Month: January 2011

Adjustable-rate mortgages are making a comeback

Hybrid ARMs, some of which have rates significantly lower than 30-year fixed-rate mortgage alternatives, are growing in popularity.

By Kenneth R. Harney, LA Times

January 30, 2011

Reporting from Washington

After years of virtual exile from the home loan arena, is the adjustable-rate mortgage staging a quiet comeback? Could an ARM be on your shopping list the next time you need to buy a house or refinance?

You might be surprised.

A new survey of 112 lenders by mortgage giant Freddie Mac found that ARMs are starting to attract applicants again. Adjustables accounted for just 3% of new home loans in early 2009 but are projected to be picked by nearly 1 out of 10 borrowers in 2011. In the jumbo and super-jumbo segments, the share will be even larger, according to Freddie Mac chief economist Frank Nothaft.

How could this be, with fixed 30-year rates at half-century lows, hovering just under 5%? Isn’t it axiomatic that it’s always smarter to lock in a low fixed rate for as long as possible rather than gamble on a loan whose rate might bounce around in the years ahead?

That logic still holds up for most people, but not for everybody. Here’s why. The boom-era models of the ARM have pretty much disappeared — there are no more of the two-year adjustables that hooked record numbers of consumers in 2003 and 2004 with teaser rates that needed to be refinanced with heavy fees within 24 months. No more “pick-a-pay” ARMs that were mass-marketed with loosey-goosey underwriting and the potential for negative amortization.

The most popular ARM in the market today, according to the Freddie Mac survey, is the 5-1 hybrid. Its rate is fixed for the first five years of the loan, then adjusts annually for as much as the next 25 years, with rate caps to cushion payment shocks if rates suddenly soar. There are also 7-1 and 3-1 hybrids. The antique one-year ARM still is available but doesn’t get a lot of takers.

The real key to the growing popularity of hybrid ARMs is in their pricing. Rates are significantly lower than fixed 30-year alternatives, with no teasers or negative amortization involved. In some cases, they also come with other attractive terms, such as more flexible underwriting standards.

According to data supplied by Dan Green, a loan officer with Waterstone Mortgage Corp. in Cincinnati and author of TheMortgageReports.com blog, the rate spread between 5-1 hybrid ARMs and 30-year fixed-rate loans has widened to around 1.625 percentage points.

To illustrate, say you’re interested in a $250,000 conventional loan to buy a house. You’ve got a FICO credit score of 740 and want to close in 45 days. You could opt for a 30-year fixed loan at 4.75%, requiring a monthly principal and interest payment of $1,304. Alternatively, you could opt for a 5-1 ARM fixed at 3.125%, costing $1,071 in principal and interest per month — a $233 saving.

But now check out the niche where hybrid ARMs really shine: jumbo and super-jumbo mortgages. Generally jumbos range from $417,000 to $729,750, depending on home prices in your local market. Super jumbos can go into the millions.

Say you need a $450,000 mortgage with a 45-day closing and you have a FICO score of 740. According to Green, you should be able to get a 30-year fixed-rate jumbo for around 5.625%. Monthly principal and interest on a fixed-rate jumbo would total $2,590 a month.

Compare that with a $450,000 hybrid 5-1 ARM: 3.5% for the initial five years, requiring $2,020 a month in principal and interest. That’s a rate spread of 2.125 points — “the best we’ve seen in years,” Green said. “It’s very aggressively priced” by banks that want to originate the loans to hold in their own portfolios.

The savings go even higher in the super-jumbo space — a $1-million 5-1 ARM goes for 3.5% and saves a borrower $1,266 a month compared with a competing fixed-rate 30-year loan at 5.6%.

Cathy Warshawsky, president and senior loan officer of Bay Area Loan Inc. in San Jose, cites another advantage for some jumbo borrowers — special enhancements in payment terms. For example, a client of Warshawsky’s needed a $950,000 mortgage at the lowest rate and monthly payment. She signed him up for a 5-1 hybrid at 5.75%, interest-only.

