On April 24, Appraisal Institute members will lobby Congress during the association’s annual Leadership Development & Advisory Council event in Washington, D.C. One issue LDAC participants will lobby on is appraisal regulatory reform. They will be urging the Senate to pass H.R. 3915, which contains improvements to Title XI of FIRREA. At the same time, LDAC participants will lobby against a provision contained in another bill pending in the Senate, S. 2452, that would impose a bonding requirement on residential appraisers and give consumers a private right of action against appraisers.

Appraisers are being encouraged to contact their Senators in advance of LDAC to urge them to seek the removal of the bonding and right-of-action against appraisers provisions in S. 2452. Brian Rodgers, the Appraisal Institute’s Congressional Representative, said appraisers should ask their Senators to “focus on the helpful and productive solutions in the appraisal industry, by including the House-passed appraisal reform provisions from H.R. 3915 in any legislation in the Senate.”

To contact your Senator, visit http://capwiz.com/appraisal/callalert/index.tt?alertid=11130391&type=CO. For more information, contact Brian Rodgers, Congressional Representative, Appraisal Institute at 202-298-5597 or brodgers@appraisalinstitute.org.

Congressman Barney Frank, D-Mass., called for a new financial services risk regulator that would have the power to "assess risk across financial markets regardless of corporate form and intervene when appropriate...To the extent that anybody is creating credit they ought to be subject to the same type of prudential supervision that now applies only to banks." Frank said one possibility is to empower the Federal Reserve to act in this regard.

The proposal was one of many new policy options Frank said are needed to help stabilize the housing market and address the current economic downturn. The comments came during a March 20 speech to the Greater Boston Chamber of Commerce.

The speech came on the heels of the Fed’s recent loan to Bear Stearns and the subsequent decision to become an emergency lender to all of the major investment firms. Those two decisions may have set the stage for deeper involvement in the little-regulated markets for capital that have come to dominate the financial world. On March 14, the Fed made a special lending facility – essentially a bottomless pit of cash – available to large investment banks for at least the next six months. The New York Fed said that as of March 27 investment firms have borrowed an average of $33 billion through that program in the past week.

This unprecedented move away from offering direct backing only to traditional banks now has the Fed considering whether it makes sense to expand the scope of their formal powers over the investment industry. However, some top Fed officials worry that parties that do business with investment banks might be less careful about monitoring whether the bank will be able to honor obscure financial contracts if they assume the Fed will back up those contracts. That would eliminate a key form of self-regulation for investment banks.

In the appraisal world there has been concern over inconsistent risk management requirements, where traditional banks have had to adhere to appraisal requirements while the nonbank mortgage community has been more or less unregulated. Treasury Secretary Henry Paulson said that if investment banks are given permanent access to the Fed's emergency funds, they should have the same kind of supervision that the Fed requires for conventional banks. "This latest episode has highlighted that the world has changed, as has the role of other non-bank financial institutions, and the interconnectedness among all financial institutions," he said in a March 26 speech.

Appraisal Institute Director of Government and External Relations Bill Garber said that the Appraisal Institute “would support consistency in regard to risk management activities that would include collateral valuation and appraisal requirements. Any expansion of the Fed’s role should include consistent application of appraisal requirements across all institutions.”

The Small Business Administration released new operating procedures, including new real estate appraisal rules, for lenders and development companies utilizing SBA loan programs. While the SBA intended to streamline and improve Standard Operating Procedure 50-10, some of the changes to the real estate appraisal provisions are out of touch with generally accepted appraisal practices and terminology, according to industry officials. For instance, the SOP references terms like “complete” and “limited,” which were retired in the latest version of the Uniform Standards of Professional Appraisal Practice. Such terms can still be used under the new Scope of Work rules of USPAP, but those terms must be adequately identified and defined, which the SOP does not do. Additionally, the SBA has also banned used of the income approach by appraisers for SBA loan purposes. The reason for this change is unclear, but it may result in a value opinion that is not reliable or credible.

