By Amy Hoak
From MarketWatch

Prices have dropped since last year when Greg Sax bought his St. Paul, Minn., home. But the 37-year-old first-time home buyer still feels lucky he made the move when he did.

He was able to finance his purchase with no money down. And after talking with real-estate professionals in his job as communications manager for the Minneapolis Area Association of Realtors, he’s not so sure he’d be able to secure that 100% financing today.

“If we had to put 10% or 20% down, we’d probably still be renting,” he says.

Financing Challenge

Falling prices in many parts of the country have improved affordability for those interested in becoming homeowners for the first time, but financing the purchase has become a bigger challenge

Lenders, in general, are requiring larger down payments and higher credit scores, criteria that can trip up first-time buyers.

It’s typically first-time buyers who have the toughest time scraping together a down payment.

According to the National Association of Realtors, 45% of first-time home buyers opted for 100% financing between July 2006 and June 2007. The median percentage that first-time buyers financed was 98%.

No-down-payment loans “are still happening, but with a lot more restrictions than before,” says Barton Pitts, president of Downers Grove, Ill.-based Professional Mortgage Partners.

Borrowers today are going to have to verify their income and verify their financial assets to lenders, says Frank Nothaft, chief economist for Freddie Mac, the government-sponsored mortgage agency. A FICO credit score of 660 to 680 is now the minimum most lenders will consider to prove your creditworthiness, he says.

“It’s the standards of maybe a decade ago,” he adds.

The new lending realities make it especially important for first-time buyers to talk to a mortgage professional prior to the start of any home search, Mr. Pitts and others say.

“Know exactly where you stand going in,” he says.

There are no one-size-fits-all rules to mortgage requirements; your profile as a borrower will depend on factors such as credit scores, income levels and cash reserves.

But some in the industry figure that many borrowers will need about a 5% down payment on a typical loan these days.

Looming 20% Down

Others are predicting heftier restrictions to entry: According to Guy Cecala, publisher of the industry newsletter Inside Mortgage Finance, a first-time buyer in many markets will soon need even more money down — perhaps 10%.

“And I think before too long we’re going to see it up to 15% to 20%,” he adds.

But all hope is not lost for those who don’t have the capital to make a substantial down payment.

For one, some prospective home buyers might consider a mortgage backed by the Federal Housing Administration. FHA loans require only a 3% down payment, which can be a gift from friends or family.

To be eligible, the home price has to be under a certain loan limit, and that varies by location.

By Shelly Banjo
From The Wall Street Journal Online

Finally, it’s a buyer’s market out there.

For years rapidly rising prices kept many first-time home buyers out of the housing market. But as home values slide further downward and interest rates hover at relatively low levels, it may be time to start looking to buy that first house.

That is, if you have a secure job, can afford higher down payments than were required a few years ago and can meet lenders’ much stricter income and credit requirements

“Lenders aren’t cutting everyone off. They’re reverting to sanity after years of making bad loans,” says Dick Lepre, senior loan officer at Residential Pacific Mortgage, in San Francisco.

The U.S. median home price was $201,000 in January, down 4.6% from January 2007. The S&P/Case-Shiller national home-price index for the fourth quarter was down 8.9% from a year earlier, the biggest drop in its 20 years. Prices have plunged 10% to 12% in troubled markets like Florida and California, and many economists predict an overall slide of 20% or more before the housing market bottoms.

There was a 10-month supply of existing homes for sale in January, up from just under five months during boom times.

If you are about to get into the housing market, this is all good news. But before you begin visiting open houses, recognize that the old home-buying rules no longer apply. You want to approach buying your first house with a financially realistic point of view.

Remember: You’re investing in a place to live, not speculating in the stock market or even putting money into a savings account. So keep it simple. Buy smarter. Buy cheaper.

Determine what you can afford. “The days of easy money are over,” says Jeff Bogue, a financial planner in Wells, Maine. Mortgage lenders have tightened their standards and are requiring larger down payments. Typically, they want buyers to spend no more than 28% of their gross monthly income on mortgage payments, real-estate taxes and home insurance.

To figure out how much you can afford, use online calculators at realestatejournal.com, dinkytown.com or bankrate.com and “get preapproved or preauthorized for a loan,” Mr. Bogue says.