None of this is to suggest, of course, that hybrid adjustables make financial sense for everybody. They don’t. But if you fit one of the niches — you need a jumbo, you know you’re likely to be transferred or you expect to sell the house within five to seven years — they merit a serious look.

 

Estimate of mortgage interest tax deduction’s effect on federal deficit is lowered

Lower home prices and lower interest rates mean that homeowners are writing off less mortgage interest than anticipated.

By Kenneth R. Harney LA Times

January 23, 2011

Reporting from Washington

Are you worried about the mortgage interest deduction going away? After all, it’s a high-profile, high-cost target for federal budget cutters — and was prominently featured in the report of the presidential deficit-reduction commission late last year. Reformers have been trying to kill or at least clamp a ceiling on these write-offs for decades.

But here’s an intriguing twist that has just emerged on Capitol Hill and that might bring some encouragement to homeowners, realty agents and builders who strongly oppose any cutbacks in tax benefits. According to new estimates compiled by the nonpartisan Joint Committee on Taxation — Congress’ top technical resource on all tax law matters — the mortgage interest deduction is not quite as big a hole in the federal budget as previously estimated.

In fact, it’s significantly lower — $88 billion less in revenue losses are now projected over the next three fiscal years — than the committee estimated early in 2010. That’s big money, even in an era of trillion-dollar deficits. Why the sudden reappraisal of the revenue losses caused by millions of homeowners writing off their mortgage interest?

For starters, there’s less mortgage interest being written off than earlier statistical models had anticipated. Home values are down in many parts of the country, and lower purchase prices and far stricter underwriting mean smaller mortgage amounts. Interest rates have hit half-century record lows, and have remained at or near those floors for much longer than anyone had estimated.

Thirty-year mortgages at 4.5% obviously require much less in monthly interest payments than do similar loans at 5.5% and 6%. Millions of homeowners who had been paying even higher rates than that have refinanced in the last year — the combined effect of which has been to reduce the estimated amounts of interest being written off now and for the next couple of years at least.

For example, the tax committee last January predicted that mortgage interest deduction losses to tax revenues for fiscal 2011 would total close to $120 billion. Now the estimate is $93.8 billion.

These are brain-bending big numbers, but the fact is this: It appears that the revenue-loss costs of this jumbo-sized tax benefit for homeowners will be less than anyone expected. In the politically sensitive world of federal budget deficit reform, every lower loss is a better loss — and one that presumably needs less reform.

The committee’s new projections have also turned up some other intriguing and previously unreported facts about key tax benefits for buyers and owners. For example, although the popular first-time home buyer tax credit programs of 2008 and 2009 that stimulated millions of purchases were net revenue drains for the government during fiscal 2010, they are morphing into revenue-raisers — to the tune of $6.5 billion from 2011 through 2013.

There are two factors at work: The first credit, enacted as part of the 2008 emergency economic stimulus legislation, was for a maximum $7,500 or 10% of the house price. But it was more of an interest-free loan than a typical credit. Under the terms of the program, buyers are required to make annual repayment installments of 62/3% of the credit they claimed over the next 15 years — and they’re beginning to do so.

But it’s not just those 2008 buyers who will be paying higher taxes. The two subsequent home buyer credit programs enacted by Congress — $8,000 for first-time purchasers and $6,500 for repeat buyers — did not require repayments. But both programs came with strict rules that experts believe will add to revenue collected by the Internal Revenue Service during the years 2011 through 2013.

For instance, Congress required that credits claimed under the $8,000 and $6,500 legislation be repaid if the owners do not continually use their house as a principal residence for 36 months after the purchase. Say you took the $8,000 credit on your 2009 federal tax filing, but then decided to sell the house or turn it into a rental investment in 2011. You owe the government $8,000 the day you make that move — and the IRS says it has increasingly sophisticated audit programs to detect such transactions and to sniff out frauds and other rule violations requiring paybacks and even penalties.

