Underwater in California and Across the US

MOUNTAIN HOUSE, California: This town, 59 feet above sea level, is the most underwater community in America.

Because of plunging home values, almost 90 percent of homeowners here owe more on their mortgages than their houses are worth, according to figures released Monday. That is the highest percentage in the country. The average homeowner in Mountain House is "underwater," as it is known, by $122,000.

A visit to the area over the last couple of days shows how the nationwide housing crisis is contributing to a broad slowdown of the American economy, as families who feel burdened by high mortgages are pulling back on their spending.

Jerry Martinez, a general contractor, and his wife, Marcie, an accounts clerk, are among the struggling owners in Mountain House. Burdened with credit card debt and a house losing value by the day, they are learning the necessity of self-denial for themselves and their three children.

No more family bowling night. No more dinners at Chili's or Applebee's. No more going to the movies.

"We make decent money, but it takes a tremendous amount to pay the mortgage," Martinez, 33, said.

First American CoreLogic, a real estate data company, has calculated that 7.6 million properties in the country were underwater as of Sept. 30, while another 2.1 million were in striking distance. That is nearly a quarter of all homes with mortgages. The 20 hardest-hit ZIP codes are all in four states: California, Florida, Nevada and Arizona.

"Most people pay very little attention to what their equity stake is if they can make the mortgage," said First American's chief economist, Mark Fleming. "They think it's a bummer if the value has gone down, but they are rooted in their house."

And yet the magnitude of the current declines has little precedent. "When my house is valued at 50 percent less than it was, does this begin to challenge the way I'm going to behave?" he said.

Mountain House, a planned community set among the fields and pastures of the Central Valley about 60 miles east of San Francisco, provides a discomfiting answer.

The cutbacks by the Martinezes and their neighbors are reflected in a modest strip of about a dozen stores in nearby Tracy. Three are empty while a fourth has only a temporary tenant. Some of those that remain say they are just hanging on.

"Before summer, things were O.K. Not now," said My Phan of Hailey Nails and Spa. "Customers say they cannot afford to do their nails." She estimated her business had fallen by half.

At Cribs, Kids and Teens, Jason Heinemann says his business is also down 50 percent. He opened the store in early 2006; last month was his worst ever. "Grandparents are big buyers of kids' furniture, but when their 401(k)'s are dropping $10,000 and $20,000 a week, they don't come in," he said.

Heinemann laid off his one employee, a contribution to an unemployment rate in San Joaquin County that has surpassed 10 percent. He dropped his advertising in the local newspaper and luxury magazines.

As Heinemann's sales sink, he is tightening his own belt. "I used to be a big spender," he said. "We're setting a budget for Christmas."

In the window of another tenant, Wells Fargo Home Mortgage, a placard shows two happy homeowners holding a sign saying, "Someday we'll owe a lot less than we thought."

Someday, maybe, but not now. First American has been refining its figures on underwater mortgages, formally known as negative equity. The data company evaluated 42 million residential properties with mortgages. (Though Maine, Mississippi, North Dakota, South Dakota, Vermont, West Virginia and Wyoming were excluded because of insufficient data, none of those states have been central to the mortgage crisis.) A computer model was used to calculate current values, using comparable sales. More than 10 million homes do not have mortgages.

The figures rank the 20 ZIP codes that are furthest underwater. The 95391 ZIP code, which includes all of Mountain House and some properties outside it, has the unwelcome distinction of being first in the country.

Out of 1,856 mortgages in the ZIP code, First American calculates that nearly 90 percent are underwater. Only 209 owners owe less on their mortgages than the homes are worth.

The first homes in Mountain House were sold in 2003, just as the real estate boom began to go into overdrive. Its relative proximity to San Francisco drew many who traded a longer commuting trip for a bigger place.

The Martinezes bought their house in early 2005 for $630,000. It is now worth about $420,000. They have an interest-only mortgage, a popular loan during the boom that allows owners to forgo principal payments for a time.

But these loans eventually become unmanageable. In 2015, Martinez said, his monthly payments will be $12,000 a month. He laughed and shook his head at the absurdity of it.

They fear the future, so they stay home. They rent movies. They play board games. (But not Monopoly — with its real estate theme, it reminds them too much of real life.)

"It's a vicious circle," Martinez said. The economy is faltering because he and millions of others are not spending. This killed his career in home remodeling this year, and threatens his current work as a contractor on commercial properties.

For the moment, the family is just trying to hold on. But Martinez acknowledges that it has entered his mind to turn his house back over to the bank. "By next June, if things aren't better, I'm walking," Martinez said.

Many in Mountain House have already taken that option. Banks took over 101 properties in the 95391 ZIP code in the third quarter, according to DataQuick Information Systems.

Even relatively recent arrivals are feeling a pinch.

Kenny Rogers, a data security specialist, moved into Mountain House last year, buying a foreclosed property on Prosperity Street for $380,000. But the decline in values has been so fierce that he too is underwater.

He has cut his DVD buying from 50 a month to perhaps one, and is waiting until the Christmas sales to buy a high-definition television. He does not indulge much anymore in his hobbies of scuba diving and flying. "Best to wait for a better price, or do without," Rogers, 52, said.

People deciding to do without are hurting a second mall close to Mountain House. There is a shuttered Linens 'n Things, part of a chain that went bankrupt. Another empty storefront used to be a Fashion Bug. Soccer World could not make it. Shoe Pavilion is festooned with going-out-of-business signs.

Chris and Janet Ackerson can survey this carnage from their own store with a certain equanimity. Their business, a member of the Vino 100 chain of wine outlets, is doing well.

The store opened at the beginning of the year, so long-term trends are not clear. But sales did not plunge in the last few months as they did for so many other retailers. Four more people joined the store's wine club last weekend.

"My house is underwater, so I'm not doing too much impulse shopping or any renovation. But I'm not cutting back on this," said Ray Lopez, a database administrator, as he placed a $24 petite sirah on the counter. "Life's too short."

To find out more about your own state, click on the link below.

http://www.nytimes.com/interactive/2008/11/10/business/20081111_MORTGAGES.html?hp

A Guide To Avoiding Foreclosure

http://www.hud.gov/foreclosure/

Credit Card Debt Forgiveness Could Be On the Way

Reporting from Washington -- With defaults on credit card debt spiraling amid a global financial downturn, banks already reeling from the mortgage crisis are losing billions more from unpaid credit card bills.