“We are concerned that the revised SOP won’t serve lenders, borrowers or consumers well,” said Bill Garber, Director of Government and External Relations for the Appraisal Institute. “The SBA had an opportunity to improve their appraisal rules, bringing them in line and up-to-speed with the rest of the lending community, but they may have exacerbated existing problems by continuing to use antiquated terms and attempting to dictate appraisal procedures,” Garber said.

Overall, SOP 50-10, which becomes effective May 1, 2008, has been cut in length from 1,000 pages to 400 and has been updated to be an electronic document using Internet hyperlinks to take the user to the most recent editions of relevant regulations and forms. SOP 50-10 is currently available in PDF format at www.sba.gov/tools/resourcelibrary/sops/.

The Appraisal Institute intends to raise their concerns with the SOP with the SBA, details of which will appear in later editions of ANO.

A bill that would create a Peer Review Committee within the Louisiana Real Estate Appraisers Board has been pre-filed in the Louisiana Legislature. If adopted, the committee would be comprised of real estate appraisers and would provide assistance to the board.

The full bill, sponsored by Rep. Jeff Arnold, is available at www.legis.state.la.us/billdata/streamdocument.asp?did=464277.

Maryland Comptroller Peter Franchot continued to voice reservations about the accuracy of appraisals for state and county land purchases, reiterating his concern that taxpayers may not be getting a good deal. Franchot raised his questions at a recent Board of Public Works meeting, where the board signed off on an Anne Arundel County plan to pay $5.8 million to acquire a 30-acre forested parcel to expand the Jug Bay Wetlands Sanctuary in Lothian, where a Target shopping center had once been proposed.

Two separate appraisals estimated the value of the land at $6.7 million and $7 million, making the deal appear favorable to the state's Department of General Services. "It sounds like a great deal," said Michael Gaines, assistant secretary of real estate for the department.

But Franchot, who is one of three board members with Gov. Martin O'Malley and Treasurer Nancy Kopp, has raised appraisal concerns before. The problem, Franchot said, is that he's worried the county is buying land for $2 million more than the developer paid for it in 2005. He said he's surprised the value of the land increased that much in the current market, and he cautioned that he didn't believe the appraisals should include "sunken costs" put into the land by a developer.

"I continue to be concerned about this appraisal situation," Franchot said during the board's meeting. "Both at the state level – and now apparently at the county level – we have these processes that I frankly don't have a huge amount of confidence in right now."

Franchot said he's not an expert on the subject and didn't want to stand in the way of the county. He ended up supporting the deal, along with Kopp and O'Malley, but he said he was reluctant to do so. His objections prompted officials to plan a meeting to discuss the appraisal process.

Franchot has been a persistent skeptic of land purchases under the Project Open Space program, which O'Malley strongly supports. The program seeks to protect land from development for environmental and recreational purposes. In July, a plan to preserve a piece of land at the northern tip of Kent Island for $7.2 million was shelved. The board ended up approving the Kent Island deal on a 2-1 vote in August, with Franchot opposing it.

The Alabama legislature has introduced a bill that would amend its current appraisal structure and licensing. The bill would provide for the continuation of all real property appraiser licenses currently issued for the existing five categories of appraisers but would provide that the Board would issue a license for only three categories of real property appraisers beginning August 1, 2008: Trainee, Certified Residential and Certified General real property appraisers.

This measure is sponsored by Sen. Linda Coleman, and has been referred to the Governmental Affairs Committee. For the full text of the bill, visit www.reab.state.al.us/pdf/finDraft08prop_bill_filing_format.pdf.

Pursuant to a recent 45-Day Notice, the Appraisal Institute Board of Directors has adopted a proposal to move members who hold an appraiser trainee or equivalent license to associate membership. In addition “aspiring appraisers” also will be in the associate membership category. Aspiring appraisers are described as individuals seeking a trainee license or equivalent from their state but who have not completed the education required for such license. Such individuals may qualify for associate membership for a maximum of two years.

The Board met March 25 to amend the Bylaws accordingly and the changes are effective immediately. In November 2007 the Board adopted changes to the Bylaws allowing trainees to become affiliate members; however, because the affiliate category is designed for members who do not perform USPAP-related work, it is more appropriate to have trainees positioned under the associate category, according to the proposal’s rationale.  These moves come as part of an aggressive membership recruitment program being initiated this year in which the Appraisal Institute aims to add 5,100 new members.

