Investors are capitalizing on historically low home prices and interest rates while many Americans question the safety of home ownership. Image: Flickr/Georgivar CC-BY-SA

Existing home sales rose nearly 4 percent from January to February, according to the National Association of Realtors. Most of the home buying is being done by investors snapping up cheap houses in regions where high foreclosure rates are driving down home prices. First-time home buyers are staying away in what is being described as a cultural shift away from home ownership as the American dream.

Investors pad home sales stats

Investors throwing down cash on foreclosures and short sales drove up existing home sales last month to an annualized rate of 5.1 million. Foreclosures and short sales accounted for 40 percent of all purchases. Cash deals accounted for 35 percent of all sales, the highest percentage since the National Association of Realtors began tracking cash deals. The bulk of investor activity took place in markets hit hardest by foreclosures, including Phoenix, Las Vegas and Tampa. The 40 percent foreclosure sales figure could be higher; the Realtor group’s data tracks individual investors but not homes sold at auctions and bought by private equity firms. A tell-tale sign of investor activity is a 10 percent year-over-year rise in sales of homes less than $100,000. In the past year, sales of mid-priced homes fell more than 14 percent.

First time home buyers an endangered species

Sales among first time home buyers fell to 33 percent in March. According to the NAR, that figure would be about 40 percent in a healthy housing market. Although real estate is more affordable than it has been in a generation, a survey conducted by Fannie Mae found that at the end of last year, the number of people who said a home was a safe investment fell to 64 percent from 70 percent when the year began. The December figure was the lowest recorded by the survey, which began in 2003, when 83 percent of respondents believed in home ownership. But even during the housing crisis, owning a home was safer than most investments. During the peak of the housing crisis in 2008 the median home price in the U.S. dropped 15 percent compared with a dive in the Standard & Poor’s 500 Index of more than 38 percent. By the end of 2010, about 11 million homes in the U.S. were worth less than their mortgages, according to CoreLogic.

Re-thinking the American dream

A growing number of Americans are giving up on home buying, even though real estate is more affordable than it has been in 40 years, based on NAR data on home prices, mortgage rates and median U.S. income. The median U.S. home price plummeted 32 percent from its 2006 peak to a nine-year low in February 2011 — worse than the 27 percent decline recorded in the first five years of the Great Depression. Borrowing costs have also been historically low. According to Freddie Mac, the average rate for a 30-year fixed mortgage in 2010 was 4.69 percent, the lowest since 1972. According to the Census Department, the U.S. home ownership rate dropped to 66.5 percent in the fourth quarter, the lowest in more than a decade. In March, the percentage of Americans who plan to buy a home in the next six months fell by 23 percent.

Sources

Associated Press

Bloomberg

MSN Money

Falling supply and rising demand will dramatically increase rental rates as Americans adjust their perceptions about home ownership. Image: CC kodiax2/Flickr

After about a decade of very low rent inflation, rising rents are emerging as a consequence of economic recovery. Rental vacancy rates have been dropping sharply, and rental market analysts are warning that double-digit rate increases are on the horizon. Further economic recovery may be at stake as rising rents feed inflation and subtract further from consumer spending already under stress from rising gas and food prices.

Why rental vacancy rates are falling

Rental rates have increased on average less than 1 percent per year over the past decade, according to the Commerce Department. During the recession, people who couldn’t afford to live on their own either doubled or tripled up with roommates or moved back in with their parents. Now many of these people are back on the market looking for their own place to rent. Millions of people who lost their homes in the foreclosure crisis, which continues, are also looking for apartments. Rental vacancy rates dropped from 10.3 percent in the third quarter to 9.4 percent in the fourth quarter of 2010. The 1.3 percent decline was the second-largest on record and the lowest rental vacancy rate since 2003. As rental vacancy rates continue to drop, rents will rise and the overall trend will accelerate.

How high will rents rise?