Be sure you also have cash for closing costs like legal fees and title charges. The total typically reaches 2% to 3% of the house price, but differs by state and mortgage product, says Ilona Bray, co-author of “Nolo’s Essential Guide to Buying Your First Home.” Also be prepared to pay for moving expenses and ongoing maintenance.

Know your market. Gone are the days of “sure thing” home purchases when buyers would bid up prices and then watch the values of their houses soar like tech stocks in 1999. Today, if buyers are bidding at all, they’re far more likely to insist on lower prices and to walk away if they don’t get what they want.

Now more than ever, location is crucial, down to the neighborhood and street level. Focus on good school districts, crime statistics and any impending construction or public works that could increase or decrease the value of a home. Conduct preliminary research online at Web sites like Zillow.com, Trulia.com and greatschools.net.

“Eighty percent to 90% of housing prices can be explained by what’s happening in local economies. Take a hard look at job growth and neighborhood conditions,” says Patrick Newport, an economist at Global Insight in Waltham, Mass.

Make your dollars count. Although conditions vary by market, look for a home that is significantly lower than its 2004 price. (You can ask real-estate agents for information and check estimated historical values at Zillow.) “From the peak to trough, home prices in some markets will drop 35% to 40%,” says Christopher Thornberg, a principal at Beacon Economics, a consulting and research firm in Los Angeles.

Haggle. Don’t assume the seller is even in the right ballpark with his asking price. Most real-estate agents and sellers only look at comparable sales prices, or “comps,” of similar homes in similar neighborhoods. Take a lesson from property investors and appraisers instead and check out prices from other angles as well.

Consider what it would cost to buy land and build a comparable structure. Insurance companies can provide general cost estimates, but for a thorough assessment consider hiring an appraiser (search online by zip code at AppraisalInstitute.org).

Also compare your estimated monthly costs for the mortgage, taxes and other expenses with the cost of renting a similar place nearby. If you can rent virtually the same house for a much lower cost, the seller is asking too much.

Builders, sellers and banks are eager to unload unoccupied houses, giving the buyer more leverage to ask for lower prices or incentives. And don’t overlook REOs (”real estate owned” properties) held by lenders, says Patrick Carey, executive vice president of default and retention operations for Wells Fargo.

Buy for the long haul. “Most first-time home buyers don’t buy the house they’re going to end up in,” says Ilyce Glink, author of “100 Questions Every First-Time Home Buyer Should Ask.” But experts suggest that in a downward market, people should purchase a home only if they intend to live there for seven to 10 years.

“Historically, housing bubbles have taken several years to deflate, but it’s hard to tell if we’ll see prices drop a lot in the next two or three years or see moderate drops over the next 10 years,” says Mr. Newport, the economist.

If you’re not planning to stay in the house for long, he notes, “it may be wise to watch from the sidelines.

By Shelly Banjo
From The Wall Street Journal Online

Finally, it’s a buyer’s market out there.

For years rapidly rising prices kept many first-time home buyers out of the housing market. But as home values slide further downward and interest rates hover at relatively low levels, it may be time to start looking to buy that first house.

That is, if you have a secure job, can afford higher down payments than were required a few years ago and can meet lenders’ much stricter income and credit requirements

“Lenders aren’t cutting everyone off. They’re reverting to sanity after years of making bad loans,” says Dick Lepre, senior loan officer at Residential Pacific Mortgage, in San Francisco.

The U.S. median home price was $201,000 in January, down 4.6% from January 2007. The S&P/Case-Shiller national home-price index for the fourth quarter was down 8.9% from a year earlier, the biggest drop in its 20 years. Prices have plunged 10% to 12% in troubled markets like Florida and California, and many economists predict an overall slide of 20% or more before the housing market bottoms.

There was a 10-month supply of existing homes for sale in January, up from just under five months during boom times.

If you are about to get into the housing market, this is all good news. But before you begin visiting open houses, recognize that the old home-buying rules no longer apply. You want to approach buying your first house with a financially realistic point of view.

Remember: You’re investing in a place to live, not speculating in the stock market or even putting money into a savings account. So keep it simple. Buy smarter. Buy cheaper.

Determine what you can afford. “The days of easy money are over,” says Jeff Bogue, a financial planner in Wells, Maine. Mortgage lenders have tightened their standards and are requiring larger down payments. Typically, they want buyers to spend no more than 28% of their gross monthly income on mortgage payments, real-estate taxes and home insurance.