Big banks have formed an unusual alliance with consumer advocates to urge the government to allow huge portions of credit card debt to be forgiven, a turnabout from recent years, when the banking industry lobbied strenuously to make it harder for consumers to erase their credit card debts in bankruptcy.

The pilot program -- which the banks hope will become permanent -- could involve as many as 50,000 people struggling with credit card debt. On an individual basis, the amount of debt to be forgiven would rise according to the severity of the borrower's financial situation, up to a maximum of 40%.

"There's obviously a financial benefit to the financial institutions to step up to the plate right now," said Susan Keating, president and chief executive of the National Foundation for Credit Counseling, which has 108 member organizations around the country. "We absolutely support the proposal."

In an increasingly tough economic climate, banks and other mortgage lenders have been agreeing to modify loans of homeowners to help them avoid foreclosure. Now, banks making credit card loans have reached a point where they can lose less by forgiving part of the debt than by seeing the consumer walk away entirely.

Credit cards -- now an integral part of American life and the economy -- appear to be the latest domino to fall in a financial crisis that started with subprime mortgages and continually takes new twists.

Credit card charge-offs, balances written off as unpaid, rose to 6.8% in August, up 48% from a year earlier, according to Moody's Investors Service.

Americans are burdened with about $900 billion in credit card debt, according to the latest available Federal Reserve figures. 

The proposal pitched to federal regulators by the Financial Services Roundtable, which represents more than 100 big banks and other financial companies, and the Consumer Federation of America would allow lenders to reduce the amount of credit card debt owed by deeply indebted consumers in a pilot program.

It recognizes that "there are some critical problems with credit card debt," said Bert Ely, a banking industry consultant in Alexandria, Va. "We're going to see more of these efforts to try to minimize the situation."

Under the groups' proposal to U.S. Comptroller of the Currency John Dugan, whose Treasury Department agency oversees national banks, a pilot project would allow big credit card companies to sharply reduce the amounts owed by consumers in over their heads who don't qualify for the repayment plans now available.

Nearly all the biggest credit card banks have agreed to such a pilot program, in which lenders would forgive as much as 40% of the amount consumers owe, allowing them to pay back the remainder over time.

The program could reach as many as 50,000 borrowers, said Scott Talbott, senior vice president of the Financial Services Roundtable. Borrowers would have to be in a counseling program for their debt. The amount to be forgiven would depend on the borrower's financial condition; those receiving close to the maximum forgiveness level would be nearing a personal bankruptcy filing.

And there would be a tax benefit. Borrowers would be able to defer payment of income taxes they owed on the forgiven part of the debt until after the remainder was paid off. The lenders could wait until then to book their losses on the forgiven debt.

"Both parties win," Talbott said.

Current government rules don't allow lenders to offer repayment plans that reduce the amount of principal owed and borrowers to repay the balance over several years. In credit card settlement cases in which the principal can be reduced, borrowers normally are required to pay off the remainder over months rather than years.

Kevin Mukri, a spokesman for the comptroller's office, and Peter Garuccio, a spokesman for the American Bankers Assn., declined to comment.

Is Credit Repair "Fixed"?

With foreclosures, short sales and credit card defaults at record levels, an aggressive breed of firms has sprung up, offering to power-wash consumers' damaged credit files and boost credit scores, thus eliminating records of bankruptcies and mortgage delinquencies, even when the information is accurate.

Such services -- promoted widely on the Internet and in radio ads -- are especially attractive to people who want to buy a house but whose credit scores are too low for a mortgage through the Federal Housing Administration, Fannie Mae or Freddie Mac.

The problem with these companies, federal and state authorities say, is that their promises may be deceptive and illegal. On Oct. 23, the Federal Trade Commission and 24 state agencies announced Operation Clean Sweep, targeting credit-fix-up operations nationwide that allegedly take consumers' money in exchange for boosts in credit scores that they cannot deliver.

In the first phase of the campaign, the FTC filed suits against seven companies, alleging multiple violations of the Credit Repair Organizations Act and the Federal Trade Commission Act. Under the credit-repair law, organizations or individuals cannot collect fees upfront from customers before rendering services to amend their credit bureau files. That law also prohibits companies from promising improvements that are not feasible, such as elimination of accurate records on foreclosures and bankruptcies, which typically remain on national bureau files for seven to 10 years.

The FTC said its actions were prompted by more than 4,400 consumer complaints against firms in 22 states. Working with state agencies and information from local Better Business Bureaus, the commission investigated credit-repair companies' Internet pitches and other advertising, and sometimes had investigators pose as potential clients to document allegedly illegal pitches.

In one case involving a company in North Miami Beach, Fla., called Clean Credit Report Services, the commission says radio advertisements promised that "the negative marks that appear on your credit report can be removed . . . legally. Things like late payments, collection accounts, charge-offs, repossessions, bankruptcy and identity theft. Clean Credit Report Services will remove all the negative remarks . . . in as little as three months."

The FTC's suit against the company also quoted a sales representative as promising that within "45 days to four months," the firm would find "the best solution to get those [negative] things deleted for you so that your credit score can increase. We want to get your scores at least between the 650 to the 700 . . . mark, but we have had clients [increase] even higher than that."

The FTC suit says customers typically sign a contract for services and must "pay an advance fee of approximately $400" before proceeding.

The FTC's action "is completely unmerited," said Daniel Miranda, a co-owner of Clean Credit Report Services. The firm does not promise to remove accurate derogatory information from credit files, he said, and does not collect fees for credit repair in advance.

Instead, he said, "every customer is offered a product" -- a compact disc plus a book that provide instructions on how consumers can improve their credit files on their own. The cost of the CD and book, according to the company's Web site, is $399.95 plus $9.95 shipping and handling. Money collected from customers upfront "is for the product," Miranda said, and the firm performs a "voice-recorded verification" that consumers understand "they are paying for the product."

Consumers who wish to proceed with credit-file repair services join a "club" with no cost for the first two months and pay $12.95 per additional month. Asked whether more than $400 is a reasonable charge for a book and a CD, Miranda said that "the value of that product is far beyond" what the company charges.