Rental rates are rising rapidly in every major U.S. metropolitan area and posing a major inflation risk. In the past three months, rents for primary residences are up 2 percent. Overall rents have increased 1 percent. In the next year, rents are expected to rise anywhere from 3 to 10 percent. In high-demand rental markets, such as San Diego, Seattle and Boston, increases could top 10 percent in the next two years. Housing costs account for 40 percent of the Federal Reserve’s core inflation calculation. Rising rents are expected to double the U.S. inflation rate from 0.8 percent in 2010 to 1.6 percent this year. By the end of the year, the U.S. inflation rate could reach 2 percent– the rate of inflation the Fed shoots for without factoring in housing, gas and food prices.

The challenge to meet rental demand

The housing crisis has changed the perception of home ownership in the U.S. as home prices continue to decline. Americans understand the economics of housing better now, and as long as a home isn’t a good investment, more will choose to rent. Rising rents are a function of supply and demand. Nearly 80 million aging baby boomers and 4.5 million people who lost their homes to foreclosure are entering the rental market. Yet multifamily rental construction starts plunged from nearly 350,000 units annually before the 2008 financial collapse to barely 100,000 annually. According to the Center for American Progress, more than 40 million new rental units may be needed in the next 30 years. In the short term, a lack of long-term financing options has few developers willing to risk building more rental housing.

Sources

CNNMoney.com

Daily Finance

CNBC

Huffington Post

The Fed is leading a group of investors trying to force Bank of America to buy back $47 billion in bad mortgage bonds. Image: CC Shannon Clark/Flickr

The foreclosure crisis could be coming home to roost on the banks that caused the housing crisis. The Federal Reserve Bank of New York joined a group of the largest bond investors in the U.S. Wednesday to demand that Bank of America buy back bad mortgage loans packaged into securities. Other mortgage bond investors are expected to follow suit, along with lawsuits that could lead to big losses for big banks.

Fed improves odds for jilted investors

Investors who took a bath in the housing crisis want to recoup losses on mortgage bonds from the banks that sold them. Bloomberg reports that the fight over who will ultimately take the hit got more interesting Wednesday when the Federal Reserve Bank of New York threw its weight behind a bid to force Bank of America to buy back $47 billion in bad mortgage debt packaged and sold by its subsidiary Countrywide Financial Corp. The Fed joined a group including Pacific Investment Management Co., BlackRock Inc. and Freddie Mac. An investment analyst told Bloomberg that the Fed’s involvement increases the odds that the group may prevail.

B of A seeks to evade responsibility

Bank of America said it refuses to be held responsible for the losses. Reuters reports that in a conference call with analysts, Bank of America Chief Executive Brian Moynihan said investors can’t justify the claim that his bank sold them bad mortgages. He compared it to people saying they bought a Chevy but they want a Mercedes in return. A representative for the group of investors told Reuters that it was a case of “buying a Vega and getting a Vega.”

Bank bailout 2.0

With the largest bond investors in the U.S. trying to force the largest mortgage lender in the U.S. to give them their money back, “expect a tidal wave to begin,” said Daniel Indiviglio at The Atlantic. Banks, even though they’re sitting on tens of billions of dollars in cash, will lose big if investors are successful. Banks may lobby Congress to pass a law that lets them off the hook. That just might happen because if the banks are forced to face the consequences of their actions, the financial industry could melt down once again.

Sources

Bloomberg

Reuters

The Atlantic

A foreclosure document processor at a major mortgage lender authorized the eviction of tens of thousands of homeowners without reading their files. Image: Thinkstock

Foreclosure documents processed by Ally Financial used to repossess homes and evict residents were submitted to courts without verifying their accuracy. A single Ally Financial employee said he signed off on as many as 10,000 foreclosure documents a week without reading them and without a notary present. The revelation led Ally Financial, the fourth-largest mortgage lender in the U.S., to suspend evictions of homeowners in 23 states. Other companies–including Fannie Mae and Freddie Mac–who used Ally Financial to process foreclosure documents may also be affected. The Ally Financial case could give millions of homeowners a stout legal leg to stand on for challenging foreclosure in court.

Foreclosure documents submitted without verification

Some of the nation’s largest mortgage lenders have been accused of foreclosing on families without verifying all the information in a case. The Washington Post reported that in sworn depositions involving families trying to keep their homes, Jeffrey Stephan, head of Ally’s foreclosure document processing team, neither read the documents or signed them in the presence of a notary as required. Stephan would sign up to 10,000 documents a month, which were bundled and sent off for notarization later. The Post said that at the rate Stephan was reviewing files, in an eight-hour day he would have spent an average of 1.5 minutes on each document. The documents were then used in court by law firms, sometimes called “foreclosure mills” to evict homeowners so the bank could sell their properties.

