KeNo's Housing and Economic Portal: Saturday September 18 Housing and Economic stories

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TOP STORIES:

Fannie Mae Sponsoring No Money Down Mortgages (Again) - (www.cnbc.com) Over at Realty Check this morning, our colleague Diana Olick describes the latest government mortgage program that allows first-time home buyers to pick up a home with no money down. It's called Affordable Advantage, and it allows first-time home buyers in four states (Massachusetts, Minnesota, Idaho and Wisconsin) to get essentially no-money-down loans that are then sold to Fannie Mae. It requires $1000.00 down, but the couple profiled in the piece received a grant, and ended up paying just 67 cents for a $115,000 home. The Fannie Mae program requires a minimum credit score of 680 (720 in Massachusetts) and the buyer must live in the home. All loans are 30-year fixed. The arguments for the program are persuasive: It wasn't the no-money-down loans themselves that fueled the housing crash, it was the poor underwriting. These loans are very strictly underwritten. Adjustable rate loans were the primary drivers of default, while these loans are fixed. The government is trying to stem the tide of mortgage walkaways by creating programs that force lenders to give borrowers back home equity — and despite the small credit hit to the borrower, that's free equity. The Fannie Mae program, while helpful in getting new buyers into homes and easing some inventory, seems contradictory in its fundamental premise. The buyers in the Affordable Advantage program have no skin in the game from the start, and no guarantee that the home won't lose value over the next year.

FHA Commissioner: GSE's Considering Principal Forgiveness in Short Refi's - (www.cnbc.com) Let the principal reduction begin. The new FHA "Short Refi" program, announced earlier this year, went into operation yesterday. It allows borrowers who are current on their mortgages now to refinance into FHA-backed loans, if and only if their lenders agree to write down the principal balance on the loan by at least 10 percent. After the refi, the primary loan must have a loan-to-value ratio of no more than 97.75 percent. The FHA calls this a "life line" to borrowers with negative equity. In reality, it's trying to give underwater borrowers some skin in the game again and prevent them from walking away from their mortgage commitments. Interestingly, though, the GSE's, Fannie Mae and Freddie Mac, which own or guarantee around half of the outstanding loans in this country ($5.7 trillion), are not currently participating in the program. I asked FHA Commissioner David Stevens why not?

Defense cuts could slow D.C. economy for years - (www.washingtonpost.com) After surging in size and profits during the post-9/11 era, the defense industry in metropolitan Washington is bracing for a major contraction and significant layoffs that economists said could produce a drag on the regional economy for years. Already, there have been signs that announced cuts in national defense programs are having an impact: Six hundred executives at Bethesda-based Lockheed Martin are accepting the company's offer of a buyout. ITT Defense and Information Systems, based in McLean, this year combined seven business units into three and cut 1,000 workers. Hundreds were let go this year from Northrop Grumman operations in Maryland. Those losses are just the beginning of what many expect to be a much broader set of reductions at local companies. After making cuts in military hardware budgets last year, Defense Secretary Robert M. Gates last month took aim more directly at the Washington region's defense industry, calling for reducing spending on "support contractors" by 10 percent each of the next three years. This region is a hub of contractors providing professional, administrative and computer services.

Greek protesters to confront government on economy - (finance.yahoo.com) Greece's prime minister promised Saturday to lower corporate taxes to help revive the debt-plagued country's shrinking economy, while thousands of protesters marched -- mostly peacefully -- against the government's harsh austerity measures. Greece narrowly avoided bankruptcy in May when European countries and the International Monetary Fund gave it euro110 billion ($140 billion) through 2012 in emergency loans. The money came on condition Athens make deep cutbacks -- moves that have angered unions. Prime Minister George Papandreou said the tax rate on companies' retained profits would be cut from 24 to 20 percent next year, providing what he called "a strong incentive for investments and competitiveness." He also pledged to open up restricted professions -- including truck drivers, notaries, taxi drivers and pharmacists -- deregulate the energy market, settle on privatization targets, facilitate major investments and simplify business licensing procedures by the end of this year. Some 20,000 people gathered in three separate protests in the northern port city of Thessaloniki ahead of Papandreou's speech. They were accompanied by some 4,500 police on security duty. Minor clashes broke out as scores of youths attacked riot police with sticks, and were repelled with tear gas. No arrests or injuries were immediately reported. Police pre-emptively detained 20 people, including 13 from Spain, Italy, Britain and Portugal.

Error-riddled PG&E gas leak reporting led to costly fixes - (www.sacbee.com) PG Corp., owner of the San Bruno gas line that exploded in fire Thursday, spent more than $100 million last year to detect and fix gas leaks after an internal study found major problems in the way it reported line ruptures. Company documents submitted to the California Public Utilities Commission last year show that PG&E's gas line inspections were so full of errors in 2007 that it had to redo leak inspections for nearly all 4 million of its residential natural gas customers. The faulty inspections and subsequent leaks involved two to six-inch distribution pipes that carry gas to residential customers. Thursday night's rupture involved a much bigger part of the gas delivery system: a 30-inch, high-pressure steel transmission line that feeds thousands of homes between San Francisco and the South Bay. The cause of the deadly rupture has not been determined. Officials at the National Transportation Safety Board are conducting an investigation. Pacific Gas and Electric officials had no comment when asked about the cause, saying their priority now is to work with emergency officials and assess damage to the area.