The FTC's suit alleges that once clients have paid, Clean Credit does "little, if anything, to fulfill the promises made to consumers." When unhappy customers complain, according to the FTC, they are "sometimes hung up on, put on hold, or ignored."

In an interview, Miranda denied those allegations and said the company has assisted more than 75,000 clients, of whom about 150 have filed complaints with the Better Business Bureau.

Resolution of the Clean Credit case and the others in Operation Clean Sweep will be up to federal courts in the coming months. But the takeaway for home buyers and others seeking to rapidly boost their credit scores is this: Whatever salespeople may tell you, it is impossible to legally remove a valid record of a severe default, bankruptcy or foreclosure from your files. On the other hand, it may be possible to remove inaccurate or outdated records.

Finally, if anyone requires money upfront, walk away. It's against federal law.

Borrowing Against Equity Is Getting Rare

The amount of money U.S. homeowners pulled out of their homes remained at a four-year low in the third quarter as higher mortgage rates cut the number of borrowers who refinanced, Freddie Mac said today.

Homeowners "cashed out" about $99 billion in home equity during the first three quarters of the year, the lowest since the first nine months of 2004, according to the McLean, Va.-based mortgage finance company.

The $99 billion is half the amount taken out of equity over the first nine months of 2007, said Amy Crews Cutts, Freddie Mac deputy chief economist.

About $30 billion in home equity was cashed out through refinancing of loans made to prime borrowers in the third quarter — $10 billion less than the second quarter, she said.

In the third quarter, 78 percent of homeowners who refinanced loans purchased by Freddie Mac cashed out at least 5 percent of their equity.

"Higher mortgage rates during the third quarter reduced the number of borrowers that refinanced solely to obtain a lower interest rate or shorter term," said Frank Nothaft, Freddie Mac vice president and chief economist

Nothaft said borrowers who did refinance wanted to cash-out some of their home equity or to move from an adjustable-rate mortgage to a fixed-rate loan.

Economists watch these numbers closely because it affects consumer spending and investment decisions.

Consumer spending, which accounts for two-thirds of total economic activity, remains under severe strains, as the downturn in home prices, combined with rising food and energy costs, have hurt consumer confidence.

High End Homes Move at a Snails Pace

As the luxury real-estate market slows to a snail's pace, real-estate brokers find themselves struggling to sell a growing number of "trophy homes" that are quietly gaining a new title: white elephants.

The term hails from a legend that Siamese royalty gave albino elephants -- revered but financially ruinous to maintain -- to unpleasant courtiers. Today, the financial burden of carrying an overly big, overly unique manse is being shared by many wealthy owners, who are finding out the hard way that not everyone is willing to pay up for their vision of a dream home. Realtors concede a growing number of these pricey pachyderms are sitting unsold for months and selling at steep discounts, if at all.

Some sellers are getting creative. On Thursday, the owners of Castlewood, a gothic castle in West Orange, N.J., hosted a live jousting competition to generate buzz among real-estate brokers. Designed in the 1850s, the 5,000-square-foot stone house is on two acres and features two towers, a staff apartment and a round bedchamber with a 28-foot-high domed ceiling. On the market for two years, the homeowners switched to a new agent, Sam Joseph of Re/Max Village Square and dropped the asking price to $2 million from $2.8 million, originally.

For most of the housing market's history, homeowners knew that big custom-designed homes that aren't in scale with their environs might eventually cost them. "You build [a white elephant] because you were successful in your career and you want to treat yourself," says Ed Kaminsky, who runs Premiere Estates, a California-based luxury auctioneer that specializes in marketing unique, hard-to-value houses. "But you can't expect to get your money out."

But it seems that tenet was forgotten during the boom. And in the meantime, formerly profligate consumers have become extremely price-conscious, says Gregory Hague, owner of Arizona-based Hague Partners, an affiliate of Christie's Great Estates. "It used to be that buyers looked for something that got them excited and emotionally engaged and then tried to negotiate a good deal. Now they're looking at price first."

Steven L. Good, head of Chicago-based real-estate auction firm Sheldon Good & Co., says the division of the company that specializes in selling homes that cost from $1.5 million up to $40 million has seen a sharp increase in offerings in the last year from wealthy homeowners who are frustrated because their homes aren't selling. And real-estate Web site Zillow.com turns up a number of unsold homes whose price tags and amenities are far fancier than their immediate environs might suggest.

In Broadview, a Seattle neighborhood known mostly for modest ranch houses, an Italian-style villa for sale features a four-car garage and an indoor koi pond. Nearly 10,000 square feet, the house has an asking price of $2.75 million and has been on the market for over a year.

Barney Garton, the listing agent, says the home's rare Puget Sound views make it "a great value." He says it hasn't sold because of its "unusual" architecture and the downturn.

In Truckee, Calif., a lake community about 17 miles north of Lake Tahoe, a $3.95 million lakefront contemporary house with an elevator, indoor lap pool and two garages stands out from the neighboring A-frame log cabins. Built in 1985 and designed by the owner's son, an architect, it was listed in June and is the most expensive house for sale on the lake. While it's received less traffic than expected, the owner is in no hurry to sell, says one of the listing agents, Charles White, of Donner Lake Realty. A more recently remodeled home with fewer amenities but more lake frontage recently sold for about $3 million.

In Dallas, Braden Power, a developer of apartment complexes, spent more than seven years designing and building his dream house: an 8,500-square-foot showpiece with contemporary, traditional and Moorish influences that opens to a central "natatorium," a double-height entrance courtyard with marble floors, two fireplaces, a mezzanine balcony and a central fountain and reflecting pool deep enough to swim in.

Mr. Power spared no expense: He hired an army of both traditional and contemporary designers. The automated exterior and interior lighting systems cost $500,000; the chandeliers are hand-carved, the floors are all solid marble or limestone (both indoor and outdoor) with radiant heating -- a rarity in Dallas where the temperature seldom dips below 40 degrees.

"This house was basically a creative outlet," says Mr. Power, who says his inspirations were the Los Angeles and Miami boutique hotels designed by Ian Schrager.

But last year, Mr. Power decided the home was too big for a bachelor and he put it up for sale, unfinished. With a price tag of $13 million, it attracted a flurry of local press.

