In another sign of sluggishness in the mortgage markets, home-loan applications fell by 6.5% last week after adjusting for seasonal factors, the Mortgage Bankers Assn. says in its latest report.

The decline occurred despite lower interest rates, according to the trade group, which reported Wednesday that the average contract rate for 30-year fixed-rate mortgages decreased to 4.84% from an even 5%. It was the third straight week that the rate went down, the MBA says.

The weekly report tends to jump around, but the overall trend is down: A four-week moving average of mortgage applications is down by 2.5%.

With distress sales dominating the housing market, vulture investors are using cash to buy many homes, so it may be no surprise that applications for purchase-money home loans are falling.

But despite the sub-5% rate — the trigger, once, for refinancings — the refi share of mortgage activity decreased to 64.9% of total applications from 65.7% the previous week.

Source article LA Times

Though the Treasury Department and the real estate industry have termed the program a success, helping 1.8 million people buy homes, many tax policy experts say it has been singularly cost-ineffective: most of the $12.6 billion in credits through end of February was collected by people who would have bought homes anyway or who in some cases were not even eligible.

There is no question this program was very costly. And why is the Treasury confusing activity with accomplishment? Sure sales briefly surged, but were new households formed? How many new jobs were created?

“We were happy in our apartment, but $8,000 was just too much to pass up,” said [Mr. James Green, a student at Purdue University], 29, who shopped furiously with his wife for two months before signing a contract in March to buy a three-bedroom ranch.

“We bid on a couple places that didn’t work out,” he said, “but we always made sure we had a backup plan because we didn’t want to miss the deadline for the credit. And when we finally agreed to a contract, it was this huge relief.”

For every home buyer like the Greens, real estate agents say there are at least three others who collected the credit even purchase antibiotics online though they would have bought without it. That means for each new buyer who was truly lured into the market by the credit, the federal government paid more than $30,000.

This is very optimistic – the ratio was probably 5-to-1 for the initial credit and even higher for the extension. But this shows two failures of the tax credit: 1) the high cost, and 2) it was just moving people from apartments to homes and didn’t reduce the excess housing inventory (yes, rentals count as housing inventory too).

“The tax credit helped to stanch the price declines, which had substantial benefit for the entire economy,” said Mark Zandi at Moody’s Economy.com.

And this has been the policy – support asset prices by limiting the supply (all the foreclosure delays), and pushing demand (low mortgage rates and the tax credit). This has helped the banks significantly, and Zandi argues this has boosted confidence. Maybe … but I’m not convinced that supporting house prices above the market clearing level to help the banks and boost consumer confidence makes sense. I think targeting jobs – and therefore household formation – would have been a far more cost effective program.

Source Article

A week ago, he and a couple of buddies bought a two-unit apartment building for nearly a million dollars. They had only a little cash to bring to the table but, with the federal government insuring the transaction, a large down payment was not necessary.

“It was kind of crazy we could get this big a loan,” said Mr. Rowland, 27. “If a government official came out here, I would slap him a high-five.”

In its efforts to prop up a shattered housing market, the government is greatly extending its traditional support of real estate, including guaranteeing the mortgages of middle-class and even upper-class buyers against default.

In 2007, the government did not insure a single mortgage in this city, one of the most expensive in the country. Buyers here, as well as in Manhattan, Santa Monica and every other wealthy area, were presumed to be able to handle the steep prices and correspondingly hefty down payments on their own.

Now the government is guaranteeing an average of six mortgages a week here. Real estate agents say the insurance is such a good deal that there will soon be many more.

Policy changes like the shift in insurance, while often introduced on a temporary basis, are becoming so popular that they could prove difficult to undo. With government finances already under great strain, the policy expansions are creating new risks for American taxpayers.

The Internal Revenue Service is giving tax rebates to first-time buyers, and soon to move-up buyers, in a program beset by accusations of fraud. And the government agency that issues mortgage insurance, the Federal Housing Administration, is underwriting loans at quadruple the rate of three years ago even as its reserves to cover defaults are dwindling. On Thursday, the Mortgage Bankers Association said more than one in six F.H.A. borrowers was behind on payments.

F.H.A. insurance was created for minority and low-income families on line pharmacies who could not come up with the traditional down payment of 20 percent required by private lenders. Buyers receive loans from government-approved lenders and are required to document their income and assets. They must pay a substantial insurance premium of 1.75 percent of the loan. But in return, their down payment can be as low as 3.5 percent.

