Let the principal reduction begin. The new FHA "Short Refi" program, announced earlier this year, went into operation yesterday. It allows borrowers who are current on their mortgages now to refinance into FHA-backed loans, if and only if their lenders agree to write down the principal balance on the loan by at least 10 percent. After the refi, the primary loan must have a loan-to-value ratio of no more than 97.75 percent.

The days of frenzied land deals that we saw earlier in the year are over.

NEW YORK (Reuters) - Stubbornly high unemployment and signs of persistent weakness in the housing market have prompted economists to further cut their outlook for U.S. growth in the second half of the year, a Reuters poll showed on Wednesday.

The Bears and the State of the Housing Market

David R. Kotok Chairman and Chief Investment Officer The Fed and Treasury Volatility September 8, 2010 > Stewart Taylor runs a specialized fund for Eaton Vance. He has seriously studied volatility in US Treasury securities for decades. He also joins the annual August gathering at Leen’s Lodge and came back for a long Labor Day weekend. We talked. We dissected market’s response to the Fed’s post-Lehman balance-sheet moves. First, we saw an explosion of new programs. That morphed into the $1.25 trillion in Fannie and Freddie holdings, which took the Fed’s balance sheet to about $2.4 trillion. Now the Fed is receiving the payments on those mortgages and is redeploying the cash flows into treasuries. Stew and I exchanged many questions. A glass of wine on the veranda at Leen’s as the sunsets unfold allows for serious conversation in a relaxed setting. Some friendly smallmouth bass set the stage earlier in the day. How can we estimate the impact of the Fed’s $1.25 trillion in purchases of mortgages? What are the security price effects of the transition from mortgages to treasuries as the Fed maintains the size of the balance sheet? How do we deal with the conflicting factors like flight to quality in treasuries or worries about the financing of the deficits? Is there any way to have a segregated and isolated test on treasury yields? So many competing factors influence them. BCA Research has tried to quantify these issues. In a recent report they offered that “each $100 billion purchase of agency or MBS securities — or sale of Treasury securities — causes a narrowing in MBS spread of about 8 basis points.” The spread between mortgage rates and treasury yields was narrowest coincident with the ending of the Fed’s mortgage purchase program. The spread has been widening since. BCA notes that the widening spreads have “offset the rally in Treasury yields.” In other words, the Fed lowered Treasury yields but caused the mortgage yields to rise when it stopped supporting that...

Today’s NYT has a column by David Leonhardt, titled (I’m referenced but not quoted directly). Leonhardt offers a new(ish) framework to evaluate Housing, regardless of whether you “lean bearish or less bearish.” The column’s framework asks if housing is a luxury good – one “that societies spend more on it as they get richer?” Or is it an essential necessity — more like food and clothing — that seems to cost an “ever smaller share of consumer spending over time?” It is an interesting way to look at Housing. I am not fully convinced this is the proper framework, but I wanted to point out a few elements worth considering, and clarify others. First, we must note that Housing can be a variety of things: Shelter, or an investment, a basic staple, or a luxury item. A $100k rural ranch has very different characteristics than a $750,000 suburban manse or a $2 million townhouse. When we discuss housing, we must remember that it is not only local, but very specific to each unique property. (This was part of the problem with the securitization of mortgages — it is very difficult to homogenize US housing, and the attempt failed in part for that reasons). The bottom line is we need to be cautious in generalizing housing — all houses are not all things to all people. Second, I do not see Housing as 30% over-valued by my favorite metrics. (The article implies that number from Case Shiller data). It might yet fall that much as we mean revert, careening wildly past fair value — but that is not my expectation. An overvaluation of 5-15% has been my number since Q1 2010, and we don’t even have to drop that much — we could simply go sideways for a decade (or longer) and allow inflation to work off the excess. Third, let’s remind readers why I believe the . It was not merely tax breaks and falling interest rates, but a massive bond bull market . Mortgage rates did not simply fall, they were driven down by two/thirds, from over 15% down to under 5%. With Fed rates now at zero, this simply cannot...

The president’s decision not to extend tax cuts for the rich adds a populist twist to an election-season economic package designed to entice support from big businesses and their Republican allies.

Temporary help services may have had some of the strongest job growth of any industry in August, but the employment increase still pales in comparison to job growth in the sector earlier this year.

Housing inventories rose in many U.S. cities for the eighth straight month in August in a sign of the continued headwinds facing a soft housing market.