Despite being located on three-quarters of an acre on picturesque Turtle Creek, the home didn't sell and now Mr. Power has relisted the house for $9.8 million with Doris Jacobs, of Allie Beth Allman & Associates.

Although Mr. Power acknowledges that he may not recoup his building and carrying costs, he says the home will become a good investment if fans of the design purchase his architectural plans and custom molds.

He has no regrets about building the house. "Honestly, this house is a dream to me," says Mr. Power, who also plans to list the home for rent. "I think it's the most perfect place that I've ever been in in my life."

What is a 'Good' Credit Score

You've sent for your credit report and paid extra for your credit score. Now what?

You probably sent for it because you want to know one thing: How good (or bad) is your credit?

But instead of a straight answer for your trouble, your report consists of a list of current and past debts plus a number. And what that number means can vary widely.

"Every company sets its own criteria," says Maxine Sweet, vice president of public education for Experian, one of the three major credit bureaus.

At the same time, that number is becoming more important in everyday life, as everyone from insurance companies to potential employers have started looking at credit histories and scores.

"More nontraditional types of entities are using credit scores," says Janet Garkey, editor with the Credit Union National Association's Center for Personal Finance.

While credit ratings and credit scores take on more meaning and importance in everyday life, so do the misunderstandings and misconceptions that surround them.

Myth: There's just one type of credit score.

"There are a lot of different scoring models out there," Garkey says. Making it even more confusing, different creditors will look at different factors, she says. "They don't necessarily look at the same thing."

Many larger financial institutions have their own scoring system (which you may or may not ever see). Credit bureaus also have their own separate scoring system, which they sell to creditors and consumers. Several years ago, the three bureaus banded together to introduce a new numerical rating system.

Dubbed the Vantage score, it runs from 501 to 990 and also gives consumers an academic letter grade.

But when it comes to credit scores, one of the most common versions is the FICO score. "It's the 800-pound gorilla," says Craig Watts, public affairs manager with Fair Isaac Corp., the company that pioneered credit scoring and introduced FICO scores nearly 20 years ago.

A FICO score can range from 300 (very bad) to 850 (very good). The median is 723, according to Fair Isaac statistics.

Some reassuring news: The majority of consumers still have good credit. Forty-five percent of consumers have a score between 700 and 799, and 13 percent score above 800, according to statistics from Fair Isaac.

Just like the SATs, perfect scores are rare. Even though 850 FICO scores do exist, high scores taper off around 825, says Sweet. "You can't get much better -- that's pretty much walking on water," she says.

Now for the rest of the population: 27 percent rank above 600, and 13 percent weigh in above 500. Only 2 percent have 500 or below, according to Fair Isaac numbers.

Myth: There's only one yardstick for assessing what the numbers mean.

Even with the same brand of credit score, different lenders will set different ranges for what constitutes good, better and solid-gold credit ratings.

What Lenders Want To See...Read More

The "Green" Curb Appeal

Reporting from Washington -- There is no question that green has captured the imagination, if not the pocketbooks, of new-home buyers. But that raises a question: What can sellers of existing homes do to compete with builders for the hearts and minds of potential green-leaning customers?

As it turns out, the answer is: plenty. It's just a matter of how much money you want to spend. You can turn your place into at least a pale shade of green for, say, no more than $500. Or you can go all-out by spending thousands.

Obviously, you won't be able to go whole hog. You can't do anything about the house's orientation to the sun, for example, and you can't extend the roof's overhangs.

But it doesn't cost all that much to switch out the lightbulbs or install water-saving devices. And although it is far more expensive to replace outdated appliances or leaky windows, it may prove more costly in today's market not to make those kinds of improvements.

Green is "an additional power play," says Michael Kiefer of Green DC Realty in Washington, one of a growing cadre of environmentally conscious realty professionals. "In a market where not everything sells, you need to differentiate. If you can stand out there alone, you really need to do that."

No, you might not recoup your cost, dollar for dollar. But depending on how effectively you market the place, you should be able to sell at closer to your asking price.

You also could end up selling faster. At a time when many houses are sitting unsold, the importance of speed can't be overstated.

"Faster is money, too," says Kiefer, a certified eco-broker, which is a relatively new professional designation awarded by the National Assn. of Realtors to members who complete an advanced curriculum and demonstrate a proficiency in sustainability.

Why list with an agent who is going to advise you to do something that's essentially common knowledge? After all, doesn't everyone know that it's a good idea to wrap water heaters with insulation or install ceiling fans?

"We go into dozens of houses every week. We see what sells and doesn't sell, and we can provide an objective view," Kiefer says. "If I can sell your house in one month or in six months, I get paid either way. But I'd rather see you sell sooner and without three or four price drops."

To see where your house stands on the green spectrum, Kiefer suggests asking the utility company for an energy audit or hiring an independent home inspector to go over the place and let their findings be your guide. Do what they recommend now, he says, before problems come back to bite you.

"You want your contract to go through with as few hiccups as possible," Kiefer says. 

Of course, you can hope an inspector hired by the buyer overlooks some of your home's flaws. But is now the time to bury your head in the sand? Even if your buyer decides to make the repairs after the deal closes, he or she is likely to want a credit that's twice as much as it would have cost you to make the fixes in the first place.

Another reason for greening up is to demonstrate to would-be buyers that you were serious about keeping your home in peak condition. According to the Joint Center for Housing Studies at Harvard University, most owners spend less than $1,000 a year on maintenance, which isn't enough to keep most homes running properly.

Still, simple and fast green improvements will probably have little effect on what a buyer is willing to pay for your house. Dan Fritschen, founder of www.remodelormove.com, a website that compares the cost of staying put with moving, warns that "it is a big gamble" to assume someone will pay extra for them.

Nevertheless, if the idea is to stand out from the crowd, here are some things you can do to be green, from the easiest to the more complex:

* Lightbulbs: In permanent fixtures, replace your regular bulbs with compact fluorescent bulbs. CFLs use only one-fifth the energy of regular bulbs and last about 12 times longer.

* Water: Switch to low-flow shower heads and faucets, and adjust the float in the toilet tank. Wrap your water heater in a blanket of insulation and insulate the pipes that distribute hot water to your fixtures.

* Thermostat: Replace your dial-type thermostat with an electronic one that can be programmed to change the temperature when you are asleep or not home.

