As America and the rest of the world waits on the result of the Wall Street $700 billion bailout plan, the other federal government housing rescue program opened on business on Wednesday calmly without many Americans realising.

The Hope for homeowners plan unveiled with a $300 billion program to help borrowers struggling to refinance into more affordable mortgages that will be backed by the federal government. The red hot debate on Capitol Hill where Republicans were against and Democrats supported was signed into law at the end of July this year.

The Federal Housing Administration Hope for Homeowners plan was originally the federal governments answer to the mortgage crisis, since then the $700 billion bailout has taken all the attention allowing the FHA program to open without fuss, although banks only received the program details on Wednesday so they have advised that they would not be able to offer the Hope for Homeowners plan to their customers for a few weeks.

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The report out by Nationwide today follows a prediction by the world’s largest credit rating agency Standard & Poor’s, stating that one in seven homes in the UK could fall into Negative equity over the next twelve months.

According to Nationwide, house prices have fallen to 8.1 percent in the past year, this rate of decline beats records since Nationwide started its monthly house price index in 1991. The rate has almost doubled in a month with June being 0.8 percent.

This means that the average property has lost £17,000 in value since last October, before this then we were seeing house prices at an all time high. Now we see the average house price at £169,316 almost £15,000 less than this time last year.

There is some good news in this gloomy climate, the Monetary Policy Committee of the Bank of England, have not increased the banks base rate which we all expected, this has aided ‘swap rates’ – so we should see fixed interest rate mortgages to come down.

If the cost of mortgages comes down, then it should improve the housing market by restoring the liquidity.

Share your thoughts on the UK housing market and what you think about the new figures out by Nationwide below.

Source: Telegraph

Read more about the UK housing market here.

Anyone who was in the UK and affected by the negative equity crisis in the 1990s could be seeing the same again within the next 12 months, according to the ratings agency Standard & Poor’s.

It could be as many as one in seven homes that have more owing on their mortgage than the property is actually worth. Standard & Poor predict 1.7m household will be in negative equity, that’s a massive jump of 17 percent from the 70,000. This is the same decrease as in the housing crash in the early 1990s.

It said by S&P that it’s the fastest rate house prices has dropped in recent months on record, but the fact we had such a property boom means only a fraction of homeowners 0.6 percent are in negative equity. The average homeowner owns 46 percent of their property leaving just 54 percent with a mortgage.

Every percentage point fall in house price makes a massive effect on the borrowers in fact for every 0.5 percent to 1.5 percent makes around another 60,000 to 180,000 homeowner into negative equity.
New figures will be released by Nationwide, one of the biggest mortgage lenders tomorrow.

Source: Guardian

Read more about UK house prices here.

The former chief executive of HBOS, Sir James Crosby, said that the shortage of mortgage finance will continue throughout 2008, 2009 and 2010 continuing into 2011, and the risk of repossessions will grow, the review of the mortgage market was carried out by Sir James and presented to the Treasury today.

The idea of setting up a US-style government-backed mortgage agency like America’s Fannie Mae to kick-start the UK market was ruled out by Sir James. Although it seems there is a possibility that British banks could be allowed to swap new mortgages for government debt.

There is already a scheme that the Bank of England introduced in April, which allows banks to exchange mortgage-backed securities, to sell in the market for government debt. At the moment the banks can only swap mortgages they had on their balance sheets at the end of 2007.

In the report Sir James highlighted that he is looking with urgency at the full range of options identified by market participants for stimulating the supply. There are some options that Sir James could use to reignite the UK mortgage market although it seems that sometimes doing nothing could be the best thing.

New home purchases took a dive to 70 percent in June this is a record love according to figures from the bank of England.

Unless you are a cash rich buyer then you are pretty much excluded from the property market, banks and building societies rely on mortgage-backed securities which investors are steering clear of in the sub-prime crisis. This limits the loans on offer, so lenders are cutting their risks by demanding huge deposits.

This all has a knock on effect to the housing market, buyers are more desperate to sell and drop their asking price to tempt buyers, house prices have dropped more that 10 per cent since August last year.
We will get Sir James final recommendations in October, in time for the pre-budget report.

Source: timesonline.co.uk

Representatives of the four largest U.S. banks and Henry Paulson, Treasury Secretary, agreed on Monday to kick-start a market for covered bonds, in the United States this is an alternative way to provide mortgage loans.

To explain how they work, basically, a bank borrows money to lend to homeowners and holds the mortgages on its books. It uses the proceeds of the mortgages to repay investors. Although covered bonds are all over Europe they actually originated from Germany.

Paulson said at the press conference where he was pushing the idea of the bonds “Covered bonds are a promising financing vehicle and we believe this market can grow in the United States” who also added “The key to the U.S. economy making a major improvement will be turning the corner on housing finance, the housing correction. We’re not going to be able to do that unless we have availability of mortgage financing and this is an attractive new source.”

The idea behind the bonds is to help the housing market, and create liquidity, which has ground to a halt in the traditional US way. Under this new way using Covered bonds the mortgage originators sell mortgages to financial institutions that package them into securities and then re-sell them. Although people have not wanted to invest in anything mortgage related over the last year.

Covered bonds are considered more secure than mortgage-backed securities because the purchasers of the bonds have a direct claim on the issuer’s balance sheet.

It is said that the investors will find the covered bonds more attractive and provide a better tool of gaining liquidity into the system.

Source: marketwatch

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In London this week the U.K said a review of Britain’s mortgage-financing market, although it’s believed that the government won’t respond to industry demands immediately in the call to improve the current market conditions.

Due to the downturn in the housing market, the U.K. Chancellor of the Exchequer Alistair Darling commissioned a report by former HBOS Chief Executive James Crosby earlier this year, this was in a bid to reverse the squeeze on the market activity.

Although the final report is expected at the end of the year, there will be an interim report that should be presented tomorrow. The interim report by Mr. Crosby’s is believed to be just a analysis of the state of the mortgage market, rather than a policy that will make recommendations, although it will probably set out some areas for the government to consider. It’s unlikely that the government will act on the report before the pre-budget review this autumn.

Meanwhile, U.K. Housing Minister Caroline Flint said Sunday that the government will look at doing more to help the housing market.

The U.K. Housing Minister Caroline Flint is looking both internationally and nationally at ways they can soften the blow for people who are faced with financial worries with the low housing market and cost of living hike.

There is a plan by the Council of Mortgage Lenders to reopen access wholesale mortgage finance and encourage new mortgage lenders. This would allow lenders to swap new mortgage-backed securities for cash. This scheme amongst others is being considered by the U.K. Treasury.

 Source: Walll Street Journal

Read more UK mortgage articles here.