Mortgage lending abuses continue in the courts

Abuses by the mortgage lending industry that led to the housing crisis and foreclosure epidemic are still having an effect. The Wall Street Journal reports that the courts are struggling with complex paperwork on millions of mortgages that have been packaged, chopped up, scrambled and resold to investors as securities. The schemes have made it difficult for courts to identify who actually owns a mortgage. Foreclosure documents are intended to clarify that issue. In the case of Stephan, who has been called a “robo-signor,” and “affadavit slave,” the banks turning the homeowners out on the street don’t really know who owns the loan either.

A legal gift for foreclosed homeowners

Ally Financial’s illegal foreclosure documents may cast doubt over millions of foreclosures filed by Wall Street banks in the past few years. The issue could open the door for homeowners across the country to challenge foreclosure proceedings. Andy Kroll at Mother Jones writes that according to federal rules of civil procedure, affidavits like the kind Stephan was signing “must be made on personal knowledge, set out facts that would be admissible in evidence, and show that the affiant is competent to testify on the matters stated.” To abide by the law, Stephan had to read the documents in detail to know what they said. Before he signed them, he had to be familiar enough with their contents to defend them in court.

Renting with bad credit is a challenge more people are facing. It requires a clear strategy to succeed. Image: Thinkstock

Renting with bad credit is a challenge a great number of people are facing these days, thanks to the housing crisis, mortgage lending meltdowns, unemployment, foreclosures, etc. Circumstances beyond their control have put many people in the bad credit doghouse. But a decent place to live, or simply a roof over one’s head, is a fundamental need that must be met. The bottom line is simply that the rent must be paid. For people with bad credit who can pay the rent, securing a place to live requires a strategy.

Know the facts about your credit score

It’s tough for renters with bad credit to lease an apartment or house, whether the economy is good or bad. AOL Real Estate says that credit scores, income and employment history, are the major factors landlords use to evaluate renters. The first priority a renter must address is to know where they stand with their credit. Anyone can get a free credit report at annualcreditreport.com. This is the official government site for the free credit report everyone is entitled to by law once a year. Credit scores are available for purchase from any of the nationwide credit reporting agencies providing the credit report via this site.

Stay away from a credit check

The best way to successfully rent with bad credit is to avoid getting a credit check. According to CNN, houses or apartments rented by an independent owner may be more easygoing than properties managed by a professional management company. Start by checking Craigslist, free newspapers and bulletin boards. Landlords advertising in these venues are trying not to invest any money in advertising rental units, and the odds are better they won’t do credit checks. When you ask about the place, ask them about the criteria they use to evaluate renters. If a credit check isn’t on their list, you’re a step closer to success.

Other bad credit rental options

The reality for renters with bad credit is that most landlords require a credit check and a completed application before they will lease an apartment. According to About.com, options are still available. Getting someone to vouch for your financial responsibility can help offset bad credit. A family member or good friend with good credit can also act as a co-signer on the lease. Getting a roommate with good credit could help. But keep in mind that if your name isn’t on the lease, you’re not building your credit with a rental history.

Foreclosed Palm Springs, Calif., home with a graffiti message on the garage door that reads "Mortgage fraud by Mission Hills Mortgage." (Photo Credit: CC BY-SA/Florian Boyd/Flickr)

America’s housing crisis was caused by a number of factors. One that has remained largely hidden from the general public until now is MERS. According to the Nolan Chart LLC mortgage industry blog, MERS (Mortgage Electronic Registration System) is an institution that enables the Mortgage Backed Security (MBS) industry to pass over rules regarding recording and transferring title when a property changes hands. Created by Fannie Mae in the mid-1990s, MERS acts as a quasi-agent (they call it “nominee”) for any party that becomes involved in the mortgage, with the exception of the homebuyer. MERS transacts in an online (rather than brick-and-mortar) world. Thus, as mortgages are bundled, bought and sold at the speed of the MERS electronic network, there is definitely convenience. But since Fannie Mae – which handles well over 50 percent of all U.S. home mortgages – is now owned by the U.S. Treasury, various sources have raised the question of whether MERS has the legal right to be listed on mortgages in the first place, considering that the company never pays for any property.