* Doors: New front and back doors not only dress up the place but also help save energy.

"New exterior doors and windows that are energy-efficient are a great investment," says Fritschen, often increasing the value of the home by the same amount as they cost to buy and install.

* Appliances: If your refrigerator and stove are old, they will probably be the first things the buyer jettisons after moving in. So do yourself and the buyer a favor -- replace these appliances now. And go the extra mile by upgrading to energy-efficient models. You're likely to get back what you pay and then some, Fritschen says.

* Flooring: If the linoleum floor in your kitchen is worn through, consider replacing it with something made from a renewable source, such as bamboo or cork.

* Recycled materials: Using salvaged or recycled materials can be a winner for both your wallet and the environment.

When is a Recession a 'Recession', Maybe Now!

NEW YORK -- A recession isn't officially a recession until the National Bureau of Economic Research says it is.

You don't have to wait for them, though. The nonpartisan group often doesn't declare a recession until after it's over _ but when unemployment is high as incomes fall, you may know it's a recession long before any economic brain trust has made it official.

Take, say, most of this year. If it has felt like a recession to you, you're not alone.

Alan Greenspan, a former Federal Reserve chairman, said after Bear Stearns collapsed in March that "the current financial crisis in the U.S. is likely to be judged as the most wrenching" since the end of World War II. And Harvard professor Martin Feldstein, former head of the National Bureau of Economic Research, said that month he believed the country was in a recession that could be severe.

Here are some questions and answers about how a recession is declared:

Q: Who decides when a recession has begun?

A: The National Bureau of Economic Research, a private, nonprofit research organization, is the arbiter of recessions.

The group, founded in 1920, has more than 1,000 university professors and researchers who act as bureau associates, studying how the economy works. Sixteen of the 31 American Nobel Prize winners in economics and six of the past chairmen of the president's Council of Economic Advisers have been NBER researchers.

The group's Business Cycle Dating Committee makes the call on recessions. The small committee _ recently it had only seven members _ is made up of experts on the economic peaks and valleys that comprise expansions and recessions.

Q: What qualifies as a recession for the NBER?

A: The NBER's definition of a recession is a significant decline in economic activity spread across the economy, lasting more than a few months, normally visible in real GDP, real income, employment, industrial production and wholesale and retail trade.

GDP _ short for gross domestic product _ is a measure of the value of all goods and services produced within the United States.

A recession's start and end dates are based on the high and low points within the nation's "business cycle" _ periods of economic growth and contraction. A recession begins when the economy peaks at the top of an expansion period. It continues as the economy contracts until it hits the "trough," the lowest point in the downward cycle. After that, the economy begins to recover. The "peak" date is the beginning of a recession and the "trough" date is its end.

The last official recession began when the economy peaked in March 2001. It lasted eight months, ending in November 2001, when the economy hit its bottom for that business cycle. Previously, the economy had expanded for 10 years.

The NBER often doesn't make its recession calls in what feels like a timely manner because its Business Cycle Dating Committee waits for the most accurate revised data _ which can take a year or more to calculate. The committee didn't announce the March 2001 peak and the onset of the last recession until November 26, 2001 _ the month that recession ended. It didn't announce the November 2001 trough until July 16, 2003, more than a year and a half after it was over.

Q: How does the NBER determine the ups and downs?

A: The NBER views real gross domestic product, the broadest measure of the economy, as the best measure of economic activity, but it uses many other indicators, since GDP is subject to considerable (and time-consuming) revision.

The classic definition of a recession is two consecutive quarters of declining GDP. But not every recession has fit that description. And sometimes waiting for the most accurate GDP numbers would mean waiting for years after the recession ended. If the group had waited for data showing two quarters of decline in 2001, it wouldn't have been able to say that recession had started until August 2002.

That's why the NBER also examines monthly indicators, especially real personal income, employment, industrial production and retail and wholesale sales volume _ with no fixed formula for how each of the different indicators is weighted.

Q: Since the recession may be over by the time it's officially declared, why bother setting the dates?

A: If the official recession call seems academic, it often is. Most times, by the time a downturn has been labeled a recession, it's wrapping up. That's why policymakers follow so many economic indicators themselves _ so they can keep their own gauges of how the economy is doing.

By officially calling recessions, however, the NBER helps policymakers, economists and historians chart the past and find patterns in the downturns we've already experienced.

Nearly One-Fifth of US Homeowners Upside Down on Their Houses

(CNNMoney.com) -- At least 7.5 million Americans owe more on their mortgages than their homes are currently worth, according to a real estate research firm's report released Friday.

In other words: If they sold their homes today, they'd have to bring a check to the closing. Ouch.

Another 2.1 million people stand right on the brink, according to the report by First American CoreLogic. Their homes are worth less than 5% more than the mortgages they're paying on them.

The technical term for this phenomenon is negative equity; more colloquially, these borrowers are often referred to as being "underwater."

"Being underwater leaves homeowners vulnerable to foreclosure," said Mark Fleming, CoreLogic's chief economist.

That's because these borrowers are left with no home equity to tap - via refinancing or a home equity loan - if they run into financial trouble. Negative equity has contributed much to the soaring increase in foreclosures over the past year.

The report on the growing problem of negative equity is a conservative estimate. Some organizations, including Moody's Economy.com, estimate that as many as 12 million borrowers may be underwater.

"Being underwater doesn't necessarily mean that you can't pay your bills," said Fleming, "but it's a necessary condition of default."

Borrowers who are underwater but have enough income to pay bills can keep up with their mortgages - even if they don't like paying more to live in a home than it's currently worth. On the other hand, anyone who runs into trouble paying their bills but has positive equity in their home can avoid foreclosure by either borrowing against their home or simply selling it.

Hardest hit

Nevada, where home values plunged by more than 30% during the past 12 months, according to the latest home price report from S&P Case-Shiller, tops the list of states with the highest numbers of underwater borrowers. A full 48% of homeowners there have negative equity.

Home values in Nevada and some other states rose particularly high during the real estate bubble - and are now plummeting. So even those who put 20% down when they bought their home don't stand a chance.

In many bubble markets, home prices got so high that the only way that many buyers could get a loan was by using what Fleming called "affordability products." These included adjustable rate mortgages with rates that were set artificially low for a few years, until resetting much higher, as well as mortgages that required little or no down payments.