Bottom line, by the committee’s estimates: Homeowner tax benefits will still represent large contributors to the federal deficit. But for a variety of reasons, those costs should be smaller — and, in theory, slightly less vulnerable to attack — for the years immediately ahead.

 

FHA extends suspension of ‘anti-flipping’ rule for another year

The rule was intended to prevent speculators from defrauding the government, but it also stifled the purchase and renovation of foreclosed homes by legitimate investors.

By Kenneth R. Harney, LA Times

January 16, 2011

Reporting from Washington

For years the federal government prohibited the use of Federal Housing Administration mortgage financing by buyers purchasing homes from sellers who had owned the property for less than 90 days. The idea was to prevent speculators from defrauding the government through quick flips of houses — often involving straw buyers and corrupt appraisers — at wildly inflated prices.

One side effect of that policy had been to stifle purchase-and-renovate projects by legitimate, small-scale investors who buy houses after foreclosure or loan defaults and then resell them in substantially improved condition. In many parts of the country, first-time and moderate-income buyers often sought to buy these fixed-up houses using FHA-insured mortgages with 3.5% down payments, but were prevented from doing so by the “anti-flipping” rule.

This left large numbers of foreclosed, vacant houses sitting unsold and deteriorating, with negative effects on the values of neighboring properties.

Last January, FHA Commissioner David H. Stevens announced a one-year suspension of that rule, permitting qualified buyers to obtain FHA mortgages on properties that were acquired by rehabbers less than 90 days before. The plan, set to expire at the end of this month, came with safeguards for purchasers, including inspections and multiple appraisals in some cases to document the amounts spent by investors on the improvements.

Vicki Bott, deputy assistant secretary for single-family housing at the FHA, confirmed in an interview that the agency expects to continue the policy for another year. Not only have first-time buyers responded overwhelmingly to the opportunity to buy “turnkey” renovated homes with low down payments, she said, but they have performed well on their mortgage obligations.

“Obviously we have concerns about flipping in general,” Bott said, but the FHA has seen none of the fraud problems, defaults and re-foreclosures that cost the agency millions in insurance payouts in earlier years.

Investor Paul Wylie, who with a group of partners and contractors specializes in acquiring, renovating and reselling foreclosed and distressed houses in the Los Angeles area, says the government’s policy “has been a very positive approach” because “it recognizes the role that [private investors] can play in helping the housing market get back on its feet.”

In the L.A. market, Wylie said, FHA financing accounts for 40% of all home purchases and 60% of purchases in predominantly Latino and African American communities.

Buying foreclosed houses “comes with a lot of risk factors,” Wylie said. “There’s no title insurance. We don’t have a good idea of the extent of the defects” inside properties that have been sitting vacant or vandalized for months. Some houses come with delinquent property taxes, which Wylie’s group typically must pay.

Then again, the profit opportunities can be significant as well. Most of the Wylie group’s houses sell for more than 20% higher prices than Wylie paid at acquisition — a quick turnaround gain that potentially works for buyers, sellers, neighborhoods and, yes, the FHA itself.

 

Fannie Mae is jacking up mortgage fees

Potential home buyers who have high credit scores and hefty down payments may be surprised that even they are being targeted for higher ‘risk-based’ fees.

By Kenneth R. Harney, LA Times

January 9, 2011

Reporting from Washington

Here’s mortgage giant Fannie Mae’s sobering New Year’s greeting for home buyers and refinancers in 2011: Give me more money! If you want a loan this year, you’re going to have to pay more — thousands of dollars more in some cases — even if you’ve got stellar credit scores and bundles of cash handy for a down payment. Things could get much worse if your scores have been sagging with the economy and you don’t have much money upfront.

In a Dec. 23 memo to lenders in its network, Fannie announced that it had decided to impose a new schedule of higher add-on fees, similar to what Freddie Mac — the other huge congressionally chartered mortgage investor — rolled out to jeers from the real estate industry just before Thanksgiving.