Dues for trainees and aspiring appraisers who are associate members will be $95 for 2008, which covers dues for both national and chapter combined.

As of March 31, the Appraisal Institute will offer tech support outside of normal business hours for assistance in logging in to its new Web site or to Appraisal Institute online classes. The service will be in effect from 5-8 p.m. Central time Monday through Friday and from 9 a.m. to noon on Saturdays through May 2. To obtain tech support during these extended hours, e-mail extendedtechsupport@appraisalinstitute.org or call 312-335-4475.

The extended tech support services include assistance with any login and Web site access-related issues. Users who have questions pertaining to their specific education or membership requirements should still contact their service center during regular business hours.

The commercial and multifamily mortgage market faces limited exposure to refinance risks stemming from the current credit crunch, according to a report released by the Mortgage Bankers Association. The report, released March 20, notes that relatively few commercial/multifamily mortgages will mature in the next two years.

"There's been a general impression that a large volume of commercial/multifamily mortgages are coming due this year and next," said Jamie Woodwell, Senior Director of Commercial/Multifamily Research at the MBA.  "The reality is that 2008 and 2009 will see a relatively small volume of maturing mortgages, with the majority of CMBS loans not maturing until 2015 or later."

Capturing data from JPMorgan and Wachovia Capital Markets, the Research DataNote shows there is more than $600 billion of outstanding loans in commercial mortgage-backed securities fixed-rate deals.  Of this, only $16 billion is scheduled to mature in 2008 and another $19 billion in 2009. The surge in sales and financing volume during 2005, 2006 and 2007, coupled with the fact that CMBS loans tend to have a 10-year term, means that the majority of CMBS loans will not mature until 2015 or later – $98 billion of loans are scheduled to mature in 2015, $128 billion in 2016 and $127 billion in 2017.

Of the loans due in the coming years, the majority are well seasoned and have been amortizing. JPMorgan reports that $14 billion of the $16 billion maturing in 2008 is fully amortizing, as is $14 billion of the $19 billion coming due in 2009.  According to Wachovia Capital Markets, more than two-thirds of the volume of loans coming due prior to May 2009 was originated prior to 2000. 

The DataNote focuses on maturing mortgages in the CMBS market.  Banks and thrifts will be more likely to have shorter-term and adjustable rate loans, while life companies will tend to have longer-term, fixed-rate loans.  Each group's maturity patterns will also be affected by the ups-and-downs of its originations experience, according to the MBA.

Total housing starts fell 0.6 percent in February from January with single-family starts falling 6.7 percent to a seasonally adjusted 707,000 units, their lowest levels in 17 years. However, multifamily housing starts increased by 15 percent above the level seen last February. Building permits also continued to fall with total issuances declining 7.8 percent from January. Multifamily issuances fell 10.8 percent while single-family building permits fell 6.2 percent to a seasonally adjusted 639,000 units.

Both the new and existing homes markets showed further weakness in January.  New home sales fell 2.8 percent in January to a seasonally adjusted 588,000 homes. They are now at their slowest annual pace since February 1995. At the current sales pace, there are 9.9 months of new homes supply on the market, an all-time high. However, inventory levels continued to decline as builders have been scaling back production until the market stabilizes. The number of new homes for sale declined to 483,000, the lowest it has been since August 2005. The median price for a new home is now at $216,000, the lowest since September 2004.

Annualized sales of total existing homes fell 0.4 percent in January to 4.89 million units. January’s annualized pace is the slowest since August 1998. Sales of existing homes are down 23.4 percent from the 6.38 million units in January 2007.  Median existing home prices in January declined again to $201,100, their lowest levels since February 2005. Inventory of existing homes rose to its highest level since November at 4.191 million units, a 5.5 percent increase from December.  At the current sales pace, there are 10.3 months of existing homes supply on the market.

However, relief might be on the way with national average mortgage rates falling to 5.87 percent in Freddie Mac’s March 20 Primary Mortgage Market Survey, their lowest levels since mid-February.

