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The House of Representatives overwhelmingly approved credit card legislation on Thursday aimed at protecting consumers from hidden fees and sudden interest rate hikes.

The chamber voted in support of the Credit Cardholders’ Bill of Rights. Banks opposed to legislation have warned it could reduce the amount of credit available and make it more costly to use a credit card.

President Barack Obama, who backs congressional efforts to overhaul the industry, is expected to sign a bill into law by late May once the Senate considers its own version next week.

Daniel Rosenbaum for The New York Times

Before the actual bidding began at a real estate auction in Washington, an auctioneer pretended to sell the Washington Monument as an example of how the process works.

Daniel Rosenbaum for The New York Times

At the real estate auction, a bidder assistant yells to signal to the auctioneer that an audience member decided, after a tense moment, to place a higher bid.

In 2006 and early 2007, the official housing statistics were still showing that house prices were holding up. But that was largely because so many sellers were refusing to sell. The auctions, made up mostly of foreclosed homes, showed the truth: house values were starting to plummet in many places.

So a few weeks ago, I decided to go to an auction at a hotel ballroom in California — and to study the results of several others elsewhere — with an eye to figuring out whether prices may now be close to bottoming out.

That’s clearly a huge economic question. Last week, JPMorgan’s chief financial officer told Eric Dash of The New York Times that JPMorgan, and presumably other banks, would be under pressure “until home prices stabilize and unemployment peaks.” As long as home prices are falling, foreclosures are likely to keep rising and the toxic assets polluting bank balance sheets are likely to stay toxic.

There are reasons, though, to think that prices may be on the verge of stabilizing. Relative to fundamentals, like household incomes and rents, houses nationwide now appear to be overvalued by only about 5 percent. You can make an argument that the end of the housing crash is near.

But that’s not what I found at the auctions.

“This is a perfect storm of opportunity,” The Auctioneer told the 300 or so people who had come to downtown Los Angeles for the auction.

The auction manager, spoke from a lectern on stage, and his goal seemed to be to persuade people that they might never see a buyers’ market as good as this one. Prices have plunged, and interest rates, he said, are at “generational lows.” (The National Association of Realtors has been running a radio commercial this spring making a similar case.)

“Look around to your left and your right, and you’ll see someone who sees an opportunity just like you do,” The Auctioneer said. “We’re approaching the bottom of the market, I think. We’re approaching the bottom of the market, if we’re not there already.”

He then told the audience that, in the last 100 years, house prices have recovered from every downturn and gone on to reach record highs. Oh, and Wells Fargo and Countrywide were standing by, ready to offer financing to qualified auction buyers.

If nothing else, this sales pitch certainly had umm brass balls. It combined the old bubble-era notion that house prices always rise over time (ignoring the fact that incomes, stock values and the price of bread do, too) with the new postcrash idea that houses must be a bargain because they’re a lot cheaper than they used to be. Even Countrywide, which was taken over by Bank of America after so many of its subprime mortgages went bad, is still part of the housing pitch.

Yet as soon as the auction began, it was clear that the pitch wasn’t working.

The winning bid on the first home auctioned off, a two-bedroom townhouse in Virginia Beach, was $115,000. Just last July, it sold for $182,000, according to property records. A four-bedroom brick house with a two-car garage in Upper Marlboro, Md., went for $375,000. Last year, it sold for $563,000.

Throughout the evening, such low-ball prices continued to win the bidding. At one point, the auctioneer, Wayne Wheat, interrupted his sing-song auction call to cheerfully ask, “Where are my investors?”

The tables that had been set up around the edges of the ballroom, reserved for people planning to buy multiple houses, were mostly empty. Many audience members, like the man in a camouflage baseball cap just in front of me, were attending their first auction.

On Sunday, my colleague  went to a larger auction, in Miami, to see if my experience had been unusual. It wasn’t. The homes there also sold for just a fraction of what they would have even a year ago. The rate of decline in Miami hasn’t even slowed noticeably in recent months, according to data kept by Real Estate Disposition Corporation, known as R.E.D.C., which runs the auctions.

A recently transplanted New Yorker named Michael Houtkin won the bidding on a one-bedroom condominium on the outskirts of Boca Raton, a few blocks from three golf courses, for the incredible price of $30,000. “Things were almost being given away,” he said later.

As is often the case at these auctions, the seller of the condo — Fannie Mae — retained the right to refuse the winning bid and keep the property. But Mr. Houtkin told me he was optimistic his bid would be accepted. An R.E.D.C. employee suggested to him that $30,000 wasn’t much below the minimum price that Fannie Mae had hoped to receive.

How could that be? Because Fannie Mae, like many banks, is inundated with foreclosed properties. In recent weeks, banks have begun accelerating foreclosures again, after having held off while waiting to find out which homeowners would be eligible for the Obama administration’s assistance program.

The glut of foreclosed homes creates a self-reinforcing cycle. Falling prices lead to more foreclosures. Foreclosures lead to an excess supply of homes for sale. The excess supply then leads to further price declines. Jan Hatzius, the chief economist at Goldman Sachs, says that the “massive amount of excess supply” means that home prices nationwide will probably fall an additional 15 percent.

