According to the financial press, this week's housing numbers announcements will be the most closely scrutinized in months. Bad weather and subprime troubles aside, it's about new home starts and building permits and existing home sales for February, what many believe is the first month of the key spring selling season for housing.

February was a volatile month for weather and is partially to blame for one of the first reports to come in that suggests that the economy is on the wane. Retail sales were flat in January and only rose 0.1 percent in February, according to the Commerce Department. But uncertainty toward the economy may have also kept shoppers at home.

Consumer sentiment, as calculated by The Reuters/University of Michigan Surveys of Consumers, dipped in February to 91.3 percent, and went lower in March to 88.8 on the news of increasing mortgage defaults, higher gas prices and accelerating stock losses. Consumers reported that they were three times as likely to hear bad news about the economy as good news.

The National Association of Home Builders/Wells Fargo Housing Market Index (HMI) also fell in March, from an optimistic trend that had been gradually upward since its low of September 2006, suggesting that builders feel that sales would not be as favorable in the next six months overall.

Fear is rampant that the subprime market implosion will affect new home and existing home sales, because a significant number of first-time and subprime buyers may be knocked out by tightening credit standards.

For example, in late February, Freddie Mac announced that it will "cease buying subprime mortgages that have a high likelihood of excessive payment shock and possible foreclosure." First, Freddie Mac will only buy subprime adjustable-rate mortgages (ARMs) -- and mortgage-related securities backed by these subprime loans -- that qualify borrowers at the fully-indexed and fully-amortizing rate.

Freddie Mac’s new requirements cover what are commonly referred to as 2/28 and 3/27 hybrid ARMs, which currently comprise roughly three-quarters of the subprime market. The company will no longer purchase "No Income, No Asset" documentation loans and will limit "Stated Income, Stated Assets" products to borrowers whose incomes derive from hard-to-verify sources, such as the self-employed and those in the "cash economy." In addition, Freddie Mac will require that loans be underwritten to include taxes and insurance and will strongly recommend that the subprime industry collect escrows for taxes and insurance, as is the norm in the prime sector.

That means that roughly half the loans that Freddie Mac has purchased and packaged into securities to provide liquidity to the housing sector would no longer qualify, as of the target date of September 1, 2007, says the company's own estimates.

"Before the Freddie Mac rule change, a borrower hoping to buy a median-priced $472,000 home -- we're talking bubble markets here -- could qualify for an initial monthly payment of $3,628 on a subprime, 2/28 ARM at 8.5 percent," calculates Robert Campbell, author of Timing The Real Estate Market. "Now, under the new rules, that borrower has to qualify at the fully-indexed, higher payment of $5,405 per month. Looks to me like this homebuyer would no longer be approved for a mortgage loan under these tighter standards unless he paid about 33 percent less for this home than before."

The credit freeze could also hit those with better credit. Standard & Poor says that the Alt A loans (no doc loans for those with better credit) have jumped from $20 billion in loans in the fourth quarter of 2003 to more than $386 billion in 2006, up 28 percent from 2005. These loans were popular with investors, as well as self-employed people, and those who wanted a loan without putting money down. Again, many of these loans depended upon an escalating housing market to make money for homeowners, many of whom were non-occupying owners, which are more inclined to default than occupants.

In 2005, at the height of the housing boom, 43 percent of first-time homebuyers used no-money-down loans, reported the National Association of Realtors. Countrywide Financial Corporation, the nation's largest mortgage lender, says it is no longer going to make no-money down loans.

Today, the Commerce Department reports new home starts and building permits and at the end of the week, the National Association of Realtors will report existing home sales for February.

But the current figures can't ignore the unwinding mortgage market, and its impact on first-time and subprime borrowers, and the trickle down to prime borrowers.

Published: March 20, 2007

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Blanche is a renowned author of five real estate books. Her newest, Bubbles, Booms and Busts: Make Money In Any Real Estate Market, McGraw-Hill, was rave-reviewed by The New York Times. She was also selected from hundreds of real estate experts to contribute to Donald Trump's book, Trump: The Best Real Estate Advice I Ever Received: 100 Top Experts Share Their Strategies, Rutledge Hill Press, and is featured on page 68. Order Now Review - Honors In 2006, Blanche was selected among scores of candidates to author two consumer real estate guidebooks for the National Association of Realtors: The NAR Guide to Home Buying, and The NAR Guide to Home Selling, Wiley & Sons. She is currently planning two new books for the NAR and its members.       Known for her keen insight into real estate industry issues and for her ability to make complex subjects easy to understand, Blanche is a sought-after keynote and continuing education speaker. Real estate organizations from MLSs, to brokerages, to franchisors, to associations hire her to provide up-to-the-minute analysis of real estate industry news and advice on how to improve revenues. Her passionate delivery, peppered with stinging wit, is a huge hit with audiences and fans. Don Klein, CEO Greater Nashville Association of Realtors, Blanche Evans, Richard Courtney, president 2007, GRAR "The GNAR membership meeting last week featured Blanche Evans as the keynote speaker. Her comments and insights resonated extremely well with those in attendance and we have had many requests for copies of her PowerPoint Presentation. She was a terrific part of the membership meeting and convention program!" - Don Klein, CEO Greater Nashville Association of Realtors Coverage from WSMV, Nashville - 8-14-2007 That Interview Guy - Get Inside The Head Of Today's Generation 2007 AE Institute Session - To purchase 2006 AE Institute Session - Parts 1 2 3 4 5 6 7 8 9 HouseValues Mastermind call - Parts 1 2 Blanche's fireside chat with Jeremy Conaway, HAR - Click here. For more articles by Blanche, click here.