For decades, most F.H.A. loans were in low-cost states like Texas and Michigan. Under the agency’s loan limits, houses along the coasts were usually too expensive to qualify. In 2007, fewer than 4,400 F.H.A. loans were made in California, according to the research firm MDA DataQuick, and none were in San Francisco.

The Economic Stimulus Act of 2008 helped change that by temporarily doubling the maximum loan the F.H.A. insured, to $729,750. A two-unit property like the one bought by Mr. Rowland and his friends can be insured for up to $934,200.

“F.H.A. financing was a lost language in San Francisco, the real estate equivalent of Aramaic,” said Michael Ackerman, the agent who represented Mr. Rowland and his friends. “Once the limits were raised, smart buyers started calling.”

The F.H.A. has insured more than 107,000 loans so far this year in the state, according to DataQuick, about 270 of them in San Francisco.

Condominium buildings approved for F.H.A. financing — a relative handful — trumpet the news on their Web sites. The Soma Grand, a new 246-unit building downtown where one-bedrooms cost in excess of $500,000, received F.H.A. certification early in the summer. A half-dozen buyers since then used F.H.A. insurance.

At Guarantee Mortgage Corporation, which has 150 mortgage brokers in the Bay Area, Seattle and Portland, Ore., F.H.A. loans have grown to about 15 percent of its business, from less than 3 percent a few years ago.

“It sure has helped us put a lot of deals together,” said Guarantee’s chief sales officer, Bob Siefert. He predicts that a quarter of Guarantee’s deals will soon be guaranteed by the F.H.A.

Some F.H.A. borrowers here say they have the cash for a full down payment but would rather invest it in the stock market or use it for remodeling. Others, like Mr. Rowland and his friends, simply do not have the money required by private lenders — which would have been nearly $200,000, in their case.

We were resigned to waiting another year,” said a second partner, Michael Bedar, 31. “Then we read about the F.H.A. I had never heard of it before, and couldn’t quite believe it. But it was the answer to our problems.” They put down about $33,000, split among the three of them.

While the F.H.A. is certainly strengthening the high-end market in the Bay Area by prompting more sales, there are growing concerns that it might become a destabilizing force.

Kenneth Donohue, inspector general for the Department of Housing and Urban Development, the parent agency of the F.H.A., said the higher loan limits were increasing the potential risk to the F.H.A. Last week, the agency said its cash reserves had fallen below their Congressionally mandated minimum because of the large volume of foreclosures.

“If one of these higher-limit loans fail, that’s equivalent to two or three cheaper loans,” Mr. Donohue said. “You have to ask yourself, was the F.H.A. ever intended to address these markets?”

He sees another risk: larger loans will be a greater draw for those who want to commit fraud. That would exacerbate a problem already besetting the agency.

Even some San Francisco agents who are doing F.H.A. deals worry about the long-term consequences. Real estate commissions are 6 percent. If the value of a property were to hold steady, a seller who put down the F.H.A. minimum would suffer a loss after fees. And while the Bay Area has traditionally been an excellent investment, the last few years have proved a big exception.

“Is this going to be the next wave of the housing downturn?” asked Eileen Bermingham, an agent with Pacific Union. “With such a minimal down payment, how do we make sure people don’t get in over their heads?”

The F.H.A. commissioner, David H. Stevens, said recently that its loans were relatively safe because the buyer was required to live in the property. They “are for shelter. They aren’t speculative-type investments,” Mr. Stevens said.

But the idea of a house as an investment dies hard. Mr. Bedar, Mr. Rowland and the third partner in their property, Jordan Kurland, are all in the technology field, but their dreams of wealth do not feature stock options.

“We’re banking on real estate,” said Mr. Kurland, 24. “Everyone expects prices to keep going up.”

Mr. Kurland and Mr. Bedar, who are employed full time, are the buyers of record. Mr. Rowland, a freelancer, will have his interests protected by a legal agreement.

Their building, for which they paid $963,000, is on a quiet street in the up-and-coming Hayes Valley neighborhood, close to fashionable restaurants they have already been trying out. The friends plan to live in the bottom unit and rent out the top. Thanks to rock-bottom interest rates, none of them will pay much more than a thousand dollars a month. “Everyone should have the chance to do this,” Mr. Kurland said.

Everyone may get a chance.

