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Ben Bartolotto, research director for CIRB, noted that the monthly decreases from December to January were typical as January is usually one of the weakest months for housing starts. He also noted any enthusiasm for the year-over-year increases seen in January should be tempered with the fact that the numbers for January 2009 posted the lowest annual rate on record.

CIRB is forecasting a modest recovery for 2010, with permits being pulled for 52,000 total units, up slightly from the record-low 36,289 permits pulled in 2009.

Bank of America to Cut Principal on Underwater Mortgages

By DAWN KAWAMOTO Posted 3:24 PM 03/24/10 Company News, Economy, Bank of America, Real Estate, Credit

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Bank of America (BAC) is giving the green light to a program designed to cut the principal on severely underwater adjustable-rate mortgages (ARMs) held by some of its borrowers, rather than attempting to address the issue with mere interest rate reductions, the company announced Wednesday.

With its program, BofA will be one of the first lenders to address the mortgage meltdown via a principal reduction plan. The move will likely quell critics who say BofA and other big lenders aren't moving fast enough or cutting deep enough to address the country's massive foreclosure problem, which the Treasury Department sought to tackle through its Home Affordable Modification Program.

"It looks like a pretty good program," says Celia Chen, senior director of Moody's Economy.com. "They will reduce the principal up to 30%, and that could potentially be a big reduction."

Although the program appears well-structured, Chen notes that it will address only an estimated 45,000 customers -- barely more than 1% of the 4 million borrowers whom Moody's estimates are in foreclosure proceedings or 90-days delinquent on their mortgages.

"Targeting the Right Kind of People"

Under its Earned Principal Forgiveness program, which is scheduled to launch in May, BofA will target borrowers who received a subprime loan with a minuscule down payment and a pay-option ARM, the combination of which can result in borrowers owing more as deferred interest payments get added to the principal. Candidates for the program will also need to be at least 60 days delinquent on their mortgages and hold a loan on a property that was valued 20% higher than the current market value.

"They are targeting the right kinds of people for this program," Chen says, noting that these borrowers tend to have little skin in the game in terms of equity lost and would be more apt to let their homes go into foreclosure if they found themselves having difficulty making their payments.

Those who qualify for the program would be allowed to decrease the principal they owe by up to 30% over a five-year period, in an effort to adjust the loan to a level where it reflects current property values. The bank will also offer an interest-free forbearance on principal, meaning borrowers won't get hit with unpaid interest charges being tacked onto their principal.

"The centerpiece of these enhancements is a program of earned principal forgiveness that addresses severely underwater mortgages with some of the highest rates of delinquency," said Barbara Desoer, president of Bank of America Home Loans, in a statement.

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I’m gratified to report that late this afternoon, Gov. Schwarzenegger signed Assembly Bill 183, the Homebuyer Tax Credit legislation, into law. His actions today are the result of our efforts in Sacramento over the last several weeks as members and our team in the capital worked for the bill’s passage before it landed on the governor’s desk.

AB 183 will provide $200 million for home buyer tax credits, allocating $100 million for qualified first-time home buyers of existing homes and $100 million for purchasers of new, or previously unoccupied, homes. The eligible taxpayer who purchases a qualified personal residence on and after May 1, 2010, and on or before Dec. 31, 2010, or who purchases a qualified principal residence on and after Dec. 31, 2010, and before Aug. 1, 2011, pursuant to an enforceable contract executed on or before Dec. 31, 2010, will be able to take the allowed tax credit. The credit is equal to the lesser of 5 percent of the purchase price or $10,000, in equal installments over three consecutive years. Under AB 183, purchasers will be required to live in the home for at least two years or forfeit the credit (i.e., repay it to the state).

The positive impact of the federal home buyer tax credit is clear. Nearly 40 percent of first-time home buyers said they would not have purchased a home if the federal tax credit for first-time home buyers was not offered, according to C.A.R. research conducted last year.

The state’s previous home buyer tax credit program was so successful that it ran out of tax credits by the end of June 2009, eight months before it was set to expire and just as housing markets appeared to be turning a corner. Unlike last year’s legislation, AB 183 adds a tax credit for the purchase of an existing home by a first-time home buyer.

AB 183 will significantly contribute to the effort to stimulate jobs-creation within California's housing market by helping to incentivize first-time home buyers to purchase homes that have been abandoned, foreclosed upon and returned to the lender, or have been sitting on the market for extended periods of time. It is these homes that will require substantial rehabilitation by the new owners, which will in turn generate a tremendous increase in jobs and accessory purchases connected to home improvement activities.