Suspicion over MERS and the lack of a paper trail

The most significant question raised by the operation of MERS, particularly as it relates to potential mortgage fraud, is whether the company should be able to listen itself on electronic mortgage documents, as MERS has neither paid for any property nor represented the mortgage holder in any tangible legal way. MERS’ streamlined method of recordkeeping has not set well with mortgage industry critics, as the old methods of mortgage processing documentation constituted legal transaction in the past. MERS claim to represent up to 60 million mortgage cases, reports Nolan Chart, is legally questionable in the minds of critics. That’s over $10 trillion worth of mortgages, and it seems likely that a company like MERS – with little or no free market competition – will be hearing from the Supreme Court before long. The question of whether MERS should have the right to foreclose homes must be answered to the satisfaction of the law.

State intervention creates profit machine

MERS sits in a position of great privilege and benefits from public funding. Thus, argues Nolan Chart, the public has a right to be skeptical when little to no free market competition exists to regulate prices. The contract law loopholes that have allowed MERS to operate thus far have expedited the MBS. That industry is largely responsible for creating the U.S. housing crisis in the first place. MERS may need to be reined in by the highest court in the land for the long-term benefit of homebuyers nationwide.

Sources:

Nolan Chart LLC

Wikipedia

Freddie Mac commercial on mortgage fraud

Higher down payments on mortgage loans are one of many reforms experts say the federal government continues to avoid. Image: Thinkstock

Weak lending standards created the housing bubble; that led to the the housing crisis, which in turn led to the foreclosure epidemic. But experts, including the chairman of the Federal Deposit Insurance Corporation (FDIC), are saying the federal government has yet to learn the lesson. An amendment calling for adequate down payments for mortgages was defeated during the financial reform debate. Federal housing agencies project a return to subprime lending. And the crisis is being perpetuated by the Federal Reserve, with policies that prevent a natural correction that is the ultimate solution to the problem.

Skin in the game vs. loan performance

Federal regulators should tighten lending rules for home mortgages in the U.S., according to Sheila Bair, chairman of the FDIC. Bair told CNBC that a new set of “common sense” rules need to be written ensuring the borrower has the capacity to repay a mortgage loan and makes a larger down payment than is currently required. She said there was a strong correlation between “skin in the game” and loan performance. The more money down a borrower is required to pay, the less likely they will be to walk away from the house. Going forward from the housing crisis, Bair said lending standards need to call for strict income documentation, higher ability to repay standards and more skin in the game.

Subprime lending redux

Weak lending standards brought down the economy, but the federal government still doesn’t get it, according to Edward Pinto at Bloomberg. Pinto writes that the Dodd-Frank bill signed into law last July makes it clear that Congress and the Obama administration don’t intend to fix broken underwriting. An amendment to the financial reform bill that would have added a minimum down-payment requirement as well as consideration of credit history, along with definition of a “prudent underwriting” standard, was defeated. Plus, in early September, the Federal Housing Finance Agency finalized affordable housing mandates that focus nearly exclusively on low income borrowers with low credit scores — subprime lending redux. Pinto said the new policies are riskier than those resulting in the Fannie Mae and Freddie Mac taxpayer bailout.

Ignoring problems won’t make them go away

The current government response to the housing crisis will extend today’s problems into the future, according to Bill Bonner at the Christian Science Monitor. Bonner writes that the government continues to extend credit and cash to those who don’t deserve it and pretends there is no more problem. The U.S. financial system is holding hundreds of billions in mortgage debt that won’t be repaid. So the Federal Reserve bought up the bad mortgage debt and called it an “asset.” Bonner said the real solution is the market correction the government is trying to avoid. The government finances more mistakes, keeps paying for the old mistakes and pretends that everything will be fine–until it finally runs out of money.

Buying a home isn't the iron-clad investment opportunity it used to be, and economists are saying it never will be again. dvs/Flickr photo.