The March Spotlight on the Appraisal Institute features articles with topics ranging from the potential impact of the recent agreement between the New York Attorney General’s Office, the Office of Federal Housing Enterprise Oversight, and Fannie Mae and Freddie Mac to advice for homeowners on how to increase the value of their property without breaking the bank.

Spotlight is a compendium of national press clippings that comprise Appraisal Institute members, staff or policies, For all of these stories, visit www.appraisalinstitute.org/newsadvocacy/Spotlight_March08.aspx. Since Spotlight is a member-only benefit, intended to keep members up-to-date on the Appraisal Institute’s visibility in the media, a member login name and password are required.

The Appraisal Institute has extended until April 4 the deadline for submission of names of those members interested in serving as the 2009 Vice President. The reason for the extension is the mis-stated eligibility requirement that candidates must have a minimum of two years’ experience as chair of an Appraisal Institute national or regional committee. The 2009 Vice President succeeds to the office of President Elect in 2010 and to President in 2011.

Among other requirements, vice president candidates must be designated members in good standing; not have been subject to a publishable disciplinary action by the Appraisal Institute within the five years prior to election; must be available to travel; and be adept at prompt Internet communication, including the ability to access and respond to e-mail while travelling.

Additionally, the nominee cannot serve as a member of the Leadership Development and Nominating Committee at any time during the year in which his or her candidacy would be considered. This does not preclude consideration for the office in future years.

A document describing the full duties and responsibilities of the officers, including the vice president, may be found on the Appraisal Institute Web site at www.appraisalinstitute.org/membership.

Those interested in serving, or wishing to recommend someone for the position, should submit their recommendation in writing by April 4 to: Terry R. Dunkin, MAI, SRA; Chair, 2008 Leadership Development & Nominating Committee; c/o Darlene Grass; Appraisal Institute; 550 West Van Buren Street; Suite 1000; Chicago, IL 60607.

In an effort to “significantly improve the complicated, unclear and costly homebuying process,” mortgage lenders and brokers may soon be required to provide a Good Faith Estimate to consumers. The move was part of a March 14 proposal by Department of Housing and Urban Development Secretary Alphonso Jackson to reform the Real Estate Settlement Procedures Act.

In a release announcing the proposal, HUD said that in light of recent increases in loan defaults and foreclosures, the need for reform is imperative. They said that the proposed RESPA rule follows up on President Bush’s comprehensive plan, announced last August, to address rising foreclosures. HUD's economic analysis finds that by offering consumers clearer, more certain cost estimates, the average borrower would save nearly $700.

HUD is proposing to offer consumers a standard GFE that will substantially enhance disclosure of all important aspects of the loan. The proposed GFE would consolidate closing costs into major categories to prevent "junk fees" and display total estimated settlement charges prominently on the first page so the consumer can easily compare loan offers. In addition, HUD's proposed rule would specify the charges that can and cannot change at settlement. The proposal would prohibit the sum of all the services subject to a tolerance from increasing at settlement by more than 10 percent absent unforeseeable circumstances. A specific charge may increase by more than 10 percent at settlement, so long as the sum of all the services subject to the tolerance does not increase by more than 10 percent.

The Good Faith Estimate would also require that yield spread premiums, lender payments to mortgage brokers, be disclosed.

Currently, RESPA does not provide HUD with enforcement mechanisms for some of the most important consumer disclosures and protections. A lack of both enforcement authority and clear remedies for violations of critical sections of RESPA negatively impact consumers and diminish the effectiveness of the statute, according to HUD. HUD will seek the authority to impose penalties for violations of specific sections of RESPA.

Commenting on the proposal, Bill Garber, Director of Government and External Relations, commended HUD for not including proposals that would severely disadvantage small real estate settlement service providers, such as proposals to require “guaranteed mortgage packages” or bundling of settlement services. However, he expressed concern over the 10 percent “tolerance” limitation on settlement service fees, noting that this may limit a real estate appraiser’s ability to charge market prices for appraisal services. “Appraisal fees can vary widely depending on a whole range of business factors,” he said.