These loans left buyers with little equity to begin with, and when prices dipped, they quickly found themselves underwater.

Other bubble states with high levels of negative equity include Arizona (29.2%), Florida (29.2%) and California (27.4%).

The second group of states that have a lot of underwater borrowers are in the rust belt region, including Michigan, where 39% of homeowners have negative equity, and Ohio, where that rate stands at 22%.

These regions are in trouble because of severe economic reversals and large-scale job losses, rather than inflated home values. And now prices have fallen far enough to put many borrowers in negative territory. Some of them may have already tapped their equity to tide them over in hard times, and have little cushion left.

The third group of states where many borrowers owe more on their homes than they are worth are in trouble mainly because, according to Fleming, they've experienced a large influx of immigration.

Newcomers in states like Texas (16.5%), Georgia (23.2%), Arkansas (16.3%), and Tennessee (15%) bought homes recently and simply didn't have much time to build up equity before prices started to fall he says.

The markets with the fewest underwater borrowers include New York, where only 4.4% of homeowners have negative equity, as well as Hawaii ( 5.6%), Pennsylvania (5.7%) and Montana (6.9%). 

Appreciation is the Name of the Game

Real estate specialists who view the economy on a large screen are confident that those with the nerve to buy a home in the current market will one day be glad they did—particularly if they're now able to capture a quality property in a desirable neighborhood at a bargain price.

"Throughout history, property markets have always gone through cycles. Buying smart now means picking one of those prime neighborhoods where values will be among the first to rebound," says Barry Nystedt, a real estate broker and president of the National Association of Exclusive Buyer Agents ( www.naeba.org).

Nystedt, who considers this an opportune time for first-time buyers to make a purchase, predicts that values in many coveted communities will very gradually begin rising during the next six to 12 months. In areas where the economy is weak, however, he says prices could remain stagnant for three years or longer.

"Right now there are too many properties for sale in lots of places. But in areas where inventories are starting to tighten, you should soon begin to see signs of recovery," he says.

Are you a prospective first-time homebuyer with money in the bank for a down payment and a strong urge to leave your rental unit for a nest of your own? Do you expect to be living in your first home for at least three to five years? If so, Nystedt encourages you to consider buying soon—making sure you choose a neighborhood that seems poised for appreciation in the next few years.

"Watch out for the spin that some listing agents will put on the areas where they happen to be working. To a large extent, you need to educate yourself and do your own research," Nystedt says.

Here are pointers on neighborhood selection:

Seek out a community grounded by a strong job base. Neighborhoods with a strong employment base are proving remarkably recession-proof, says Sid Davis, a real estate broker and the author of "A Survival Guide for Buying a Home."

"Aging Baby Boomers need more health care, and this is one factor that has kept communities around medical centers strong in terms of housing demand. The nurses, doctors and technicians working there are not at risk for losing their jobs," Davis says.

He also recommends you consider buying in the vicinity of a major university.

Still another segment of the economy that should do well within the next several years: places where "green companies" are thriving. These are firms involved in environmental engineering work or alternative energy development.

Look for a "walkable" community. Whether due to high gas prices or roadway congestion, many Americans are fed up with what Davis calls "the car life." They're tired of total dependence on cars to reach work, shopping and their kids' schools. They dream of living in a community where they could safely walk or bike to a good movie, a fine restaurant or a local ice cream parlor.

In reality, there are still relatively few areas outside big cities where people can walk to work or leisure activities. But an increasing number of communities are hooked into mass transportation systems that let people whiz to their destinations without driving.

Search for a subdivision with top-quality construction. Is your plan to make your first home one that's new or nearly new? If so, you'll want to be sure you're buying in an area where the builder has a reputation for high-quality construction. That's because homes that are durable and weather well are more likely to gain value as the years pass.

"You need to know if the builder has honored his warranties and fixed all the issues that need fixing," Nystedt says.

Find a neighborhood with sales momentum. Davis says there's much you can learn about a neighborhood simply by examining its real estate sales data from the past three months.

One key set of statistics that he likes are "list to sale" numbers. These reflect the difference between the asking price and the final closing price for any given sale. If, on average, the gap between these two figures for local home sales is narrowing, then the area's market is apparently improving.

Another positive sign of momentum for the community should show up in statistics for "days on market." If homes are selling more quickly than in prior months, this likely indicates that a neighborhood is rebounding.

400,000 Countrywide Mortgage Holders to get Some Relief

USA TODAY-Nearly 400,000 homeowners will be able to get more affordable loans after Bank of America(BAC) agreed Monday to modify mortgages that originated with its Countrywide Financial unit. The move could be worth more than $8.6 billion and mark the largest predatory lending settlement in history.

Monday's deal settles claims brought by attorneys general in 11 states that accused Countrywide — acquired in July by BofA — of misrepresenting loan terms, loan payment increases and borrowers' ability to afford loans.

Bank of America says it will restructure loans for Countrywide customers holding subprime mortgages and option adjustable-rate loans that permit borrowers to pay only a small portion of interest and principal owed each month. Some might wind up in new fixed-rate loans; others might not.

But the Bank of America deal represents only a fraction of the future defaults and foreclosures facing homeowners. There were more than 2.2 million foreclosure filings in the USA in 2007.

EVEN MORE DETAILS: Read Bank of American's press release

"There could be a couple million more (foreclosures to come), so it begins to put a price tag on the problem and how expensive it is," says economist Joel Naroff at Naroff Economic Advisors.

Pat Lashinsky, CEO of ZipRealty, says as many as 6 million homes will have gone through a short-sale or foreclosure before this housing slump is finished.

Expect more states to file claims against predatory lenders, predicts Roger Cominsky of Buffalo, a lawyer at Hiscock & Barclay who specializes in financial institutions and lending issues.

Under the terms of the agreement with Bank of America, eligible homeowners must occupy the home as their primary residence. Their mortgages must be seriously delinquent — or likely to become so. Loans must have been serviced by Countrywide and originated prior to Dec. 31, 2007. Modifications will include lower interest rates and principal reductions.

How borrowers will be helped: 

•First-year payments of principal, interest, taxes and insurance will be restructured to equal 34% of borrower's income.

•Effective immediately, no foreclosure sales can be initiated or proceed against borrowers who are likely to qualify for loan modification until a final decision is made on eligibility.