Both corporations have required massive federal financial infusions — estimated at close to $150 billion — since the housing market began deteriorating, and they now operate under a federal conservatorship arrangement. The Obama administration plans to submit long-promised proposals to Congress this month on what to do with the two — phase them out, restructure them, privatize one or both of them, or other solutions.

But meanwhile, Fannie and Freddie continue to fund or guarantee upward of two-thirds of new mortgage originations. Because of their sheer size and market dominance, they play pivotal roles in determining whether — and how fast — the housing market can rebound.

Their new fees scheduled to start this spring, however, don’t appear likely to make financing a home any easier. Some potential buyers who have high credit scores and hefty down payments may be surprised that even they are being targeted for higher “risk-based” fees.

Consider these examples of how Fannie’s revised list of loan add-ons will affect borrowers. Say you want to buy a house that requires a $300,000 mortgage. You have an impressive FICO score — above 800 — and cash for a down payment of just less than 25%.

On the basis of your credit score and loan-to-value (LTV) ratio, Fannie now plans to charge an extra quarter of a percentage point of the loan amount — $750 — to do the deal. During 2010, by contrast, your substantial down payment combined with your FICO score — signifying virtually no risk of default — would have meant zero additional cost.

Now take the same loan amount but substitute a lower score and smaller down payment. Say your FICO score is 679 and you have down-payment money of just less than 20%. Fannie will soon begin hitting you up for 2.75% in add-on fees — a staggering $8,250 solely attributable to your FICO and LTV ratio. That’s $1,500 more than what you would have been charged during 2010.

But these fees are just the start of the multilayered, cumulative risk-based pricing system that both Fannie and Freddie employ. Every perceived risk factor in a loan transaction receives its own separate add-on fee, all of which get totaled up for your final loan charges.

Some fees are keyed to the type of real estate you want to finance. Condos, for example, are charged higher fees than stand-alone houses — a flat three-quarters of 1% by Fannie when the down payment is less than 25%. Rental investment properties, manufactured homes and loans with interest-only payment features all get separate fees that can mean significantly higher costs.

That’s not all. Both Fannie and Freddie also tack on what they call adverse-market fees of one-quarter of 1% to all loans just to get you seated at the table. In the $300,000 example above, that’s a standard admission ticket of $750. All the fees can either be paid by you upfront as part of the transaction costs or financed with a higher interest rate on the mortgage itself.

What’s the justification for these add-ons? Though Fannie Mae declined to comment on its latest fee hikes, Edward J. DeMarco, acting director of the federal agency that oversees Fannie and Freddie, called the add-ons necessary to protect the companies from “the costs and risks” inherent in the mortgages they buy or guarantee. Both Fannie and Freddie “underpriced mortgage credit risk” in the boom years, DeMarco said in a recent letter to Capitol Hill critics.

The implication here for borrowers in 2011: It’s payback time, folks. Get ready to do precisely that — whether the heavy add-ons hamper a housing recovery or not.

 

Highest Massachussettes court rules against 2 big banks in pivotal mortgage foreclosure case

cbonline.com
By Denise Lavoie, January 7, 2011

BOSTON (AP) – The highest court in Massachusetts ruled against U.S. Bancorp and Wells Fargo & Co. Friday in a widely watched mortgage foreclosure case that could have serious implications for the nation’s largest banks.

The Supreme Judicial Court affirmed a lower court judge’s ruling invalidating two mortgage foreclosure sales because the banks did not prove that they actually owned the mortgages at the time of foreclosure.

Last fall, the banking industry’s foreclosure machine came under intense scrutiny with the revelations that low-level employees called “robo signers” powered through hundreds of foreclosure affidavits a day without verifying a single sentence. At the time, analysts warned that the banks’ allegedly fraudulent document procedures could imperil their ability to prove that they owned the mortgages.