A home mortgage was known as “the most important investment a person ever makes” for decades. Then the housing crisis arrived and long overstayed its welcome. Overinflated home values soon became artificially low home prices. Home sales are at their lowest level in 15 years. Falling home prices are raising concerns about deflation. A Federal Reserve official recently said it was a mistake to look at buying a house as an investment opportunity. One financial expert advises that when it comes to housing, people shouldn’t confuse an expense with an investment.

Why housing is no longer a good investment

Real estate experts believe home ownership will never again generate wealth like it did in the second half of the 20th century. The New York Times reports that the inventory of homes for sale may soon rise to a 12 month supply — twice the level of a healthy housing market. As all those sellers compete for buyers, home prices will continue to fall after already losing as much as 30 percent in value. Dean Baker, co-director of the Center for Economic and Policy Research, told the Times it will take 20 years to recoup $6 trillion in housing wealth lost since 2005. Adjusting for inflation, home values will never catch up.

Housing has become a living expense

Treating a house as an investment is the biggest personal finance mistake a person can make, according to Charlie Farrell at CBS Money Watch. Farrell said housing should be looked at as a lifestyle expense like buying a car. A house is a depreciating asset, just like a car. It falls apart unless money is constantly pumped into it. Economists say in the next 20 years home values will only keep up with inflation. A home will return the money an owner puts in each month, but will not multiply the investment in the mortgage. Even when the mortgage is paid off,  paying maintenance costs and taxes on a home means owners will have put more money into houses than they get out of them.

Getting a mortgage:  having something still better than nothing

In the aftermath of the housing bubble, the U.S. housing market is the last place people should put their hard-earned money, according to Thomas Hoenig, president of Federal Reserve Bank of Kansas City. During testimony at a hearing held by the House Financial Services Committee’s oversight and investigations subcommittee, he said “If the American people are looking at the housing market to be their investment opportunity, I think they are making a mistake.” Linda Stern, Farrell’s colleague at CBS Money Watch, said Hoenig is right, but it could still be a good idea to lock in the price of a depressed asset and pay for it with other people’s money at 4.5 percent. Paying rent for 30 years returns nothing. With a mortgage, there’s a house at the end of the tunnel. Regardless of what it’s worth, it’s something.

McMansions are out as homebuyers seek smaller, more practical homes in the aftermath of the housing crisis. lisachamberlain/flickr photo.

McMansions are out. Count this symbol of American excess, waste and poor taste as another casualty of the housing crisis. New research is showing that large, rambling, expensive homes packed close together in cul de sacs have fallen from grace. Some McMansions that were thrown up in haste by greedy builders in the past few years lie abandoned. Others looming large and out of place with the houses around them are considered a blight on neighborhoods. People building new homes are opting for much smaller floorplans. Realtors and architects believe the sentiment that McMansions are out  is more than just a passing real estate trend.

Housing bubble bursts the McMansions era

McMansions — also known as “starter castles,” garage mahals and faux chateaus — may have reached their peak during the housing bubble. Now that the housing bubble has burst, the decline of McMansions could be permanent. Time reports that Trulia has released a report on real estate trends that said the average square footage of an American home is decreasing for the first time in 60 years. The average size of a home in America was 983 square feet in 1950, according to Trulia’s American Dream Survey. By 2004 the average had swelled to 2,349 square feet. Another study, the Truila-Harris interactive survey, found that only 9 percent of people polled were looking for homes of at least 3,000 square feet that are considered McMansions. A majority of the housing market, 64 percent of buyers, sought homes from 800-2,000 square feet.

McMansions a symbol of ugly America

A McMansion, according to Wikepedia, is a large new house considered pretentious, tasteless or designed out of character with its neighborhood. The term compares these bland homes often built with substandard construction and lack of style to mass-produced meals. McMansions typically have a floor plan covering more than 3,000 square feet, ceilings 9-10 feet high, at least a three-car garage and numerous bedrooms and bathrooms. The house takes up most of the lot, leaving little room for a yard or garden.

