They're not so good.

--Todd Carpenter - lenderama

Talk of freezing the interest rates for some subprime borrowers -- somewhat heretical when floated by FDIC chief Sheila Bair in October -- now seems like a good idea even to Wall Street investors in securities backed by subprime mortgages.

The Bush administration has been negotiating with members of its HOPE NOW coalition of lenders and loan servicers to engage in wholesale loan modifications, and an agreement is expected soon (see Inman News story).

Although freezing interest rates on hundreds of thousands of subprime loans would cut the returns investors receive from some mortgage-backed securities, they are now coming around to the idea that they could face more massive losses from defaults in the loan pools that provide their income streams.

Word of the plan has sent the stock of troubled lenders like Countrywide Financial Corp. skyrocketing today. Perhaps even more interesting is what's happening to the stocks of companies that insure mortgages and collateralized debt obligations (CDOs), securities that often include mortgage loans.

The stocks of mortgage insurers like PMI Group, MGIC and Radian Group are all up today, and investors also see brighter prospects for bond insurers like Ambac and MBIA. The stocks of Fannie Mae and Freddie Mac, which own billions and guarantee trillions in mortgage loans, are also roaring back today, even though their exposure to subprime loans is limited.

The bottom line for housing markets? If this move keeps a significant number of borrowers out of foreclosure, that could help slow or stop the free fall in prices in some markets that are flooded with inventory, further reducing foreclosures.

According to Frist American CoreLogic researcher Chris Cagan, every 1 percent decline in home values produces an additional 70,000 foreclosures. That's because as prices fall, more and more homeowners find themselves "upside down," or with no equity in their homes, which encourages them to walk away.

It remains to be seen who will be eligible for interest rate freeze -- perhaps only borrowers who are current on their loans and live in their homes will get a break, and not speculators and second home owners.

But depending on how many foreclosures can be prevented, this is shaping up to be the most significant development yet in the ongoing battle to quell the panic in financial markets that's put the crunch on mortgage lending and magnified the severity of the housing downturn. And instead of a government bailout, it would come at the expense of the same investors who some blame for the loose loan underwriting standards of the boom.

When announced in October, the HOPE NOW initiative was little more than an outreach program to troubled borrowers. Now there is real hope that it will provide relief for borrowers and financial markets alike.

UPDATE: For another take, check out Seth Jayson, writing for The Motley Fool (a site for investors), who calls the idea of freezing ARM rates an idea "so naively populist and antimarket that you would think it came from Hugo Chavez, Evo Morales, or Mahmoud Ahmadinejad."

Jayson says the plan will only make "the credit crunch crunchier."

"If you think credit is tight now, just wait until you yank away potential returns from the people putting up the capital for all those loans," he warns.

This neglects the fact that the government can't force lenders, loan servicers or MBS investors to make loan modifications. They will only do this if they think it's worse than the alternative -- letting these loans default.

Jayson may have a more valid point when he frets that the HOPE NOW plan may "punish the public" by "artificially supporting a home-price bubble that desperately needs a correction. Historical rent-to-purchase data show just how far home prices need to come down in order to return to mean. That requires a painful drop, and it will happen sooner or later."

That may be true, but the credit crunch has the potential to generate an overcorrection in prices, and a recession that could drag on for years.

Also worth considering is Paul Muolo's column today at National Mortgage News.

Muolo points out some potential complications, including the far-fetched notion that lenders would freeze a 3 percent rate on a pay-option ARM, say, or what they will do if prime ARM borrowers want the same deal their subprime neighbors are getting.

Nobody said it woud be easy.

The RE/MAX organization will be profiled in an episode of "History's Business," a television series on the History Channel. The show featuring RE/MAX will air for the first time at 8 a.m. Eastern Time on Sunday, Dec. 2, RE/MAX announced today (show info here).

Company co-founder and chairman Dave Liniger, who was interviewed for the show, said in a statement, "We started RE/MAX with nothing, but an idea we believed in and we worked hard to make it happen. Everyone told us it wouldn’t work and it wouldn’t go anywhere, but here we are after 33 years of continuous growth."

Real estate search site Trulia is offering agents a featured listings advertising product, the company said Tuesday on its blog.

The ads will enable agents to place listings in top search results on Trulia and promote their photo, name and contact information to consumers. Trulia said it will give Trulia Voices users a free trial, and the subscription cost after that is $50 per month for 10 listings.

Trulia previously has allowed brokers to brand themselves and promote listings, but this is the first such play for agents.