A few weeks ago, Congress extended the higher lending limits for another year. Representative Barney Frank, the Massachusetts Democrat who is chairman of the House Financial Services Committee, said in an interview that he planned to introduce legislation next year raising the maximum F.H.A. loan by $100,000, to $839,750.

His bill would make the new limits permanent.

Last fall, as the financial system was teetering and the biggest banks were tightening credit, Karen DeForte couldn’t find a lender to refinance the two mortgages on her New York home, until she received a phone call from Lend America.

Most banks rejected Ms. DeForte because her debt level was too high and her credit score too low. But Lend America put Ms. DeForte into a $402,000 loan backed by the Federal Housing Administration, a New Deal-era agency that Washington and Wall Street were relying upon to pick up the slack in the mortgage market as private lenders pulled back. Ms. DeForte fell behind on payments six months later and is seeking a loan modification. Taking the loan was “a stupid mistake,” the 46-year-old office manager said.

Source Article

In late 2007 and early 2008, thousands of borrowers with marginal credit were allowed to refinance via the government-insured FHA program, just as home-price declines began to accelerate. Policy makers were urging the agency to fill the gap left by the exit of private lenders, refinancing subprime borrowers out of loans that threatened to reset to unaffordable payments.

Although the FHA has tightened credit standards, many of the 2007 and early 2008 mortgages are going bad. The agency expects defaults on 24% of all loans insured in 2007, and 20% of drugs no prescription those backed in 2008. “The orders from Congress and us were clear: We want to save as many families as we can, recognizing that a lot of loans people were looking to refinance out of should never have been made in the first place,” said Brian Montgomery, who served as the agency’s commissioner for four years ending in July.

This month, the FHA is to release the findings of its annual audit, which will show that the projected value of the agency’s reserves has fallen below a federally mandated level, raising concerns that the FHA may need taxpayer money for the first time in its 75-year history. FHA officials say the agency has enough capital to withstand expected losses.

The report is likely to reignite a debate over how aggressively the government should move to prop up the housing market by providing a steady source of mortgages that require little money down. The FHA, which doesn’t make loans but insures lenders against losses if a borrower defaults, is guaranteeing half of all home-purchase loans in some of the nation’s hardest-hit housing markets. That is helping to heal housing markets but puts taxpayers at risk if home-price declines resume.

Refinance loans are hitting the FHA hard. While delinquencies on refinance loans have been lower than those for purchases, that began to change in 2006, and delinquencies on refinance loans have risen faster than those on new loans in the past three years, according to First American CoreLogic.

The FHA began to take on riskier loans in 2007. By the end of 2007, the share of borrowers with credit scores of less than 600 had grown to 37%, up from 30% a year earlier, according to LPS Applied Analytics. The FHA says it is insuring better loans today, but that is primarily because lenders that originate FHA-backed loans began instituting their own minimum standards in 2008, several months after FHA volume surged. Average credit scores have jumped by nearly 70 points, to around 690.

David Stevens, a mortgage-industry veteran who became FHA commissioner in July, has moved aggressively to kick out lenders that the FHA blames for taking advantage of the government program. “What we have to do is eliminate players who prey on the industry in a way that is not legitimate,” Mr. Stevens said.

Last month, the Justice Department filed a civil fraud suit against Lend America of Melville, N.Y., a unit of Ideal Mortgage Bankers Ltd. that specialized in subprime lending until 2006. The suit, which cites 40 cases of alleged mortgage fraud committed by the company against the FHA, is seeking $14 million in claims against the mortgage bank. Executives of the company, which is fighting the suit, weren’t available to comment.

Click on graph for larger image in new window.

UPDATE: percentages corrected.

Here is the October data.

They started breaking out REO sales last year, but this is only the fifth monthly report with short sales. About 63.2 percent of all resales (single family homes and condos) were distressed sales in October.

cheap online pharmacy 10px; FLOAT: right; BORDER-TOP: #000000 1px solid; BORDER-RIGHT: #000000 1px solid” src=”http://1.bp.blogspot.com/_pMscxxELHEg/Svh9KdndruI/AAAAAAAAGwU/zvwgd82SM2M/s320/SacramentoOct2.jpg” border=”0″ alt=”Distressed Sales” /> The second graph shows the mix for the last four months. REO sales declined, but short sales and conventional sales were up. It will be interesting to see if foreclosure resales pick up later this year – or early next year – when the early trial modifications period is over.