To figure out how much you can afford, use online calculators at realestatejournal.com, dinkytown.com or bankrate.com and “get preapproved or preauthorized for a loan,” Mr. Bogue says.

Be sure you also have cash for closing costs like legal fees and title charges. The total typically reaches 2% to 3% of the house price, but differs by state and mortgage product, says Ilona Bray, co-author of “Nolo’s Essential Guide to Buying Your First Home.” Also be prepared to pay for moving expenses and ongoing maintenance.

Know your market. Gone are the days of “sure thing” home purchases when buyers would bid up prices and then watch the values of their houses soar like tech stocks in 1999. Today, if buyers are bidding at all, they’re far more likely to insist on lower prices and to walk away if they don’t get what they want.

Now more than ever, location is crucial, down to the neighborhood and street level. Focus on good school districts, crime statistics and any impending construction or public works that could increase or decrease the value of a home. Conduct preliminary research online at Web sites like Zillow.com, Trulia.com and greatschools.net.

“Eighty percent to 90% of housing prices can be explained by what’s happening in local economies. Take a hard look at job growth and neighborhood conditions,” says Patrick Newport, an economist at Global Insight in Waltham, Mass.

Make your dollars count. Although conditions vary by market, look for a home that is significantly lower than its 2004 price. (You can ask real-estate agents for information and check estimated historical values at Zillow.) “From the peak to trough, home prices in some markets will drop 35% to 40%,” says Christopher Thornberg, a principal at Beacon Economics, a consulting and research firm in Los Angeles.

Haggle. Don’t assume the seller is even in the right ballpark with his asking price. Most real-estate agents and sellers only look at comparable sales prices, or “comps,” of similar homes in similar neighborhoods. Take a lesson from property investors and appraisers instead and check out prices from other angles as well.

Consider what it would cost to buy land and build a comparable structure. Insurance companies can provide general cost estimates, but for a thorough assessment consider hiring an appraiser (search online by zip code at AppraisalInstitute.org).

Also compare your estimated monthly costs for the mortgage, taxes and other expenses with the cost of renting a similar place nearby. If you can rent virtually the same house for a much lower cost, the seller is asking too much.

Builders, sellers and banks are eager to unload unoccupied houses, giving the buyer more leverage to ask for lower prices or incentives. And don’t overlook REOs (”real estate owned” properties) held by lenders, says Patrick Carey, executive vice president of default and retention operations for Wells Fargo.

Buy for the long haul. “Most first-time home buyers don’t buy the house they’re going to end up in,” says Ilyce Glink, author of “100 Questions Every First-Time Home Buyer Should Ask.” But experts suggest that in a downward market, people should purchase a home only if they intend to live there for seven to 10 years.

“Historically, housing bubbles have taken several years to deflate, but it’s hard to tell if we’ll see prices drop a lot in the next two or three years or see moderate drops over the next 10 years,” says Mr. Newport, the economist.

If you’re not planning to stay in the house for long, he notes, “it may be wise to watch from the sidelines.”

Home prices continue to decline to record lows, according to the Case/Shiller Home Price Index, but the number of units selling is rising, says the National Association of Realtors.

Here are three high-end homes for sale.

Place/Price: Northville, Mich. / $1.7 million

Taxes: $18,000

Property: 4 bedrooms, 5 ½ baths, 7,000 square feet

Description: The brick home has a first-floor master suite with a bay window, window seat, walk-in closet and a two-person shower. The lower-level has a built-in bar and home theater and 2,000-bottle-capacity wine cellar.

Notable: Prices in the Detroit area dropped 15.1% from a year prior and are down 3% from January to February. Tampa had a similar decline of 15% from a year ago and 2.7% from January to February.

Place/Price: Scottsdale, Ariz. / $1.85 million

Taxes: $7,000

Property: 5 bedrooms, 4 ½ baths, 4,922 square feet

Description: This three-car garage home has exposed adobe brick walls and there are three fireplaces. The master suite has a beverage refrigerator and a coffee bar. There is a heated pool and spa, and a covered patio.

Notable: The Index shows that 10 of the tracked markets posted double-digit price declines. The Phoenix area, with an 18.2% decline came in second behind Miami and Las Vegas, which tied for first with a 19.3% decline.

Place/Price: Los Angeles, Calif. / $4.3 million

Taxes: $53,687

Property: 4 bedrooms, 5 ½ baths in, 5,000 square feet

Description: This home with an open floor plan has a formal living room. There is a gym and a media room. There is a wall of glass, a swimming pool and a guest house that can be used as an office.

