a good candidate, Mr. Compton, 57, has been turned down twice for a federal refinancing program aimed at homeowners like him.

Still, he has renewed hope. That’s because the government is expanding the Home Affordable Refinance Program, which was meant to help homeowners whose mortgages are backed by the government and whose home values have declined sharply, even below what the borrowers owe. Mr. Compton is one of those underwater homeowners.

When the Treasury Department announced the program, referred to as HARP, two years ago, it said it could help four million to five million homeowners whose home values had plunged. Yet just 900,000 borrowers — whose loans are owned by Fannie Mae and Freddie Mac, the government-sponsored housing finance companies — have successfully refinanced through the program. Starting early next month, though, banks will begin using new criteria intended to make more borrowers eligible: raising the ceiling on how much owners can borrow over the value of their home as well as relaxing rules that might force banks to take back bad loans from the government. In announcing the change, the Federal Housing Finance Agency, which oversees Fannie Mae and Freddie Mac, carefully eased expectations, suggesting about 900,000 more homeowners would be helped, roughly doubling the size of the program to date.

Analysts welcomed the change, but some criticized it for still not capturing nearly enough of the people who could benefit from lower interest rates.

Of the 22 million borrowers who could be eligible for the government refinancing program, nearly 70 percent of them are paying interest rates of 5 percent or more, according to CoreLogic, a research firm. Conventional mortgage rates are currently closer to 4 percent.

Greater participation could help the beleaguered housing market, which showed renewed signs of decline in data released on Tuesday, as well as help shore up the broader economy.

“The universe is much larger than what has come through the pipeline,” said Paul Ballew, chief economist at Nationwide Insurance. Mr. Ballew said that if 10 million more people refinanced and saved an average of $200 a month, that would work out to be about $240 billion a year of additional spending power in the economy.

Other economists and officials of the Federal Housing Finance Agency say it is unrealistic to expect all those borrowers to refinance. Some people are wary of government programs, while others will be put off by upfront application fees and the paperwork burden. Those who have home equity loans or second mortgages could face tougher approvals.

Since the refinancing program is optional, lenders may impose additional restrictions. What is more, it is costly to devote staff to refinancing applications, so lenders may simply be reluctant to do so.

Mr. Compton has calculated that a refinancing would save him and his wife, Lynne, about $275 on their $1,397 monthly payment. He has not missed a payment, despite being laid off from one job and enduring two pay cuts in the last two years. His salary is now roughly two-thirds what it was when they bought the house five years ago — a house that has since fallen in value.

The loan servicer, JPMorgan Chase, initially turned down the refinancing application because the Comptons had been living in another, smaller property they owned while renting out their main house.

The couple moved back in September and reapplied after changing their drivers’ licenses and utility bills.

This time, a loan officer told Mr. Compton, who works as a public transportation planner, that he did not qualify because his loan had been sold to two different investors. Mr. Compton said he confirmed through a government Web site that his loan was now owned solely by Freddie Mac.

“It angers me quite a bit,” said Mr. Compton, who added that unlike other borrowers, he never took out a home equity loan during the boom and has consistently paid his bills. The refinancing program, he said, should be “a perfect fit for me.”

He suspects that Chase — as well as other lenders — believe “that if you just tell people ‘no’ often enough, eventually they will just say O.K., and move on.”

After being asked about Mr. Compton’s case, a Chase spokesman said the company was investigating his file. “We are reaching out to the customer to see if we could refinance him through HARP 2,” said the spokesman, referring to the expanded government program, “or offer another option.”

Meg Burns, senior associate director for housing and regulatory policy at the Federal Housing Finance Agency, said the agency could not control individual lenders.

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Economix Blog: Did Bad Loans Continue at Bank of America After 2008?

Bank of America is out with earnings on Tuesday. It had net income of $6.2 billion, or 56 cents per share, but that is not the part I found most interesting in a quick review of the numbers. Instead it is the progress, or lack of same, in getting past all the bad mortgages it sold into securitizations.



Notions on high and low finance.

In the quarter, the bank set aside only $278 million for representations and warranties claims. It is that number, not the $1.79 billion in charge-offs in the quarter, that affects reported profit.

I say “only $278 million” because that is the lowest quarterly figure for additions to that reserve at least since the fourth quarter of 2009, which is the first number I could find in a quick review of prior reports.

Here’s the trend:

Q4 2009: $516 million

Q1 2010: $526 million

Q2 2010: $1.248 billion

Q3 2010: $872 million

Q4 2010: $4.140 billion

Q1 2011: $1.013 billion

Q2 2011: $14.037 billion

Q3 2011: $278 million.