•No restructuring fees will be charged. Prepayment penalties will be waived.

"We will be proactive," says Bank of America's Daniel Frahm. "Effective Dec. 1, we'll start reaching out to homeowners."

Some $150 million has been set aside for borrowers in certain states who suffered foreclosure or are at serious risk of foreclosure, and another $70 million is earmarked for relocation assistance to borrowers unable to keep their homes.

The attorneys general in West Virginia, California, Connecticut and Illinois had sued Countrywide over its business practices.

"Countrywide's lending practices turned the American dream into a nightmare for tens of thousands of families by putting them into loans they couldn't understand and ultimately couldn't afford," California Attorney General Edmund Brown said Monday in a statement.

JP Morgan Agrees to Keep Customers out of Foreclosure

 (Bloomberg) -- JPMorgan Chase & Co., the largest U.S. bank by market value, said it won't begin new foreclosure proceedings on some loans while it finds ways to make payments easier on $110 billion of problem mortgages.

Within the next 90 days, the bank, which two weeks ago accepted a $25 billion cash infusion from the government, will examine loans and may agree to reduce interest rates or principal amounts, New York-based JPMorgan said today in a statement. It will also open 24 centers to provide counseling in areas with high delinquency rates.

Congress has been urging financial-services companies to work with borrowers and avoid foreclosures, which rose to the highest on record in the third quarter. Bank of America Corp. said it will help more than 630,000 at-risk borrowers stay in their homes. States pivotal to the Nov. 4 U.S. election, including Florida, Ohio and Nevada, had some of the highest foreclosure rates, according to data compiled by RealtyTrac.

``Politics is playing such a huge role in this process, the banks have to be very cognizant of how they're perceived,'' said Charles Peabody, partner and research analyst at Portales Partners LLC in New York. ``What they want to do is show they deserve this good deal from the government by helping out the average man.''

Federal Deposit Insurance Corp. Chairman Sheila Bair has proposed a plan to guarantee mortgages to help stem foreclosures, according to two congressional aides briefed on the matter. Her idea is to use as much as $50 billion of the $700 billion financial-services industry bailout package approved by lawmakers this month.

`Welcome Development'

Bair called the JPMorgan plan a ``welcome development'' for the $10.6 trillion mortgage market.

``A clear consensus is emerging that broad-based and systematic loan modifications are the best way to maximize the value of mortgages while preserving homeownership,'' Bair said in an e-mailed statement. That process will help ``stabilize home prices and the broader economy,'' she said.

The JPMorgan program is expected to help 400,000 families with $70 billion in loans in the next two years, the bank said. An additional 250,000 families with $40 billion in mortgages have already been helped under existing loan-modification programs.

``We felt it is our responsibility to provide additional help to homeowners during these challenging times,'' said Charlie Scharf, chief executive officer of retail financial services at JPMorgan Chase. ``We will work with families who want to save their homes but are struggling to make their payments.''

Bank of America

Bank of America announced two plans this year to help reduce customers' payments by as much as $11 billion and keep them in their homes, including Countrywide Financial Corp borrowers. In total, they will cover more than $120 billion in unpaid balances.

Countrywide, the mortgage lender acquired by Bank of America, agreed earlier this month to help about 400,000 customers facing foreclosure or having problems paying their loans as part of settlement with 11 states over fraud complaints.

Citigroup Inc. has modified loans to keep approximately four distressed borrowers in their homes for each completed foreclosure, the New York-based lender said today in a statement.

JPMorgan said today it would hire 300 loan counselors to help delinquent homeowners and employ about 150 people to review each mortgage before it's sent to the foreclosure process. Other employees will be added to staff the regional counseling centers.

JPMorgan, which has lost 5.5 percent this year on the New York Stock Exchange, rose $3.63, or 10 percent, at 4:15 p.m. The KBW Bank Index of 24 companies advanced 4.4 percent.

WaMu, EMC

The bank's program extends to customers of Washington Mutual Inc., the savings and loan JPMorgan agreed to buy last month, and to clients of EMC, the loan-servicing company the bank acquired in its takeover of Bear Stearns Cos.

It is aimed only at homeowners who ``show a willingness to pay,'' the bank said. ``Customers should continue to make mortgage payments to reflect their intent to honor their commitments.''

JPMorgan said it will also donate or offer a ``substantial discount'' on 500 homes to community groups in order to stabilize local markets.

``We thought now was the right time to come out with what we hope is an industry-leading way to deal with this problem that's affecting all of us,'' Scharf said in an interview.

A total of 765,558 U.S. properties got a default notice, were warned of a pending auction or were foreclosed on in the third quarter, the most since records began in January 2005, according to Irvine, California-based RealtyTrac, which sells default data.

Home prices in 20 U.S. metropolitan areas fell in July at the fastest pace on record, and sales of previously owned homes in August were 32 percent below the peak reached in September 2005.

The state of the U.S. economy has become a key issue in the presidential race between Democratic Senator Barack Obama of Illinois and Arizona Senator John McCain, a Republican.

Obama supports an economic stimulus plan to boost the economy, while McCain wants the government to purchase troubled mortgages.

IndyMac Borrowers May Be In The Dark About Reduced Mortgagte Payments

The Federal Deposit Insurance Corp.'s program to lower loan payments for struggling borrowers with mortgages from IndyMac Bank has been lauded by consumer advocates and government leaders as a model of foreclosure prevention.

But when the FDIC, which is running IndyMac, mailed out 35,000 letters offering homeowners a chance to rework the terms of their mortgages, more than half the borrowers were apparently so discouraged, scared or stressed out that they didn't bother to respond.

"Anecdotally, what you hear is that a lot of people kind of hunker down when they're getting into trouble with their mortgages, and maybe just stop opening the mail," said Mike Krimminger, a special policy advisor to FDIC Chairwoman Sheila C. Bair.

"Some people have contacted us previously but then just decide they can't handle it anymore and go silent," Krimminger said. "And some have maybe just walked away from the home. So it's a combination of things." 

The FDIC's experience has implications beyond IndyMac because the loan-modification program there is being looked at as one of the templates for an emerging government plan to help stem foreclosures. That plan would offer loan guarantees to encourage loan companies to alter as much as $500 billion in mortgages to make them more affordable to struggling homeowners. 