The Supreme Judicial Court found that the banks, who were not the original mortgagees, did not make a required showing that they held the mortgages at the time of foreclosure. As a result, the court found, the banks did not demonstrate that the foreclosure sales were valid to convey title to the properties.

“We agree with the judge that the plaintiffs did not demonstrate that they were the holders of the … mortgages at the time that they foreclosed these properties, and therefore failed to demonstrate that they acquired fee simple title to these properties by purchasing them at the foreclosure sale,” Justice Ralph Gants wrote for the court in the unanimous 6-0 ruling.

Attorney Paul Collier III, who represents Antonio Ibanez, one of the homeowners in the case, said the ruling affects thousands of mortgages in Massachusetts and could have a far-reaching impact on the nation’s banking industry.

“For homeowners and foreclosures in general, it means that any mortgage foreclosure which was initiated by a securitized trust at a time when the trust had not obtained a mortgage assignment which gave it the lawful right to do so is void. Those homeowners, like Mr. Ibanez, still own the property,” Collier said.

The banks argued that securitization documents they submitted were sufficient to prove they owned the mortgages before the publication of the notices of sale and the foreclosure sales.

The banks asked the court to apply its ruling only to future transactions, but the court rejected that. The court said it had not made a significant change in common law and scolded the banks for not following those mandates.

“The legal principles and requirements we set forth are well established in our case law and our statutes. All that has changed in the plaintiffs’ apparent failure to abide by those principles and requirements in the rush to sell mortgage-backed securities,” Gants wrote for the court.

In a concurring opinion, Justice Robert Cordy used even stronger language, citing what he called the “utter carelessness” with which the banks documented the titles to their assets.

“There is no dispute that the mortgagors of the properties in question had defaulted on their obligations, and that the mortgaged properties were subject to foreclosure. Before commencing such an action, however, the holder of an assigned mortgage needs to take care to ensure that his legal paperwork is in order,” Cordy wrote.

Massachusetts Secretary of State William Galvin said he agrees with the ruling, which he said demonstrates the need for judicial review of foreclosures in the state to give homeowners more protections.

It’s up to lawmakers to take action to remove the uncertainty over mortgages raised by the decision, he said. Without legislative action, the court’s ruling will have a “chilling effect” on the real estate market, he said.

“The effect is that it throws a monkey wrench into foreclosures,” Galvin said. “This is an urgent situation.”

The Massachusetts Mortgage Bankers Association has argued against judicial review of foreclosures, saying it would add another layer to an already complex process leading to foreclosure — an outcome the organization said would hurt both borrowers and lenders.

The broader implications of the case sent bank stocks lower in afternoon trading, with Wells Fargo stock falling 65 cents, or 2 percent, to $31.50 in heavy trading. It earlier traded as low as $30.64.

U.S. Bancorp shares slid 19 cents to $26.10, after dropping as much as 2.4 percent after the ruling.

 

Treasury Eases HAFA Guidelines as Group Urges Action

By: Joy Leopold 01/07/2011

DSNews.com

Perhaps as a response to reports and complaints that the government-sponsored Home Affordable Foreclosure Alternatives (HAFA) program was not working as efficiently as hoped, the Treasury Department has released updated guidelines for the program.

In mid-December, the California Association of Realtors (CAR) submitted a letter to the Treasury and other governmental agencies on behalf of its members, outlining specific problems with and suggested solutions for HAFA.

The letter, which spanned four pages, outlined issues Realtors were having with the program, including the failure of lenders to comply with HAFA timelines and general rules, and the lack of uniformity in guidelines for all HAFA programs. Additionally the letter suggested raising the monetary incentive for servicers, investors and subordinate lien holders, citing the low payout as a common reason that HAFA short sales are rejected.

The letter also recommended that HAFA short sales be the required short sale method for servicers, in order to make all short sale processes equal and uniform.