Total sales in October were off 17.5% compared to October 2008; the fifth month in a row with declining YoY sales.

On financing, over half the sales were either all cash (24.6%) or FHA loans (28.9%), suggesting most of the activity in distressed former bubble areas like Sacramento is first-time home buyers using government-insured FHA loans (and taking advantage of the tax credit), and investors paying cash.

This is a local market still in distress.

Source Article

Last fall, as the financial system was teetering and the biggest banks were tightening credit, Karen DeForte couldn’t find a lender to refinance the two mortgages on her New York home, until she received a phone call from Lend America.

Most banks rejected Ms. DeForte because her debt level was too high and her credit score too low. But Lend America put Ms. DeForte into a $402,000 loan backed by the Federal Housing Administration, a New Deal-era agency that Washington and Wall Street were relying upon to pick up the slack in the mortgage market as private lenders pulled back. Ms. DeForte fell behind on payments six months later and is seeking a loan modification. Taking the loan was “a stupid mistake,” the 46-year-old office manager said.

In late 2007 and early 2008, thousands of borrowers with marginal credit were allowed to refinance via the government-insured FHA program, just as home-price declines began to accelerate. Policy makers were urging the agency to fill the gap left by the exit of private lenders, refinancing subprime borrowers out of loans that threatened to reset to unaffordable payments.

Although the FHA has tightened credit standards, many of the 2007 and early 2008 mortgages are going bad. The agency expects defaults on 24% of all loans insured in 2007, and 20% of those backed in 2008. “The orders from Congress and us were clear: We want to save as many families as we can, recognizing that a lot of loans people were looking to refinance out of should never have been made in the first place,” said Brian Montgomery, who served as the agency’s commissioner for four years ending in July.

This month, the FHA is to release the findings of its annual audit, which will show that the projected value of the agency’s reserves has fallen below a federally mandated level, raising concerns that the FHA may need taxpayer money for the first time in its 75-year history. FHA officials say the agency has enough capital to withstand expected losses.

The report is likely to reignite a debate over how aggressively the government should move to prop up the housing market by providing a steady source of mortgages that require little money down. The FHA, which doesn’t make loans but insures lenders against losses if a borrower defaults, is guaranteeing half of all home-purchase loans in some of the nation’s hardest-hit housing markets. That is helping to heal housing markets but puts taxpayers at risk if home-price declines resume.

Refinance loans are hitting the FHA hard. While delinquencies on refinance loans have been lower than those for purchases, that began to change in 2006, and delinquencies on refinance loans have risen faster than those on new loans in the past three years, according to First American CoreLogic.

The FHA began to take on riskier loans in 2007. By the end of 2007, the purchase prescription drugs share of borrowers with credit scores of less than 600 had grown to 37%, up from 30% a year earlier, according to LPS Applied Analytics. The FHA says it is insuring better loans today, but that is primarily because lenders that originate FHA-backed loans began instituting their own minimum standards in 2008, several months after FHA volume surged. Average credit scores have jumped by nearly 70 points, to around 690.

David Stevens, a mortgage-industry veteran who became FHA commissioner in July, has moved aggressively to kick out lenders that the FHA blames for taking advantage of the government program. “What we have to do is eliminate players who prey on the industry in a way that is not legitimate,” Mr. Stevens said.

Last month, the Justice Department filed a civil fraud suit against Lend America of Melville, N.Y., a unit of Ideal Mortgage Bankers Ltd. that specialized in subprime lending until 2006. The suit, which cites 40 cases of alleged mortgage fraud committed by the company against the FHA, is seeking $14 million in claims against the mortgage bank. Executives of the company, which is fighting the suit, weren’t available to comment.

Source article Wall Street Journal online

The National Association of Realtors has called such an extension “essential.” The Mortgage Bankers Association agrees. The National Association of Home Builders says, “Failure to act now could derail the fragile housing recovery even before it has time to take root.”

I respectfully disagree for perhaps a dozen reasons. Let me offer five.

(Calculated Risk) 

Yesterday I heard a compromise had been reached on extending and expanding eligibility for the home buyer tax credit, and that the housing tax credit would be attached to the extension of unemployment benefits, and that the Senate would vote today – and a House vote would follow shortly.

Hold on …

Albert Buzzo at CNBC reports: Senate Vote On Home-Buyer Tax Credit Unlikely Today. Buzzo says there is “no chance” the Senate will vote today on the home buyer’s tax credit.