This estimate hides a lot of variation, too. In Miami, Goldman forecasts, prices could drop an additional 33 percent, which is pretty amazing since they’ve already fallen 50 percent from their 2006 peak.

Nor is excess supply the only reason prices still have a way to fall. Nationwide, homes may not be overvalued by much. But in some cities, including New York, San Francisco, Los Angeles, Boston, Chicago and Miami, they remain very expensive.

So while Mr. Hatzius and his Goldman colleagues are somewhat more pessimistic than most forecasters, but the difference isn’t enormous.

I’ll confess that this bearish picture isn’t exactly what I had hoped to find. 

They don’t have as far to fall today, but the great real estate crash is not over, either. So if you are part of the 30 percent of American households who rent and you’re trying to decide when to buy, relax.

The week began with the sweet sounds of investment banking giant Goldman Sachs reporting earnings that were much better than expected. More good news from the financial zone followed, with better than expected earnings from JP Morgan Chase and Citigroup. As you can see in the chart below, the financial sector has clearly been helped by the recent mark-to-market discussions and easing of the FASB ruling. In other sectors, big players Google and General Electric also reported earnings that were higher than anticipated.

———————–
Chart: S&P 500 Banking Index

And more good news last week, as Fed Chairman Ben Bernanke sang out that there are signs that the sharp decline in the economy is slowing, indicating a potential “first step” towards a recovery from the worst recession in a generation. Specifically, he said, “I am fundamentally optimistic about our economy. Today’s economic conditions are difficult, but the foundations of our economy are strong, and we face no problems that cannot be overcome with insight, patience, and persistence.” While last week’s Retail Sales Report came in lower than expected, indicating that consumers are still keeping a good grip on their wallets – Bernanke’s words certainly inspire some economic confidence.

There was also some inflation news to note last week – important in particular as inflation is the arch-enemy of Bonds and home loan rates. While the Producer Price Index showed that inflation at the wholesale level is tame and the overall Consumer Price Index was lower than expected, the Core Consumer Price Index – which excludes volatile food and energy prices – came in slightly hotter than expected. Although inflation is not a present concern, traders are watching carefully for signs of it heating up, particularly as the year progresses and the impact of massive economic stimulus takes hold.

Remember: Weak economic news normally causes money to flow out of Stocks and into Bonds, helping Bonds and home loan rates improve, while strong economic news normally has the opposite result. And that’s what was seen at the end of last week, as Stocks were buoyed by the strong earnings reports, causing Bonds to fall below a key technical support level as money flowed out of Bonds and into Stocks. After bouncing around a bit throughout the week, Bonds and rates ended the week at similar levels to where they began.

WANT TO MAKE SURE THE GOVERNMENT ISN’T GOING TO BURN, BURN, BURN THROUGH THE $787 BILLION STIMULUS PACKAGE?

Give Me Money… That’s What I Want

Better still, you can access a list of projects by state, so you can see how the Stimulus Plan may impact your state and local community – including costs, number of jobs, and exact locations! Simply select your state and review the projects under consideration. You can even add comments about the value of the projects listed!

It’s convenient, interactive, and easy to understand – check it out today!

StimulusWatch.org

The embedded video was produced by Jonathan Jarvis to help define the relationships between homeowners (Main Street), bankers and brokers (Wall Street), and institutional investors.

Jonathan’s Crisis of Credit video easily explains how Sub Prime Mortgages, Collateralized Debt Obligations, Frozen Credit, and Credit Default Swaps created the perfect storm.

It is certainly amazing how a couple of recent changes to a law passed in 1933 could have such a significant impact on the destruction of the world’s economy.

Regardless of what the media or politicians try to say, this credit crisis it is NOT the original fault of sub-prime borrowers.  In fact, there are many strong debates that put government policy and corruption as the root cause for the current pain being felt by Americans and others around the world.

On one side, the Financial Services Modernization Act of 1999 created an opportunity for banks and affiliated insurance companies to participate in a form of legalized gambling where they could manipulate the credit rating of a risky investment product and sell it to institutional investors such as pension fund managers and municipalities.

The opposing team believes that a government mandate in the Community Reinvestment Act of 1977 by Carter and amendments in 1995 by Clinton encouraged banks to find creative ways of lending to borrowers who did not have sufficient credit, income, employment, down payments, or assets to obtain FHA or Conventional financing.

The fact that Fanie Mae made a commitment to purchase sub-prime mortgages helped fuel the fire as well.

Either way, leverage, lack of transparency, and limited regulation are all to blame for this crisis of credit.

The embedded video may help set the scene for why our government continues to throw hundreds of billions of dollars at a multi-trillion dollar problem which was caused by over-leveraged investment models, deregulation of banking and insurance practices, and non-existent mortgage borrowing guidelines.

Quick Outline:

The Financial Services Modernization Act of 1999 repealed certain aspects of a 100 year-old law which was established to prevent another Great Depression.