The directive published two weeks later by the Obama administration becomes effective February 1, 2011, although servicers are encouraged to implement the changes immediately.

The new rules do address some of the issues outlined in the CAR letter, as well as many other matters.

Under the new guidelines, servicers are no longer limited by the 6 percent cap with respect to payments to the subordinate lien holders.

Additionally, servicers are now required to complete and send to the borrower a Short Sale Agreement (SSA) no later than 30 calendar days from the date the borrower responds to the HAFA solicitation. If the borrower requestsHAFA consideration, the servicer must respond within 30 days.

In addition to these rules, servicers are no longer required to verify a borrower’s financial information to determine a borrower’s HAFA eligibility, nor is it necessary to determine if the borrower’s total monthly mortgage payment is more than 31 percent of his monthly gross income.

Servicers are not required to implement the new rules to any loans retroactively. Visit the full amendments here, and CAR’s letter here.

 

When will housing come back in California? Five experts offer their views

Foreclosures in the state are still high. Sales of new homes are at historic lows. And millions of homeowners are underwater on their mortgages. So what’s the outlook for 2011 and beyond?

By Alejandro Lazo, Los Angeles Times

January 1, 2011

As housing recoveries go, this one is in need of a cure.

Homeownership — and the buying and selling of residences — is an economic keystone that carries overwhelming weight in Californians’ personal sense of financial well-being.

But the momentum of the state’s housing rebound has faltered, with sales falling and prices softening despite bargain-basement interest rates. Foreclosures in California are still high. Sales of new homes are at historic lows. The construction sector is in the doldrums. And millions of the state’s homeowners owe more on their mortgages than their properties are worth.

Real estate historically has helped give a boost to economies exiting a recession, but the severity of this bust is nearly unprecedented: Californians have lost $1.73 trillion worth of equity in their homes since prices peaked in 2007, according to Moody’s Economy.com.

Although California’s housing market free-fall ended in spring 2009, the weakness after the expiration of federal tax credits for buyers last year has called into question the sustainability of the recovery.

The Times asked five California experts for their take on the state of real estate and what they think is needed to get the housing market moving again. They range from the pessimism of a foreclosure specialist to the decidedly more upbeat view of a Realtor association economist.

• Richard Green, director of the USC Lusk Center for Real Estate, predicts home prices will remain flat in 2011.

California’s recovery will hinge on location, said Green, who held professorships at several universities and worked as a principal economist at Freddie Mac before becoming director of the Lusk center.

“Draw a line from El Centro up to Sacramento and think of all the towns up and down that line. Unless we have hyperinflation in general in the economy — prices going up a lot — I would guess that in my lifetime we will not see a return to the prices that we had at the peak,” Green said.

“Now, places like La Jolla, Malibu, Laguna, Huntington Beach, Atherton, Palo Alto, the city of San Francisco, Marin County, those are places where within the next five years I could easily imagine prices returning to their peak.”

“The markets in the Central Valley were much more bubbly than the markets on the coast,” he said. “You have very few people who make a lot of money in these places.”

“Whereas a place like Silicon Valley, or a place like West Los Angeles, there is a critical mass of very high-income people.… That means you have a large number of people who can afford to spend in the neighborhood of $1 million on a house, and these are desirable places.”

“The more a property is a commodity that you can easily substitute for something else, the less the chance it will ever come back to its peak. The rarer a property is, the more likely it’s going to come back quickly.”

• Leslie Appleton-Young, chief economist for the California Assn. of Realtors, predicts home prices will rise 2% in 2011.

There are few professionals who would like more to see the housing market bounce back to the heady days of old than Realtors. Real estate agents made a killing when the housing market soared and then took a pounding when it tanked.

During the boom years, Appleton-Young said, she espoused the theory that rising prices mattered more than making solid loans. That theory appeared correct as long as values kept rising.

“What happened this time was prices plummeted and everyone was in trouble,” she said.

These days, the economist sees little chance of the market returning to its previous heights anytime soon.

