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Copyright © 2008 The Associated Press. All rights reserved. The information contained in the AP News report may not be published, broadcast, rewritten, or redistributed without the prior written authority of The Associated Press.

Mortgage rates tumble to record low

Rates on 30-year mortgages fell to a record low for the third straight week and borrowers took advantage of the drop, sending new applications soaring.

With the Federal Reserve on the verge of pouring hundreds of billions of dollars into the devastated U.S. housing market, mortgage rates have plunged to the lowest level since Freddie Mac started tracking the data in April 1971.

Low rates are a great opportunity for borrowers with solid credit and plenty of equity in their homes. But those in danger of foreclosure are still sidelined, and defaults are expected to keep rising in the coming months.

Freddie Mac reported Wednesday that average rates on 30-year fixed mortgages dropped to 5.1 percent this week, down from the previous record of 5.14 percent set last week. It was the ninth straight weekly drop. The survey was released a day early due to the New Year’s holiday.

Mortgage rates have plunged by about 1.3 percentage points since late October, Freddie Mac said. For a borrower taking out a $200,000 loan, that means a savings of more than $170 in monthly payments, according to Frank Nothaft, the mortgage finance company’s chief economist.

Meanwhile, mortgage applications last week remained at the highest level in more than five years, the Mortgage Bankers Association said.

The trade group’s weekly application index was essentially unchanged for the week ending Dec. 26. Applications surged earlier this month to the highest level since July 2003, when refinancing activity boomed at the peak of the housing market.

More than 80 percent of applications came from borrowers looking to refinance at more affordable rates, the trade group said.

Interest rates have plunged since the Federal Reserve pledged last month to buy up mortgage-backed securities in an effort to bolster the long-suffering housing market. The Fed, starting early next month, will buy up to $500 billion in securities guaranteed by the government-controlled home loan giants Fannie Mae, Freddie Mac and Ginnie Mae, a federal agency.

“It’s a huge number,” said Derek Chen, an analyst at Barclays Capital, who noted that mortgage rates are still high when compared with yields on long-term Treasury debt.

With the Fed and Treasury Department buying up a significant portion of the new mortgage securities issued by Fannie and Freddie next year, that gap, or spread, could narrow.

If that happens, mortgage rates could fall further, possibly as low as 4.5 percent, Chen said.

The average rate on a 15-year fixed-rate mortgage dropped to 4.83 percent, the lowest point since March 2004. That rate was 4.91 percent last week, Freddie Mac said.

Rates on five-year, adjustable-rate mortgages rose to 5.57 percent, compared with 5.49 percent last week. Rates on one-year, adjustable-rate mortgages fell to 4.85 percent, from 4.95 percent last week.

The rates do not include add-on fees known as points. The nationwide fee for 30-year, 15-year mortgages and five-year adjustable rate mortgages averaged 0.7 point last week, compared with 0.5 point for one-year adjustable-rate mortgages.

Meanwhile, home prices dropped by the sharpest annual rate on record in October and there are no signs the housing pain is over.

The Standard & Poor’s/Case-Shiller 20-city housing index, released Tuesday, fell by a record 18 percent from October last year, the largest drop since its inception in 2000. The 10-city index tumbled 19.1 percent, its biggest decline in its 21-year history. Prices are at levels not seen since March 2004.

URL: http://www.msnbc.msn.com/id/7148582/

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• Mortgages: What you need to know in 2009
• Mortgage rates fall to 37-year low

DETROIT — The historic collapse of the new-car market dragged on in December, raising questions of whether the auto industry will ever again have sales levels that it took for granted just a few years ago.

The across-the-board decline of 35 percent, reported by auto companies on Monday, is certain to put more pressure on the fragile finances of several manufacturers, particularly General Motors and Chrysler.

G.M. and Chrysler received emergency federal loans last week to stave off bankruptcy while they accelerated their reorganization efforts.

But unless consumers change course and return to vehicle showrooms, the entire industry will be forced to make sweeping adjustments to cope with declining demand.

After several years of sales topping 16 million vehicles, the United States market plummeted to 13.2 million cars and trucks sold in 2008. Analysts expect another sizable decrease this year and do not predict a year with 15 million in sales until 2012 or later.