Housing market comes to its senses

People in the housing industry think the downsizing trend in the housing market is here to stay. Pete Flint of Trulia told CNBC that smaller square footage is a long term effect. In a survey of builders last year, nine out of 10 said they planned to build smaller or lower-priced homes. Kermit Baker, the chief economist at the American Institute of Architects, told CNBC his profession is moving away from the McMansion era as homeowners demand more practical designs. Paul Bishop, vice president of research for the National Association of Realtors, told CNBC that McMansions look and feel out of place in the aftermath of the recession.

FHA mortgage insurance will get more expensive because rising delinquencies and foreclosures have depleted FHA reserves. The TruthAbout/Flickr photo.

Federal Housing Administration mortgages saved the housing market from total collapse when the housing crisis emerged in 2007. The FHA virtually eliminated barriers to entry into the housing market to keep mortgage lending from completely drying up. FHA mortgages became so popular that today they make up nearly a third of the mortgage market. But risks and delinquencies from those loans are rising. And The FHA’s reserve funds used to cover losses when borrowers default or go into foreclosure are shrinking. To protect those reserves, the easy terms of an FHA mortgage are about to change.

FHA mortgage insurance takes a big hit

FHA mortgages weren’t a factor in the housing crisis, but its lax standards for mortgage insurance are a problem now. The Real Estate Channel reports that the FHA said 6.2 percent (about 360,000 loans) of the entire insured FHA mortgage portfolio had been issued to homebuyers with FICO scores lower than 500. More than 37 percent of these loans are now at least 60 days delinquent, in foreclosure or in bankruptcy. During the housing crisis, the FHA helped 450,000 families keep their homes out of foreclosure in fiscal year 2009. In the first quarter of 2010, the FHA helped another 122,000 families. The Office of Comptroller of the Currency and the Office of Thrift Supervision said 67 percent of these modified FHA mortgages were in default again within 12 months. The number of FHA mortgages delinquent more than 90 days climbed to 555,000 in May 2010.

Depleted FHA reserves force tougher terms

Because of soaring loan delinquencies and defaults, the FHA is taking actions to protect its Capital Reserve Account, which had dwindled to $3.5 billion by 2009, compared to a $19.3 billion balance on Sept. 30, 2008. SmartMoney.com reports that last week the Senate passed a bill that allows the annual insurance premium to increase on FHA mortgages. The FHA is also considering a minimum credit score of 580 to qualify for the 3.5 percent down payment. Borrowers with a credit score between 500 and 580 will have to make a down payment of at least 10 percent.

New FHA mortgage loan requirements

New FHA mortgage loan requirements will go into effect in Sept. 2010. Chicago77 reports that they may place home ownership out of reach for buyers who just squeak by. Under the new structure, FHA requires a borrower to pay an upfront mortgage insurance premium calculated at 1 percent of the loan amount. The good news is that this is down from the 2.25 percent currently required. The bad news is that the monthly figure will increase from 0.55 percent annually to 0.90 percent annually. As an example, Chicago77 examines a $150,000 home purchase:

Before Sept. 7 2010

Upfront Premium (2.25 percent): $3,256.88
Monthly payment including mortgage insurance: $793.93

On or after Sept. 7 2010

Upfront Premium (1.00 percent): $1,447.50
Monthly payment including mortgage insurance: $826.93

Net changes

Upfront cost: Decreased by $1,809.38
Monthly cost: Increased by $33.00

New home sales in June beat forecasts, but they were still the second lowest on record as the U.S. housing market drags on economic recovery. pnrwa/Flickr photo.

New home sales exceeded gloomy forecasts in June, rebounding from a record low in May. But because new home sales fell so low after the home buyer tax credit expired last spring, June’s numbers were still the second lowest on record. Some believe that the worst of the post-tax-credit slump is over. Others think that increasing foreclosures and the stubbornly high U.S. unemployment rate offset the positive news.

New home sales beat forecast, but that’s not saying much

The Commerce Department said on Monday that new home sales jumped 23.6 percent to a 330,000 unit annual rate from a downwardly revised 267,000 units in May. CNBC reports that the pace of new home sales in June was still the second lowest since records started being kept in 1963. However, the percentage increase was the largest increase since May 1980, and partially offset the historic 36.7 percent decline in May. Even so, economists expect a weak U.S. housing market to be a drag on U.S. economic recovery for much of the year.