There was hope last night that a vote on one of several versions might be voted on Wednesday but a battle over legislation extending unemployment benefits is taking priority and right now there’s “no agreement” on that issue …CNBC’s Diana Olick provides the same details that I heard on the tax credit: A Compromise on Home Buyer Tax Credit? and adds:

[T]here may have been a bit of a revolt among Democrats who didn’t want the controversial measure attached to the Unemployment Insurance bill.And from Andy Sullivan and Corbett Daly at Reuters:

Reid had wanted to attach a bill to extend the homebuyer credit as an amendment to a bill to lengthen insurance benefits for unemployed workers. The Senate voted 87-13 on Tuesday to take up the insurance benefit bill, but did not attach the homebuyer tax credit to the measure as Reid had wanted.

Despite that apparent roadblock, Senate Finance Committee Chairman Max Baucus, who has been involved in negotiations over the tax credit, told Reuters late on Tuesday that he expected the Senate would vote on the bill sometime this week.As Ms. Olick concluded: “Stay tuned. It could all change dramatically.” 

Yesterday I heard a compromise had been reached on extending and expanding eligibility for the home buyer tax credit, and that the housing tax credit would be attached to the extension of unemployment benefits, and that the Senate would vote today – and a House vote would follow shortly.

Hold on …

Albert Buzzo at CNBC reports: Senate Vote On Home-Buyer Tax Credit Unlikely Today. Buzzo says there is “no chance” the Senate will vote today on the home buyer’s tax credit.

There was hope last night that a vote on one of several versions might be voted on Wednesday but a battle over legislation extending unemployment benefits is taking priority and right now there’s “no agreement” on that issue …CNBC’s Diana Olick provides the same details that I heard on the tax credit: A Compromise on Home Buyer Tax Credit? and adds:

[T]here may have been a bit of a revolt among Democrats who didn’t want the controversial measure attached to the Unemployment Insurance bill.And from Andy Sullivan and Corbett Daly at Reuters:

Reid had wanted to attach a bill to extend the homebuyer credit as an amendment to a bill to lengthen insurance benefits for unemployed workers. The Senate voted 87-13 on Tuesday to take up the insurance benefit bill, but did Xenical Online not attach the homebuyer tax credit to the measure as Reid had wanted.

Despite that apparent roadblock, Senate Finance Committee Chairman Max Baucus, who has been involved in negotiations over the tax credit, told Reuters late on Tuesday that he expected the Senate would vote on the bill sometime this week.As Ms. Olick concluded: “Stay tuned. It could all change dramatically.”

Oct. 21 (Bloomberg) — Lehman Brothers Holdings Inc., the investment bank brought down by the U.S. mortgage crash after 158 years, is set to return to funding home loans through its Aurora Loan Services unit, people familiar with the matter said.

Aurora, which helped make Lehman the top underwriter of mortgage bonds during the housing boom, has started hiring staff for the effort, said the people who declined to be identified because the plan isn’t public.

The expansion comes even as New York-based Lehman is shrinking through asset sales, 13 months after filing for the biggest bankruptcy in history and selling its North American investment-banking unit to Barclays Plc. While Aurora will be forced to focus on the government-backed mortgages now accounting for 90 percent of new home loans, overseas online pharmacy rather than the riskier debt it specialized in as recently as two years ago, reduced competition has made that market more profitable.

“For the ones that are left, there’s opportunity,” Steve Jacobson, chief executive officer of Madison, Wisconsin-based Fairway Independent Mortgage Corp., said in an interview. His originations soared 67 percent from a year earlier to $2.6 billion in the first nine months of 2009.

Less competition has boosted per-loan profits, to $1,088 in the first quarter from $657 in 2004, according to Mortgage Bankers Association studies. The difference between rates on typical 30-year mortgages and 10-year Treasuries has widened to 1.8 percentage point, compared with an average of 1.27 percentage point in the five years through 2007, according to data compiled by Bloomberg and Bankrate.com.

Averting Seizure

Aurora, once a specialist in so-called Alt-A mortgages, may start lending again through other companies and brokers, as well as directly to consumers, according to the people familiar with the plans. The Littleton, Colorado-based firm has remained a servicer of outstanding mortgages and is owned by Aurora Bank FSB, formerly Lehman Brothers Bank FSB. The bank unit didn’t enter bankruptcy protection with its parent.