Garber also questioned whether the proposal would truly lead to greater disclosure to consumers, or unnecessarily hide fees instead. “Oftentimes, consumers aren’t informed of all of the costs and services associated with the appraisal, including so-called ‘up charges’ by lenders, whether more than one appraisal was performed or none at all, or what portion of the actual appraisal fee was paid to the individual or company performing the appraisal versus the appraisal management company. If the goal is greater disclosure to consumers, this proposal does little to actually inform consumers of settlement service charges, when it may be beneficial to do so,” he commented.

The Appraisal Institute is reviewing the proposed rule and will provide official comment during the comment period which runs through May 13. To read the full text of HUD's proposed RESPA rule and related items, visit www.hud.gov/offices/hsg/sfh/res/respa_hm.cfm.

Federal Deposit Insurance Corporation Chairman Sheila Bair called for greater transparency in the financial markets and warned that bankers need to keep "a close eye" on loan portfolios other than housing, mentioning specifically commercial real estate and consumer credit. The comments came during a March 5 presentation to the Independent Community Bankers Association.

Commercial real estate, particularly construction and development lending, topped the list of red flags. Bair noted that CRE and C&D lending rose rapidly in recent years, and are now higher than they were in the 1990s. Strong liquidity in global credit markets and rapid home price appreciation fueled this trend.

Unfortunately, community banks were a "natural fit for this kind of 'high touch' lending, especially as its consumer loans and mortgages were commoditized by Wall Street," Bair said. Now, the housing boom has collapsed, and concerns over CRE and C&D lending are surfacing.

Bair stressed that even with vastly improved bank risk management practices implemented since the 1980s, and superior capital cushions, there are still signs of concern. At the end of 2007, the industry's median ratio of C&D and CRE loans to total capital were 42 percent and 199 percent, respectively. Furthermore, concentration ratios for mid-sized institutions ($1 billion to $10 billion) are "notably higher," with median concentrations of C&D and CRE loans of 103 percent and 355 percent of total capital, respectively.

The fourth quarter 2007 results from banks were worrisome, she said, noting that a number of institutions reported greater problems in their 1- to 4-family construction lending portfolios, with the markets already hard hit by the mortgage crisis – such as California, Florida, and Michigan – showing the worst results.

Given the weakness in housing markets around the country, Bair said the FDIC and other federal bank regulators are keeping a close eye on trends in the C&D sector and on the outsized lending concentration in this sector held by some banks.

She cautioned all banks to manage portfolios closely, make sure they have good data on both local markets and potential borrowers’ financial positions and evaluate loan workout structures to make sure they have the proper staff and skill sets to effectively manage a spike in workouts. "We want our insured institutions to be ready and fully prepared to work through a sustained downturn, and to hold down losses," Bair stressed.

Bair's ICBA presentation is available at www.fdic.gov/news/news/speeches/chairman/spmar0508.html.

On March 6, the Office of Federal Housing Enterprise Oversight released the maximum conforming loan limits that will be in effect through year-end as a result of The Economic Stimulus Act of 2008. That legislation permits Fannie Mae and Freddie Mac to raise their conforming loan limits in certain high-cost areas. The new jumbo limits are a function of median home prices as estimated by the U.S. Department of Housing and Urban Development.

The maximum for temporary jumbo conforming loan limits, which apply to loans originated in the period between July 1, 2007, and December 31, 2008, are as high as $729,750 for one-unit homes in the continental United States. Two-, three- and four-unit homes have higher limits as well. Alaska, Hawaii, Guam and the Virgin Islands also have higher maximum limits.

Fannie Mae announced it will purchase jumbo-conforming mortgages secured by one-unit properties only. The new loan limits are applicable only to high-cost areas and will be calculated based on the location of the subject property as follows: 125 percent of the area median home price in high-cost areas, not to exceed $729,750 except in Alaska, Hawaii, Guam and the U.S. Virgin Islands. In situations where 125 percent of the area median home price is less than $417,000, the loan limit will remain at $417,000 ($625,500 for Alaska, Guam, Hawaii, and the U.S. Virgin Islands).