On its face, this is good news, a sign the problem is receding. After all, there was a limited number of representations and warranties that Bank of America — and more importantly Countrywide Financial — made, and someday the problem has to be over. The second-quarter provision was a huge one, a deliberate effort to take all the bad medicine there was.

But the decline was not because new claims have dried up. They amounted to $3.8 billion in the quarter, $99 million more than in the previous quarter.

In a commentary, the bank says the new claims come mainly from Fannie Mae and Freddie Mac, the government-sponsored enterprises. (You can find that commentary on Page 31 of the bank’s release.)

The demands from Fannie and Freddie, the bank says, “have become increasingly inconsistent with our interpretation of our contractual obligations.”

The process, it would appear, is getting nastier. The low provision does not mean final settlements are near.

One more note: Of the new claims in the quarter, $164 million came from mortgages sold in 2009 or later, a figure that is higher than in any of the previous quarters. That is well after Bank of America took over Countrywide, and after the mortgage market collapsed. It sounds like Fannie and Freddie are saying that bad practices continued.

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Stocks Trim the Day’s Deepest Losses

Analysts said that Wall Street’s drop was also a carryover from last week’s disappointing report on United States unemployment and from news that major American banks were facing a federal lawsuit related to their handling of mortgage securities.

While stocks slumped in early trading by about 3 percent, they curbed losses toward the end of the day. The Dow Jones industrial average of 30 stocks was down 0.9 percent, or 100.96 points, to 11,139.30. The Standard Poor’s 500-stock index lost 0.7 percent, or 8.73 points, to 1,165.24, The Nasdaq composite fell 0.3 percent, or 6.50 points, to 2,473.83.

Investors stayed with the security of fixed-income instruments. The Treasury’s benchmark 10-year note rose 3/32, to 101 9/32. The yield fell to 1.98 percent from 1.99 percent late Friday.

“The whole market is under pressure because of what is going on in Europe,” said Jason Arnold, a financial analyst with RBC Capital Markets.

The equity losses were reminiscent of those on Friday, when the Labor Department reported zero job growth in the United States economy in August. In addition, the market reacted to reports of impending legal action by federal regulators against 17 financial institutions that sold Fannie Mae and Freddie Mac nearly $200 billion in mortgage-backed securities that later soured. Investors fled financial shares, and on Tuesday the sector continued to be hit hard, closing 1.7 percent lower.

Bank of America and JPMorgan Chase each declined more than 3 percent. Bank of America fell to $6.99 and Chase to $33.44. Citigroup fell 2.5 percent to $27.70. Morgan Stanley was down nearly 4 percent at $15.33

Bank stocks, which are particularly sensitive to prospects for lending and housing, are seen as being at additional risk because of regulatory and legal issues after the lawsuits were filed on Friday. “There really has not been particularly good news in the financial space for a while,” Mr. Arnold said. “It is just waning optimism for financials.”

But most of the focus in the markets has been on the lack of progress in solving persistent euro zone debt problems, which “is creating a pocket of selling with no buyers,” said Alan B. Lancz, the president of Alan B. Lancz Associates. In addition, investors are concerned about the impact on global growth of weak economic data.

The market turmoil of recent weeks showed no signs of letting up. On Tuesday, gold rose to another nominal high, and Swiss authorities took action to weaken the franc, which has soared because of its role as a haven.

In the United States, economic data was scrutinized for any sign of strength in the country’s recovery. The Institute for Supply Management said Tuesday that the services sector of the economy expanded in August, the 21st consecutive month it has done so, as reflected in the 53.3 reading of the I.S.M. nonmanufacturing index, although expansion in some sectors, like business activity, was slowing down.

The survey exceeded forecasts assembled by Bloomberg News that pointed to a reading of 51. A reading of 50 is meant to be the dividing line between an expanding economy and a contracting one.

Debt concerns related to the euro zone, particularly over Greece and Italy; the bank lawsuits in the United States; and worries about economic growth were the biggest factors damping prices, Michael A. Mullaney, vice president of the Fiduciary Trust Company, and other analysts said.

“Friday set the tone with the employment report,” Mr. Mullaney said. “We are basically hard struck to find out where the growth engines are going to come from.”

The conditions were worryingly similar to those of the sell-off that followed the collapse of Lehman Brothers in 2008, Deutsche Bank’s chief executive, Josef Ackermann, said Monday.

In Zurich, the Swiss National Bank said it was setting a minimum value of 1.20 francs per euro and was prepared to spend an “unlimited” amount to defend it. The central bank was acting to help the country’s exporters, who fear being priced out of foreign markets by the strong franc.

Asian and European markets were lower. Gold futures eased slightly to $1,869.90 an ounce after rising more than 1 percent to more than $1,900 an ounce in Comex trading.

David Jolly and Bettina Wassener contributed reporting.

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