Record-low mortgage rates stanch the bleeding

New home sales weren’t as bad as expected, in part because of the lowest mortgage rates on record. Bloomberg reports that record low mortgage rates are a serving as a stabilizer for the U.S. housing industry that triggered the worst recession since the 1930s. However, increasing foreclosures are swelling the number of unsold existing homes, putting pressure on prices and keeping buyers on the sidelines as unemployment hovers near 10 percent and the economy cools. New home prices are continuing to fall. The median price for new home sales decreased 0.6 percent from June 2009 to $213,400.

U.S. housing market continues to drag on economic recovery

New homes sales made up about 7 percent of the U.S. housing market last year. Taragana.com reports that number is down from a portion of about 15 percent before the housing crisis. Weak new home sales mean there are fewer jobs in the construction industry, which has historically driven economic recoveries. Each new home built creates, on average, three jobs for a year and generates about $90,000 in taxes paid to local and federal authorities, according to the National Association of Home Builders. The effect is felt across multiple industries.

Freddie Mac and Fannie Mae will delist from the New York Stock exchange because the value of their shares can't be held above acceptable levels. Flickr photo.

Freddie Mac and Fannie Mae, the key sources of funding that have kept lending to home buyers from completely drying up, were ordered by the government to cease trading their shares on the New York Stock Exchange to abide by NYSE delisting rules. Freddie Mac and Fannie Mae stocks, which have already lost nearly all their value in the housing crisis, fell further when the markets got the news. After the delisting,which was ordered for failing to meet NYSE requirements for maintaining price levels, the stocks of the two companies will be traded in the over-the-counter market.

NYSE delisting rules

Freddie Mac and Fannie Mae were delisted because NYSE delisting rules require that a company pull its stock if it can’t take action to keep shares from dropping below the $1 average price level for 30 trading days. The Associated Press reports that after the NYSE delisting announcement Fannie Mae shares dropped 42 cents, or 46 percent to 50 cents, while Freddie Mac slid 55 cents, or 45 percent, to 67 cents. In 2007, shares of both companies traded at more than $60. As the housing crisis deepened, the stocks lost almost all of their value, plummeting below $1 by September 2008. Fannie and Freddie were then taken over by the government.

Freddie Mac/Fannie Mae losses

Fannie and Freddie own or guarantee almost 31 million home loans worth about $5.5 trillion. That’s about half of all mortgages in the U.S. CNNMoney.com reports that since September 2008 the Treasury Department has poured $83.6 billion into Fannie Mae and $61.3 billion into Freddie Mac to cover losses on the mortgage-backed securities they own or guarantee. During the housing crisis, the money has kept lending to home buyers alive, kept home sales and new home construction from falling further than it has, and kept homes from losing more value than they have. But Freddie Mac/Fannie Mae losses totaled $93.6 billion in 2009 and another $18.2 billion in the first quarter this year. The Congressional Budget Office estimates that nearly $400 billion in tax dollars will eventually be needed to cover Freddie Mac/Fannie Mae losses, making it the most expensive of all the government bailouts.

Fannie Mae/Freddie Mac stock delisted July 8

Freddie Mac and Fannie Mae will delist from the New York Stock Exchange on or about July 8. The Wall Street Journal reports that the NYSE delisting meets the goals of government conservatorship to preserve and conserve assets. Pulling their stocks off the NYSE will save Fannie and Freddie $500,000 apiece in annual listing fees. Both companies paid the maximum amount because of the large number of shares outstanding.

Fanny Mae/Freddie Mac OTC stock

After July 8 Fannie and Freddie stock will be traded in the over-the-counter market. Brokers and dealers will negotiate  directly with one another for Fannie and Freddie stock over computer networks and by phone. OTC stocks are usually very risky because they are the stocks that are not considered large enough or stable enough to trade on the New York Stock Exchange. Research about these stocks is also harder to find. With the delisting, David Lutz,  managing director of equity trading at Stifel Nicolaus & Co. in Baltimore, told Business Week that “We lose some transparency into what is essentially a large black hole that is eating up a large part of our bailout funds.”