A full appraisal with interior inspection is required on all loans using Form 1004 or 1073, as applicable. If the property value is more than $1 million, a field review appraisal is also required (on Form 2000) if the LTV, CLTV, or HCLTV is greater than or equal to 75 percent. For condominiums, two comparables must be from projects outside of the subject project. Fannie Mae’s Declining Markets Policy applies to mortgage loans with LTV, CLTV, or HCLTV greater than 75 percent. Furthermore, lenders must use appraisers who are experienced with the types of properties that are eligible for jumbo-conforming financing.

Freddie Mac’s guidelines, published March 13, have some substantial differences from Fannie Mae’s. Specifically, Freddie is accepting 40-year fixed as well as 30-year fixed with a 10-year Interest Only term. Fannie accepts 30-year only and no fixed-rate IO.

Furthermore, Freddie is allowing cash-out refis on principal residences only, with a maximum LTV of 75 percent, a minimum FICO of 720, and a maximum disbursed cash limit of $100,000. All cash-outs get a 1.00 percent fee hit. Additionally, Freddie is allowing a maximum LTV/CLTV for purchases of 90 percent on an ARM; Fannie allows 90 percent only on FRMs. Freddie's FICO requirements are slightly tighter.

There are two data sources reflecting the new maximum limits. The first, on OFHEO’s Web site, available at www.ofheo.gov/media/hpi/AREA_LIST.pdf, reports only those counties and Metropolitan Statistical Areas that are affected by the new loan limits. Data for all areas are available on the HUD Web site at https://entp.hud.gov/idapp/html/hicostlook.cfm.

In support of HUD’s calculation of county median home prices, OFHEO provided HUD rural house price indexes for 48 states. HUD used these indexes, which reflect price changes for homes outside of Metropolitan Statistical Areas, to estimate median prices in counties for which sales price data were sparse. OFHEO has made these indexes available at: www.ofheo.gov/hpi_download.aspx.

"The current market conditions, compounded by mortgage fraud, are having a detrimental impact on our entire national economy," said David Kittle, CMB, chairman-elect of the Mortgage Bankers Association. His remarks came as he announced that the Mortgage Asset Research Institute, LLC has completed its tenth Periodic Mortgage Fraud Case Report to MBA.  The report, released March 13 at MBA's annual National Fraud Issues Conference in Chicago, examines the current state of residential mortgage fraud and misrepresentation in the U.S. based on participating subscribers' reports to MARI.

"The MARI report provides critical insight for those in the real estate finance industry to better understand the factors contributing to these circumstances so that our communities and member companies are protected."

According to the Mortgage Fraud Case Report, "The conditions in the mortgage industry for the last half of 2007 made the year one for the record books."  Overall, 2007 marked the lowest volume of mortgage loan originations since 2002, the highest number of delinquencies and foreclosures, rapid and near complete shutdown of the non-conforming secondary market and hundreds of announced closures of mortgage originators.

The most common types of fraud found in 2007 originations continue to be in the areas of employment history and claimed income. Florida tops the MARI Fraud Index list for the second consecutive year and Nevada climbing to the No. 2 ranking. Rounding out the top 10 are (in order): Michigan, California, Utah, Georgia, Virginia, Illinois, New York and Minnesota. Colorado showed the greatest improvement from prior years' rankings, dropping out of the top 10 for the first time in five years.

A full copy of the Mortgage Fraud Case Report is available at www.mari-inc.com/pdfs/mba/mortgage-fraud-report-10th.pdf.

The delinquency rate for mortgage loans on one- to four-unit residential properties stood at 5.82 percent of all loans outstanding in the fourth quarter of 2007 on a seasonally adjusted basis, up 23 basis points from the third quarter of 2007, and up 87 basis points from one year ago, according to the Mortgage Bankers Association's National Delinquency Survey. The delinquency rate does not include loans in the process of foreclosure. The total delinquency rate is the highest in the MBA survey since 1985. The rate of foreclosure starts and the percent of loans in the process of foreclosure are at the highest levels ever.

The percentage of loans in the foreclosure process was 2.04 percent of all loans outstanding at the end of the fourth quarter, an increase of 35 basis points from the third quarter of 2007 and 85 basis points from one year ago. The rate of loans entering the foreclosure process was 0.83 percent on a seasonally adjusted basis, five basis points higher than the previous quarter and up 29 basis points from one year ago.