Deborah Munies, a spokeswoman for Aurora, Kimberly Macleod, a Lehman spokeswoman, and Janet Frank, a spokeswoman for the U.S. Office of Thrift Supervision, the bank’s regulator, declined to comment.

Lehman was the largest underwriter of so-called non-agency home-loan securities in 2007, when the market collapsed, selling $67.6 billion of the debt, or 9.6 percent of the total, according to newsletter Inside MBS & ABS. The firm ranked as the second-largest issuer, creating $49.5 billion of the bonds.

Aurora, which ranked as the top Wall Street-owned lender with $98 billion of originations in 2004 and 2005, announced plans to end most lending in January 2008. During the bankruptcy, Lehman has been lending to Aurora Bank, as well as contributing assets to the unit and buying its loans, to avert a regulatory seizure and protect its stake.

Spinning Off Assets

Lehman also has supported its Salt Lake City-based Woodlands Commercial Bank. A seizure of both bank units could reduce returns to Lehman’s creditors by as much as $3.6 billion, Lehman CEO Bryan Marsal has said.

Lehman listed $639 billion in assets in its bankruptcy filing. Lehman’s North American brokerage and New York headquarters building and other real estate were bought by Britain’s Barclays within days of the bankruptcy for $1.54 billion. Nomura Holdings Inc. took over the investment bank’s Europe, Asia and Middle East operations. Managers at Lehman’s Neuberger Berman money management unit acquired 51 percent of that firm without putting up any cash. The rest of Neuberger is owned by Lehman’s creditors.

Aurora ranked as the 14th-largest servicer as of June 30, handling billing and collections on about $93 billion of loans, according to industry newsletter Inside Mortgage Finance. Aurora has been granting new mortgages to its servicing customers, one of the people said.

Subprime Lending

Lehman founded Aurora in 1997 with servicing contracts and staff acquired from Harbourton Mortgage, and later began lending through the unit. Aurora grew in originations through its acquisition in 2003 of Independence Community Bank Corp.’s SIB Mortgage Corp. unit, which split from its parent as the bank sold itself in a sale arranged by Lehman.

Lehman entered subprime lending in 1999, buying a stake in Finance America and made an investment in BNC Mortgage the next year, before taking full control of those lenders and merging them under the BNC name. Lehman exited subprime in 2007, after shifting some of BNC’s business and staff to Aurora. BNC joined its parent in bankruptcy in January.

Subprime mortgages were offered to borrowers with the worst credit records. Alt-A loans, a step above, were given to borrowers seeking atypical terms, such as a lack of income verification.

Reduced Competition

Few start-ups have tried to take advantage of reduced competition in the remaining mortgage market because lenders to mortgage banks and bigger mortgage companies that buy loans remain wary, Fairway’s Jacobson said. For instance, they may seek to only do business with firms with $10 million in net worth, he said.

That’s a shame because “what’s great about today is the big guys are very vulnerable,” as they struggle to manage costs and service levels, said Terry Wakefield, a consultant in Grafton, Wisconsin, and former Salomon Brothers Inc. executive who helped run a lender owned jointly by that firm and a Prudential Financial Inc. predecessor.

Passing Bear Stearns

Lehman surpassed New York-based Bear Stearns Co. as the top underwriter of home-loan bonds without government backing in 2006, managing $128 billion of sales. The success of the firms in fueling their fixed-income businesses with lending units led to purchases of mortgage firms by Morgan Stanley, Merrill Lynch & Co., Goldman Sachs Group Inc. and investment-bank units of Deutsche Bank Inc. and Barclays.

As non-agency bond sales began to seize two years ago after peaking at $1.2 trillion in both 2005 and 2006, Lehman and Bears Stearns sought to keep their units open by focusing on mortgages that could be sold as securities guaranteed by government- supported Fannie Mae and Freddie Mac or U.S. agency Ginnie Mae. Bear Stearns sold itself last year to JPMorgan Chase & Co. to avoid a bankruptcy.

Aurora remains led by Tom Wind, who Lehman wooed in 2006 from JPMorgan to head U.S. residential lending. Wind is “a very capable guy, full of common sense,” said Wakefield, who he worked with at Prudential Home Mortgage, which originally focused on relocation loans under mortgage-bond pioneer Lewis S. Ranieri and was bought by a Wells Fargo & Co. predecessor.