By enabling the co-mingling of Depository Banking and Investment Banking institutions, an overwhelming amount of free money became available to financial institutions who were able to package up mortgages (Collateralized Debt Obligations), insure for AAA investment grade ratings (Credit Default Swaps), and sell to institutional investors (Pension Fund Managers, Municipalities, Low-Risk Mutual Funds).

This entire 10 year investment / mortgage backed securities cycle was leveraged on one very important factor – property values increasing.

As long as property values continued to increase, banks thought that homeowners would keep making mortgage payments.

If people did not make their mortgage payments, then banks were able to foreclose, sell the home, and make a profit. However, the bubble popped, equity disappeared, and banks were sitting on worthless collateral.

The bottom line question is this: Are these delinquent loans still collectible? Can the buyers get any money back from the consumers that got the loans in the first place, or sell the home for more than the mortgaged amount? This is the only way to profit on this deal, other than selling off the noncollectable loans at a higher price to other investors down the road (an unlikely notion).

I have yet to see an answer on the critical question of whether any of these now-labeled “toxic” loans are still collectible. If they’re not, then it’s a bad deal for everyone. If they are, then it’s a great deal for investors — since they’ll pay only 6 percent of the past-due value of the mortgages for the option to potentially get half of the full mortgage amounts when the homes sell. (Note that you’ll be able to buy these loans from investment fund managers who participate in the FDIC’s new Legacy Securities Program; $25,000 minimum purchase required.)

Meanwhile, the FDIC will give loans to eligible investors to cover their cost, charging a loan origination fee and paying back the investor’s loan as consumers make payments. Perhaps Credit Suisse Group had it right when it gave toxic loans in lieu of “bonuses” to its executives…

FYI: FDIC eligibility requirements rule out 1) anyone in default from buying their mortgage back at the cheaper rate; 2) anyone with bank judgments, a foreclosure or bankruptcy on an FDIC-insured account; 3) anyone convicted of crimes against banks; and 4) any officer or director of a failed institution.

RESOURCES

“A better means to soak up toxic assets,” China Daily

NPR fact sheet on this Public-Private Investment Program

The text of Secretary Geithner’s Financial Stability Plan

“Public seen more at risk in public-private toxic fund,” MarketWatch.com

This is BIG. You must read this…

Last week I made mention about the Southern California housing rebound underway. Right after that Northern California and Sparks/Reno Nevada February housing numbers came in showing the same BIG housing turnaround happening.

Then today, National existing home sales are up BIG month over month up 5.1% (versus a 0.9% drop expected). This is the biggest increase since 2003.

There could be a shift in the market and only time will tell. Industry leaders such as John Alexander and Alexis McGee believe that we have hit the bottom of the real estate market. I’m not the expert, but in my opinion I think we still have some more time, because of all the ALT -A loans that are going to reset in late 2009-2012, but again I’m no expert.

This is a little news video clip of why The Asset Finder Program might be eliminated in the very near future.

http://www.mortgagenewsdaily.com/channels/video/66939.aspx

Think of the clients you’ve had a great working experience with over the past year, and ask for a testimonial. Send them an email with the following request:

“Hey Bill – I know you’ve mentioned that you’ve really enjoyed working with me, and I’ve sure enjoyed the relationship too! Would you mind giving me a short blurb I could use in some of my marketing, so that others can get a feel for the service that I offer? I know your time is valuable, so I really appreciate it – thank you!”

Because it’s in email form already, they are likely to take a minute to fire off a quick response to you on the spot. If you don’t have their email address, then just give them a call and ask…but make it easy for them. Let them know that you’d be happy to type it up for them if they wouldn’t mind giving you a line or two. Ask questions like, “What did you like the best about our experience together?” “What do you remember the most?” “What would you tell your friends or family about me?” then jot some lines down as you talk. Be sure to ask for their email address – which you really should have already – and send it to them for approval. ALWAYS make sure to ask permission to use their comments “in complete or edited form,” as well as their name and city.

If you’re just getting started in your industry and don’t have a wealth of past clients to call on, ask your peers, your manager, or your mentor to write a short personal endorsement. You’ll want to replace them with client testimonials once you have them, but in the meantime, any testimonial is better than no testimonial!

To avoid this process altogether, be sure that, from here on out, every time a client makes a great comment about your service, ask them on the spot. “Wow, that would make such a great testimonial line for me! Would you mind if I write that down and attribute it to you?” Then make the notes right away, so you get an accurate reflection of what they said. Additionally, consider building in an evaluation form for your clients to complete at the closing or after an important meeting.

So, now that you have the testimonials, how do you use them? You should have testimonials in all of your marketing. This includes on your website, on your personal brochure, in your presentation materials, and even posted in your office. You can include testimonials on the bottom of your letters and email correspondence. If there is a particularly good story of how you helped someone solve a particular problem, worked through a difficult issue, or really helped them make their dreams come true, don’t be afraid to send a postcard or letter out to your database highlighting the story. Once you get in the habit of asking for the testimonial, you’ll be surprised at how many you get, and how easy it is to get this powerful, free marketing strategy working for you.