The increase in foreclosure starts was due to increases for both prime and subprime loans. From the previous quarter, prime fixed rate loan foreclosure starts remained unchanged at 0.22 percent, but prime ARM foreclosure starts increased four basis points to 1.06 percent. Subprime fixed foreclosure starts increased 14 basis points to 1.52 percent and subprime ARM foreclosure starts increased 57 basis points to 5.29 percent. FHA foreclosure starts decreased 4 basis points to 0.91 percent and VA foreclosure starts remained unchanged at 0.39.

Since the fourth quarter of 2006, the foreclosure start rate for prime ARMs increased from 0.41 percent to 1.06 percent and the rate for subprime ARMs increased from 2.70 percent to 5.29 percent. The foreclosure start rate for prime fixed loans increased from 0.16 percent to 0.22 percent and the rate for subprime fixed loans increased from 1.09 percent to 1.52 percent.

California and Florida continue to represent a disproportionate share of the foreclosure starts in the country.  Those two states represent 21 percent of all loans outstanding, but accounted for 30 percent of foreclosure starts in the U.S. More importantly, they accounted for 39 percent of all prime ARMs outstanding, but 47 percent of prime ARM foreclosure starts. Similarly, they represented 29 percent of all subprime ARMs, but 36 percent of subprime ARM foreclosure starts.  The rate of foreclosure starts in Florida more than tripled between the fourth quarter of 2006 and the fourth quarter of 2007, while the rate in California more than doubled.

While Michigan, Ohio and Indiana continue to have the highest percentages of loans in foreclosure, and are among the states with the highest rates of new foreclosures, those states experienced comparatively little increase over the last year or last quarter in their rates of new foreclosures started.

"Declining home prices are clearly the driving factor behind foreclosures, but the reasons and magnitude of the declines differ from state to state," said Doug Duncan, MBA's Chief Economist and Senior Vice President of Research and Business Development.  "In states like Ohio and Michigan, declines in the demand for homes due to job losses and out-migration have left those looking to sell the homes with fewer potential buyers, particularly with the much tighter credit restrictions borrowers now face.

In states like California, Florida, Nevada and Arizona, overbuilding of new homes created a surplus that will take some time to work through,” he continued.

"Of significance, however, is that the rate reset issue on adjustable rate mortgages is becoming less of an issue.  The 6-month LIBOR rate, the index rate used for many subprime ARMs, has come down around 2.5 percentage points since last September, greatly reducing the payment shock on many ARM resets," Dugan added.

Lower prices and mortgage rates did not provide any relief for new home sales in January. Nor did existing homes fare much better. New home sales fell 2.8 percent in January to a seasonally adjusted 588,000 homes, their slowest annual pace since February 1995. At the current sales pace, there are 9.9 months of new homes supply on the market, an all-time high. However, actual inventory levels continued to decline as builders have been scaling back production until the market stabilizes. The number of new homes for sale declined to 483,000 which is the lowest it has been since August 2005. The median price for a new home is now at $216,000 which is the lowest median prices have been since September 2004.

Annualized sales of total existing homes fell 0.4 percent in January to 4.89 million units, the slowest pace since August 1998. Sales of existing homes are down 23.4 percent from the 6.38 million units in January 2007.  Median existing home prices in January declined again to $201,100, their lowest levels since February 2005. Inventory of existing homes rebounded back to their highest levels since November at 4.191 million units which is a 5.5 percent increase from the previous month. At the current sales pace, there are 10.3 months of existing homes supply on the market.

Construction spending tumbled 1.7 percent in January, following a 1.3 percent decline in December, according to the Commerce Department. The drop was the biggest in 14 years and more than double the decline analysts had forecast.

Mortgage applications rose by 3 percent for the week ending February 29, according to the Mortgage Bankers Association. Refinances were up 4.5 percent and purchase applications rose 1.4 percent. For the week ending March 6, rates on 30-year mortgages fell after rising for three straight weeks, Freddie Mac reported.