Real estate bloggers and blog readers have already started ripping into the idea, and it's turned into a debate over whether the industry should give away listings to third-party sites like Trulia or keep them on their own sites and other brokers' sites via IDX. And this discussion almost always leads to the changing role of real estate agents.

Some of the readers commenting on a thread at Bloodhound Blog say they believe that new media companies like Trulia do nothing more than use the industry's own information to draw in consumers and sell it back to agents via advertising or leads. Many of these agents subscribe to the school of thought that agents should compete with third-party aggregators or media companies for leads, rather than pay for them or pay to advertise on their sites.

Others said they see value in showing sellers how they will market their homes in many different places online, noting that it's still free to post listings on Trulia.

One of Trulia's competitors, Zillow, is also positioned as a media company, collecting and creating a destination for real estate information that is supported by advertising from agents and others in the business.

David Gibbons of Zillow stepped into the recent blog debate, noting that it's consumers who see value in third-party media companies, which in turn defines the value of the companies to agents. As industry professionals, real estate agents will never be considered a neutral source by consumers, he said.

Trulia and Zillow aren't the only companies focused around the model of attracting consumers with real estate content and selling advertising around that content to those who work in the industry, like brokers and agents.

Realtor.com and Move are essentially media companies. Bankrate has done this in the lending industry for years, and big media giants like Scripps Networks have real estate divisions supported by advertising.

A study released last week by Borrell Associates was bullish on the prospective growth in the real estate advertising space, predicting that the online component of real estate advertising would grow almost 26 percent to $2.6 billion this year, moderate to a still-strong 12 percent growth in 2008 and then soar to $3.3 billion in 2011. By then, Borrell suggested, Web sites could control 37 percent of the realty advertising market, a larger share than all other forms of advertising.

Shameless plug/further reading: What is the outlook for real estate media business models? Inman News is interested in the discussion and has planned a panel at Real Estate Connect New York on January 10 to dive in and find out. "Online Real Estate as Media Enterprise" will feature top executives from Zillow, Bankrate, Trulia, Scripps Networks Interactive and REA Group. More info is on the Connect Web site.

The Real Estate Desperation Index: A simple measure of the level of housing-market desperation for a given market area:

• Go to craigslist.org and specify a market area.
• Select the "housing" category and the "real estate for sale" sub-category.
• Type in "incentives" in the "search for" box and click the "search" button. (Here's a sample results list for Miami: http://miami.craigslist.org/search/rfs?query=incentives.)
• Select any listing that is typed in all capital letters and features one or more exclamation marks.
• Enjoy.

A sampling:

• "$89990 I PAY YOU TO BUY!" from Tampa. "ALL YOU LITERALLY NEED IS $99.00 TO BUY!!"
• "$287000 SANTA SAYS NO PAYMENTS!!! NO JOKE!!! THEY PAY YOU!!!" from Las Vegas.
• "$324200 BUILDER'S BLOW OUT SALE!! PAY NO CLOSING & HOA FEE!!" from Los Angeles.

The incentives promised in some of these ads range from home-price reductions to a variety of free upgrades and/or reductions in taxes, fees or mortgage costs. There are phrases like "THESE DEALS WON'T LAST!!!" -- but they don't specify whether the deals are going to get better or worse. Another thought: If the deals were really super-crazy-wild good, would they need to "shout" about them?

If you subscribe to Seth Godin's "Be Remarkable" school of marketing, you might find this interesting: A real estate brokerage company in Colorado has branded itself around the idea of using bicycles to tour homes for sale. Pedal To Properties, based in Boulder, was founded in an effort to "combine health and home," according to the company's Web site.

Founder Matt Kolb says the biking service is optional and can be requested at any time.

Whether clients actually use the bike option seems not to be the point. Rather, the company has made itself stand out to health- or environment-conscious consumers and has conveyed one of its core values to these prospective clients by focusing the brand on it.

Pedal To Properties is offering licensing of its model to agents throughout the U.S.

(Hat tip to Territory RE Blog)

The unprecedented rapid run-up in U.S. home prices during the past decade has turned to a steep descent, and the wild ride has left the housing market in uncharted territory, economist Robert J. Shiller said in a presentation today.

And that's not a good thing, in his view. "We are in the aftermath of the biggest housing boom in history," said Shiller (see Inman News article). "We're out of the range of normal variation in data. I take that as very significant. I think there is a significant chance of recession -- of probably over 50 percent at this point."

Price gains were out of step with basic economic fundamentals, and speculative behavior is a likely culprit, he noted.