Notable: Los Angeles had a 16.5% price decline, which is comparable to San Diego’s 16.7% decline. Charlotte is the only tracked metro area that did not show a decline. Prices there increased a modest 1.8%.

Note: The property taxes are estimates. Sources: standardandpoors.com, realtor.org, tuscanyreserve.net, fhpbuilders.com, architectural-estates.com

By Peg Brickley
From The Wall Street Journal Online

A federal judge has authorized an in-depth probe of Countrywide Financial Corp.’s mortgage-processing systems by bankruptcy investigators hunting for evidence that the big mortgage lender has systematically abused borrowers.

The decision is a victory for the Justice Department’s federal bankruptcy monitors in a closely watched test of their authority. It is believed to be the first written analysis confirming the monitors’ power to investigate alleged abuse of borrowers since the start of the housing and subprime-mortgage crises, which have set off a deluge of bankruptcy filings in the past year.

Countrywide had argued that the Justice Department’s office of the U.S. Trustee had no authority to investigate its practices. “Countrywide is beginning a full review of the court’s decision and does not have any further comment at this time,” spokesman Rick Simon said Wednesday.

Judge Thomas Agresti of the U.S. Bankruptcy Court in Pittsburgh said in a ruling Tuesday that the trustee’s office had demonstrated “a common thread of potential wrongdoing” in several bankruptcy cases involving Countrywide.

The office had asserted it needed to look into allegations that Countrywide chronically mishandled mortgage payments, pumped up bills with improper fees and ignored court orders in dealings with financially troubled consumers.

Countrywide, the nation’s biggest mortgage lender by volume, has acknowledged some errors. But it has denied that mistreatment of homeowners is a built-in feature of its mortgage-processing backroom systems.

Mr. Agresti is presiding over nearly 300 cases in the U.S. Bankruptcy Court in Pittsburgh that involve allegations of misconduct by Countrywide. The Calabasas, Calif., company faces similar accusations from the Justice Department and private borrowers in courts nationwide.

If the investigation were authorized, Countrywide argued, credit-card companies, auto-finance agencies and other lenders could also find themselves targets of a probe. Mr. Agresti said a widespread investigation of all types of lenders is a “scenario that will likely never occur.”

Recent court filings indicate the U.S. Trustee and Countrywide are in talks about resolving some of their disputes. Neither the company nor the Justice Department would comment.

By Sarah Lueck
From The Wall Street Journal Online

WASHINGTON — Key senators agreed on a $15 billion bipartisan plan to spur the housing market, a surprisingly fast compromise that shows how political momentum is shifting toward a more aggressive response to the struggling economy.

The housing package, which the Senate will begin debating Thursday, represents compromise on both sides. Republicans were leery of starting a process that may lead to greater intervention in the economy. But after hearing from homeowners and businesses during their two-week break, lawmakers said they couldn’t afford to appear obstructionist. More Republican than Democratic incumbents are facing tough fights to keep Senate seats this year.

Democrats, for their part, dropped a bankruptcy provision opposed by Republicans, even though it was a major part of their housing agenda. They, too, are under pressure to show accomplishments this year, amid low public-approval ratings for Congress. They may try to add the provision as an amendment, but it faces an uphill fight.

Democrats also agreed to halve funds for counseling at-risk homeowners to $100 million. Republicans accepted $4 billion in block grants for communities to buy and refurbish foreclosed properties, and they agreed to a smaller tax credit for homeowners than they initially wanted.

The plan would raise the size of loans backed by the Federal Housing Administration to $550,000 and increase the down-payment requirement to 3.5% from 3%. The bill doesn’t include a controversial Democratic proposal to give the FHA the ability to insure $400 billion in mortgages. Sen. Chris Dodd (D., Conn.), the concept’s sponsor, said he will hold hearings later on the idea.

The legislation includes a $6 billion tax break for home builders and other troubled companies, an additional $10 billion of mortgage-revenue bonds that states can issue for refinancing and for first-time home buyers, and a provision to allow an estimated 28 million homeowners who don’t itemize their taxes to get a deduction on their property taxes. In addition, people buying a residence facing foreclosure would get a two-year, $7,000 tax credit.