Wind will join a former Bear Stearns executive in returning to originations. Jeff Walton, who headed the Bear Residential Mortgage Corp. unit that made loans through brokers, said this month he is starting a company to make loans on behalf of First Arizona Savings FSB in Phoenix. He will focus on lending eligible for government-related programs and “nothing will be held for our portfolio,” he said in an interview.

The bankruptcy case is In re Lehman Brothers Holdings Inc., 08-13555, U.S. Bankruptcy Court, Southern District of New York (Manhattan).

If you thought home prices were bottoming out, you may be wrong. They’re expected to head a lot lower.

Home values are predicted to drop in 342 out of 381 markets during the next year, according to a new forecast of real estate prices.

Overall, the national median home price is predicted to drop 11.3% by June 30, 2010, according to Fiserv, a financial information and analysis firm. For the following year, the firm anticipates some stabilization with prices rising 3.6%.

In the past, Fiserv anticipated the rapid decline in home-sale prices over the past few years — though it underestimated the scope.

Mark Zandi, chief economist with Moody’s Economy.com, agreed with Fiserv’s current assessments. “I think more price declines are coming because the foreclosure crisis is not over,” he said.

In fact, those areas with high concentrations of foreclosure sales will experience the steepest drops, according to Fiserv. Miami, for example, is expected to be the biggest loser. Prices are forecast to plunge 29.9% by next June — after having already fallen a whopping 48% during the past three years.

If Fiserv’s forecast holds, Miami real median home price will tumble to $142,000 by June 2011.

In Orlando, Fla., the second-worst performing market, Fiserv anticipates a 27% price collapse by June 2010, followed by a less severe drop the following year. In Hanford, Calif., prices are estimated to drop 26.9% and continue falling 9.5% in 2011; in Naples, Fla., they’re expected to fall 26.8% and then flatten out.

Other notable losers include Las Vegas, where prices have already fallen 54.6% and are expected to lose another 23.9% by June 2010. In Phoenix values have already collapsed by 54% and could fall another 23.4%. In both cities, Fiserv anticipates the losses to continue into 2011, but they will be less than 5%.

Prices had stabilized

The latest forecast is at odds with the past few months of the S&P/Case-Shiller Home Price index. That report has given hope that most housing markets may have already stabilized because the composite index of 20 cities rose in May, June and July. Nationally, it found that home prices have gained 3.6%.

Brad Hunter, chief economist for Metrostudy, which provides housing market information to the industry, however, expects a change in fortunes, however.

“I’m afraid Case-Shiller may be just a temporary reprieve,” he said.

He pointed out that the tax credit for first-time home buyers helped support prices during the three months of Case-Shiller gains. By the end of November, the credit will have been used by 1.8 million homebuyers, at least 355,000 of whom would not have bought a house without the tax break, according to estimates by the National Association of Realtors. But the market assistance ends when the credit expires on Dec. 1.

Hunter also sees a new wave of foreclosure problems coming from higher priced loans and prime mortgages. He expects a high failure rate for option ARM loans that were issued to prime customers so they could buy homes in bubble markets, such as order prescription drugs without a prescription California and Florida. In those areas, prices for even modest homes had skyrocketed.

Winners

A handful of metro areas will buck the trend, according to Fiserv. Six markets will remain flat, and 33 will actually post gains. The biggest winner will be the Kennewick, Wash., metro area, where home prices have ramped up 8.9% over the past three years and are expected to increase another 3.4% by June 2010.

Fairbanks, Alaska, prices are anticipated to rise 2.5%, while Anchorage will climb 2.1%. Elmira, N.Y., prices may inch up 1.8%.

The nation’s biggest metro area, New York City, will underperform the nation as a whole over the next two years, according to Fiserv. Prices, which have already fallen 21.7% to a median of $375,000, are expected to fall 17.4% by June 2011.

Home values in the nation’s second largest city, Los Angeles, have fallen 43.3% since June 2006 to a median of $313,000. They are expected to dive another 20.2% over by June 2010, and then start to climb in 2011. Chicago prices, which have fallen 25.2% to $227,000, will drop only 4.1% over the next 12 months and then starting to climb.

The Detroit metro area now has the dubious distinction of having the lowest home prices in the country. Prices have dropped 51.7% to a median of $50,000. They’re expected to fall another 9.1% and then stabilize.