A Standard & Poor's/Case-Shiller U.S. Home Price Index released today revealed a 4.5 percent drop in home prices in the third-quarter compared to the same quarter last year. A separate index that tracks 20 major metro areas revealed a 4.9 percent drop in prices from September 2006 to September 2007, with prices falling 9 percent or more in the Tampa, Miami, Detroit, San Diego and Las Vegas metro areas.

Despite falling prices, housing affordability remains an issue, according to an index report released today by the National Association of Home Builders.

The NAHB/Wells Fargo Housing Opportunity Index (see Inman News) found that nationwide, 42 percent of new and resale homes sold in the third quarter were affordable to families earning a median income of $59,000, compared with 40.4 percent in third-quarter 2006 and 43.1 percent in second-quarter 2007.

The national median price of homes sold in the third quarter was $239,000, down 3.6 percent compared with $248,000 in third-quarter 2006, according to the index report.

News from Dubai last week is just the latest example of the "when there's blood on the streets" model of doing business. DIFC Investments is identifying "good opportunities for acquisitions" in the United States.

Could a bailout be coming from off-shore? John Q Public wasn't very enthusiastic about the same government's involvement in running our ports, how will they feel about Dubai controlling some of our most powerful financial institutions?

From DIFC's point of view, there may be no better time to buy. An acquisition that will help prop up the mortgage market is never going to meet with friendlier acceptance on the hill. The acquisitions would further bolster Dubai's growing ambitions to become the premier banking, business and tourist destination in the Middle East.

--Todd Carpenter, Lenderama

Leon Hendrix, brother of Jimi and leader of his own band "Leon Hendrix Mysterience" has his house on the market. Mr. Hendrix asked his agent to make sure that is was marketed as a Hendrix family property. Zingy ad copy includes "House is full of trash. No water or power, and needs repairs." Sometimes, they just don't get any better than this in lovely Seattle.

Lest you think Mr. Hendrix's directive was overkill, consider Seattle's obsession with Jimi's memory. Shrines abound to his life and music, with the largest being Paul Allen's Experience Music Project. Jimi's childhood home has also been a fascination for many around here, as we followed its travels from Seattle's Central Area to a trailer park across the street from the cemetery that holds his remains.

Federal regulators "have been vindicated" in their opposition to allowing Fannie Mae and Freddie Mac more leeway to buy up mortgage loans, according to a story/editorial by Washington, D.C.-based reporters for Britain's Financial Times (via Yahoo!).

The government chartered, for-profit companies saw their stocks take a pounding after both reported third quarter losses.

More importantly, for those who are counting on Fannie and Freddie to help home buyers weather the crisis in mortgage lending, the losses could restrict their ability to purchase, guarantee and securitize loans (see previous post, "No room on the lifeboat").

James Lockhart, director of the Office of Federal Housing Enterprise Oversight, tells the FT that while Fannie and Freddie's ability to purchase loans may be constrained, there's no reason they can't continue to grow their loan guarantee and securitization activity, in which loans are bundled up and sold to investors.

But Lockhart is just as adamant as ever in his opposition to bills that would A) lift the 2 percent annual growth caps on Fannie and Freddie's loan portfolios, allowing them to purchase more loans and B) raise the $417,000 conforming loan limit to ease the credit crunch on jumbo loans.

Thanks to Fannie and Freddie's recent problems, Lockhart is likely to find more support for his views that allowing the government-sponsored entities (GSEs) more leeway to purchase loans would be  "unnecessary, unsafe and unsound" (see Inman News story).

Lockhart made those comments in a letter to Pennsylvania Democrat Paul Kanjorski, who shares some of the Bush administration's concerns about the wisdom of giving the GSEs a bigger role.

But Democrats who have introduced legislation to do just that are standing behind it. In a Nov. 15 press release Sen. Charles Schumer, D-N.Y., said Fannie and Freddie are "the only game in town" for secondary market purchases of mortgage loans.

Schumer said Fannie and Freddie "are not the same as a private company whose job is to make money for owners or stockholders" -- which may come as news to stockholders in the companies -- and that the Bush administration is opposed to giving them a greater role because "they just don't like Fannie and Freddie and they say let the markets take care of this in their own way."

With Fannie and Freddie providing ammunition for critics, that kind of rhetoric may no longer be enough to build the political support for putting the GSEs on a longer leash.

Update: Another point of view in the Financial Times, from former Clinton Treasury Secretary Lawrence Summers, who argues for more gov't intervention (hat tip to Pat Kitano at Transparent Real Estate).