The White House greeted the compromise with muted enthusiasm. Spokesman Tony Fratto praised senators for agreeing to include the FHA revamp and the enhanced bond-issuance authority, although “we obviously want to see the details to see if they’re in a form we can support.”

The White House continues to oppose funding the purchase of foreclosed homes and the tax credit for home buyers. Mr. Fratto didn’t say whether Mr. Bush would sign a bill if it reflected Wednesday’s compromise. “This bill is a first step,” he said. “It’s going to the floor. It’s going to be debated. We hope it will be amended.”

Some parts of the Senate plan face an uncertain future in the House, where Democrats are less focused on tax relief. Brendan Daly, a spokesman for House Speaker Nancy Pelosi (D., Calif.) said the Senate package is a “good first step” but “we will need to review the details and fine-tune specific provisions that need to be stronger.”

Rep. Barney Frank (D., Mass.), chairman of the House Financial Services Committee, is likely to balk at the increase in the down payment required to get FHA backing for mortgages.

Election years often tempt lawmakers to score political points. This year, voters could see pre-election fights over Iraq and fiscal policy, especially whether to renew President Bush’s income-tax cuts.

– Damian Paletta, Greg Hitt and Michael M. Phillips contributed to this article.

In Detroit and Southern California, foreclosure opportunists are going after cheap homes in downtrodden neighborhoods, which are selling in the five-figure range.

But there are plenty of million dollar-plus homes out there, in good neighborhoods, which have fallen into foreclosure as the result of shoddy lending practices, speculative buyers and homeowners walking away from a negative equity situation.

In Pics: Where To Find Multi-Million Dollar Foreclosures In The US

Using RealtyTrac and REOTrans, two companies that track the foreclosure market, Forbes.com looked for million dollar-plus homes in elite neighborhoods around the country that were in any stage of foreclosure or in a real-estate owned (REO) situation, where the bank was trying to sell off the delinquent loan.

Many of those in the high-end foreclosure market were traditionally good borrowers with strong credit scores, unlike the profile of the typical subprime borrower. Still, the same gaffes occurred on the lending approval side, as people were given excessively high loans, based on the presumption that housing prices would continue upward. “There were people with $100,000 incomes getting million-dollar loans,” says Wendell Cox, founder of Demographia, a St. Louis-based demographics and housing research company.

Foreclosures have always been present in the top end of the market, but what best accounts for the increase are negative equity situations. For homes around the million-dollar mark, especially those derided as McMansions, it’s a case of the home no longer matching the value of the loan. Many of the million dollar-plus homes listed as foreclosures and REOs were built in the last five years and are now worth significantly less than the inflated prices the owners originally paid. But it’s not necessarily that buyers didn’t put down enough money or had a piggyback loan; the owners may have owed more on the house than it was worth, sinking them into a negative equity situation.

One example: a 5,000-square-foot, four-bedroom, three-and-a-half bathroom home in Annandale, Va., just outside Washington, D.C. The house was built in 2004 and the previous owners paid $1.4 million for it in early 2006, according to Fairfax County records. Unfortunately, this was at the tail end of housing price increases nationwide.

According to the home’s appraised value, it had a $140,000 drop in equity since 2006, but based on what the bank is now asking, the home has declined in value by $300,000. Even at the price of $1.06 million, it’s been on the market for almost two months. Prices on foreclosures in the D.C. suburbs still have some distance to fall before they’re in line with market conditions, says Cullen Watson, a real estate attorney and broker based in Washington D.C.

Banks are often reluctant to list foreclosures for less than the loan’s outstanding value because they don’t want to take a loss. In addition, they’re usually paying a brokerage firm to list the house, as banks aren’t in the business of owning and selling property. Brokerages take foreclosed home listings on a case-by-case basis.

Firms and agents don’t generally specialize in top end foreclosures; they specialize in the top-end market. Despite the previous owners not being able to, or not wanting to, make payments, there’s nothing wrong with the houses. The best way to find such homes is through Web sites like RealtyTrac.com and REOtrans.com.

But foreclosures are not all bad news for the high-end real estate market. Nelson Gonzalez, a broker with Esslinger-Wooten-Maxwell, specializing in Miami Beach, says that the rash of foreclosures in Florida, which has the second-highest foreclosure rate in the country, has driven interest from out-of-town and foreign buyers looking to snag a deal. “They think that every house in Florida is in foreclosure,” he says. “The offers we’re getting are fairly decent, but the sellers are not coming down yet.”