But you can't help borrowers if you can't reach them. Despite the difficulties it has encountered, the FDIC appears at IndyMac to have been more successful at reaching them than most mortgage companies have been. Horror stories about elusive homeowners abound in the mortgage industry. 

Bank of America's Countrywide unit tried to contact one delinquent borrower 150 times before the homeowner called -- in response not to the deluge of letters and phone calls but to news accounts of a new Bank of America plan to modify loans, said Steve Bailey, a mortgage executive at the bank. 

The FDIC, which was appointed IndyMac's receiver when soured mortgages toppled the Pasadena savings and loan in July, announced a plan in August to aggressively reduce payments for borrowers who had fallen behind on their first mortgages. 

The intent wasn't charity, the FDIC's Bair said; instead, she reasoned, it would be easier to find a buyer for the thrift if more borrowers were current on their loans. 

The goal is to reduce the monthly payment on a loan, including taxes and insurance, to no more than 38% of the borrower's pretax income. To reach the target, the FDIC is prepared to take as many of the following steps as necessary:

* Reduce the interest rate to as low as 3%.

* Extend the loan's term to 40 years.

* Waive interest on a portion of the mortgage balance. The borrower would still owe that amount but wouldn't have to pay it back until the loan was refinanced or the house was sold.

But of the 35,000 seriously delinquent IndyMac customers who were sent letters about the possibility of such modifications, more than half have yet to be heard from, officials said this week.

The response rate is higher -- 73% -- for borrowers who had already talked with IndyMac and provided their current income. The letters to such people were sent by registered mail and proposed new mortgage terms. If the borrower signs the agreement and returns it in an enclosed, prepaid Federal Express envelope -- along with proof of income and a first new monthly payment -- the mortgage can be modified with no further action by the borrower.

So far, IndyMac has completed the modification process for about 3,500 of these borrowers, with "thousands more in the pipeline," Krimminger said. The average reduction in principal and income payments has been 23%, saving the typical borrower $380 a month.

But IndyMac has no current income information for about 20,000 seriously delinquent customers who were sent letters. Many of them hadn't needed to document their income when they took out their loans. People in that group were sent invitations to discuss loan modifications by regular mail, and only 15% to 20% have replied, the FDIC said. 

Still, that response rate "is remarkably off the charts to what other servicers are getting -- we're hearing about response rates of 4% to 5%," Krimminger said. "So I'm pleased but also frustrated because I'd like it to be a lot higher. These are people we need to get in touch with. It's kind of a last effort before we have to go into foreclosure."

IndyMac has even resorted to paying a bounty of sorts to mortgage counseling groups to contact borrowers who haven't responded, Krimminger said. The reward is $150 after the borrower's income is documented, with an additional $350 paid if the loan is successfully modified. 

The agency also is experimenting with letters that tell borrowers how much they would save if their income is within a certain range. Krimminger and consumer advocates said just seeing a hypothetical number could prompt a borrower to sit down and talk. 

To be sure, not everyone can be helped. 

Of the 652,000 residential first mortgages serviced by IndyMac, 65,100 were more than 60 days past due in mid-October, IndyMac spokesman Evan Wagner said. IndyMac determined that 18,500 of those loans were ineligible for modifications because the investors who bought the loans had not agreed to the FDIC program, the mortgages already were deep in foreclosure proceedings or other complications existed, Wagner said.

IndyMac considered sending modification offers to several thousand additional borrowers on whom it had current income information, but determined that they didn't qualify because they couldn't afford even a reduced monthly payment, he said.

At the other end of the spectrum, IndyMac is rebuffing borrowers who want their debt restructured even though they can afford the payments. The bank has a screening program to identity borrowers who have missed payments intentionally just to appear unable to pay. 

Some eligible homeowners have demanded more concessions after IndyMac analyzed their finances and offered to save them hundreds of dollars a month, Wagner said. 

"Our offer is our offer," Wagner said. "Take it or leave it." 

Paul Leonard, California director for the Center for Responsible Lending, a consumer advocacy group, said he thought the FDIC could reach more borrowers by taking out paid advertisements and sending all its offers by registered mail. But he praised the program as a potential model for the industry. 

"No one says it's easy or perfect," Leonard said. "I think what you're seeing, however, is . . . substantial innovations that we hope are going to be successful."

Governement Mortgage Aid Progam Getting Low Turn Out

WASHINGTON -- The government expects only 20,000 troubled borrowers will apply to refinance into more affordable home loans by next fall under a new mortgage aid program passed by lawmakers over the summer.

The $300 billion "'Hope for Homeowners" program was launched Oct. 1. Designed by lawmakers eager to respond to the mortgage crisis, the Congressional Budget Office had projected it would let 400,000 troubled homeowners swap risky loans for conventional 30-year fixed rate loans with lower rates.

But the early results are discouraging: the government received only 42 applications in the program's first two weeks, according to the Federal Housing Administration. The low turnout was first reported by the industry newsletter Housing Wire. Since the applications take about 60 days to process, no loans have been approved yet.

Steve O'Halloran, spokesman for the Department of Housing and Urban Development, called the projection of nearly 20,000 borrowers "an extremely preliminary estimate of early applications for a program that is barely a month old. Borrowers and lenders are continuing to sign up."

Since the program requires lenders to voluntarily reduce the value of a loan and take a loss, it's unclear how many lenders will participate. In addition, the program may be unattractive to some borrowers because those who sell their properties must agree to share some of their profits with the government.

"It just reinforces that none of the federal efforts to date seem to be getting the job done," said mortgage industry consultant Howard Glaser, a former housing official in the Clinton administration. "There's just no question that when a new president and Congress come back to town, they're going to take much more aggressive intervention."

To participate, homeowners can try to persuade their existing lender to join the program, but the decision is ultimately up to the lender. The banking industry appears likely to favor options that don't require an immediate reduction in principal, such as deferring payments, allowing partial payments and lowering the interest rate.

"We've said from the start that it would be a tool that would be used after other loss mitigation programs and opportunities would be exhausted," said John Courson, chief operating officer of the Mortgage Bankers Association.

Hope For Homeowners is limited to borrowers who are spending more than 31% of their income on mortgage payments. Loans made after Jan. 1 of this year are excluded.