“We are in a very slow-moving recovery with prices stabilized at the moderate and low end,” Appleton-Young said. “We are still seeing price attrition and price softening at the upper ends of the market.”

2011 will be lackluster, she said, but that does not mean California is not improving.

“We are almost two years into a price recovery. The problem is not to look at 2007 as the normal market that you are moving back up to, because it wasn’t a normal market. We are back in an underwriting environment that actually makes sense.”

“You are seeing prices recovering throughout the state,” she added. “It is just going to take time.”

• Bruce Norris, president of Norris Group in Riverside, expects home prices to fall 5% in 2011.

The real estate slump has been good to Norris, an investor in foreclosed homes. But he believes the market is being artificially boosted by government programs and is set to fall further this year.

“We are in an artificial recovery,” Norris said. “It’s government controlled and manipulated. We have extremely favorable interest rates that we really should not have, based on our debt. We have supported real estate with tax rebates, and we have prevented inventory from showing up by allowing people to be two and three years behind on their mortgages.”

Foreclosed homes, in particular, are being kept off the market through loan modification attempts and other policies.

“You’ve had a slew of programs trying to prevent inventory from showing up, and that prevents reality from happening,” Norris said. “It’s definitely standing in the way of the natural process.”

What does the housing market need most?

“Demand for houses,” Norris said. “Somebody able to qualify for a loan and actually being able to get it. And that’s why it is not going to happen.”

• Emile Haddad, chief executive of FivePoint Communities Inc., expects home prices to “stabilize” in 2011 but declined to make a specific price prediction.

Determining whether the housing market is on steady footing is essential to developers such as Haddad, the former chief investment officer for Lennar Corp. Haddad, along with Lennar, is now part owner of FivePoint, which is managing the development of the Valencia community in Los Angeles County and other high-profile projects. He believes a recovery has yet to take hold in California.

“We are bumping along the bottom,” Haddad said. “And that is a good thing, because that is the first thing that you need in order to start seeing a housing recovery. You need to have a period where values are not going down and the trend is moving in a different direction.”

California’s coastal markets will come back once the job market returns, he said, lifting consumer confidence. But California’s inland areas are more likely to lag behind, and builders will have to reconsider the kind of product they offer in such places.

“In the Central Valley, values have changed a lot,” Haddad said. “You are not going to be able to really have enough depth in the market to sell large, expensive homes, because the ceiling of value is way down.”

“If you pick on a market like Orange County,” he said, “it is still a place that once people feel confident…. I believe people will be out buying homes.”

Affordability is working in the market’s favor.

“We have a mortgage environment that is more favorable — the rates are down — but people are not able to get mortgages, and that is not helping. The most important thing we need is jobs and job creation.”

“Affordability is something I look at, and obviously that is a very attractive metric right now…. There is a value proposition out there right now that is very attractive, that we haven’t seen in four decades.”

• Christopher Thornberg, founding principal of Beacon Economics, predicts home prices will remain flat in 2011.

Once a senior economist for the UCLA Anderson Forecast, Thornberg was one of the first to predict the housing crash, pointing to prices that were way out of line with what people earned.

In that vein, he views the plunge in home values as its own recovery of sorts “because that is when prices went from stupid-high levels to levels that made sense again,” Thornberg said. “Now we are in a post-recovery recovery, if you will.”

“This is not the bust. A bust implies that prices have fallen to levels that are too low. And I would argue that prices today are relatively high. It’s interest rates that have given us this degree of affordability, and from that perspective that is why I don’t expect prices to come down.”

Since helping found Beacon in 2006, Thornberg has become chief economist for state Controller John Chiang and chair of the Controller’s Council of Economic Advisors. He serves on the advisory board of New York hedge fund Paulson & Co. He has been a forceful critic of the Obama administration’s policy attempts to right the market.

“The administration has tried, through a variety of policy methods, to try and spike the market,” he said.