“After an era of excess indulgence, we’re now entering a prolonged period of conservation,” said John A. Casesa of the consulting firm Casesa Shapiro Group. “Trading in a car every three years is a luxury that the average American can no longer afford.”

The dismal sales reports for December punctuated the worst year for vehicles sales since 1992. Sales dropped 31 percent at G.M., 32 percent at the Ford Motor Company and a stunning 53 percent at Chrysler, a unit of the private equity firm Cerberus Capital Management.

Foreign automakers hardly fared better, with sales plunging 37 percent at Toyota, 36 percent at BMW and 35 percent at Honda.

For the year, industrywide sales declined by 18 percent — the worst year-to-year drop-off since the early 1970s.

The impact of the shrinking market could be felt for years to come, as automakers will continue to cut production and employment, and reduce the number of new vehicles they bring to the market.

“With these declines in revenues, you will see research and development budgets cut,” said Jesse Toprak, chief auto analyst for Edmunds.com, a Web site that offers car-buying advice. “We are going to have fewer new vehicles and less variety for at least the next couple of years.”

Mr. Toprak is forecasting sales of 12.4 million vehicles this year and 13.5 million in 2010. He said the chances of the industry reaching annual sales of 16 million were slim for the foreseeable future.

“The question is, What will be the natural level of demand in the U.S. market when the economy recovers?” he said. “Based on our best guess, it is probably in the range of 14.5 million to 15 million.”

Auto executives said on Monday that the industry had little chance of improving in the first half of 2009 because of a continued lack of available credit for prospective car buyers and a profound lack of confidence in an overall economic recovery.

“The first quarter is going to be bad no matter how you look at it,” said Emily Kolinski Morris, a senior Ford economist. “Once we get into the second quarter, we’ll have a better idea.”

G.M.’s chief market analyst, Michael C. DiGiovanni, said the automaker was predicting industry sales of 10.5 million to 12 million vehicles for the year.

While the Bush administration approved up to $17.4 billion in loans to G.M. and Chrysler, analysts say they expect the Detroit auto companies to need longer-term assistance from the incoming president, Barack Obama.

“The internal problems of the Big Three are so great, there is no way they can survive without government help for several years,” Mr. Casesa said.

Both G.M. and Chrysler have to submit reorganization plans to the Treasury Department by mid-February as a condition of their loans.

“We have prepared our restructuring plan at a worst-case scenario,” said James E. Press, a Chrysler vice chairman. “We’re hoping for the best, but we’re prepared for the worst case.”

Mr. Press said Chrysler was operating as if the severe fall in demand in recent months was the “new reality” for an industry that had grown accustomed to nearly unfettered growth since the mid-1990s.

The industry thrived on cheap credit that allowed automakers to offer low-interest loans and rock-bottom lease payments to encourage consumers to regularly trade in and upgrade their vehicles.

As a result, American consumers went on a sustained buying spree for new cars, trucks and S.U.V.’s.

In 1970, less than 6 percent of American households owned three or more vehicles, according to the Department of Transportation. By 2000, that percentage had jumped to 18.

More than 244 million vehicles were in operation in 2006, far outnumbering the 202 million licensed drivers in the country, according to the most recent federal statistics.

Auto companies fed the growing appetite for vehicles by broadening their lineups with new products, like car-based crossover vehicles, inexpensive sports cars and a wide array of luxury models.

Companies were forced to redesign their cars more frequently to keep up in the race to put ever-fresher products in dealerships.

“In 1988, the average age of a car in a U.S. showroom was 4.1 years,” said Mr. Casesa, referring to the time that lapsed in model redesigns. “Today it is 2.9 years, which is a tremendous difference.”

With annual sales of 16 million as the norm, the industry expanded its infrastructure to meet demand.

Even though the Detroit automakers have been shutting excess factory capacity and shedding jobs to cut costs, their foreign rivals have been adding new plants in the United States to make up the difference.

Now, with sales plunging to levels not seen since the early 1990s, the industry will be forced to cut back significantly on product development.

Analysts also predict that the era of expansion of foreign companies in the United States is probably over, as well.

“So many foreign transplants came so quickly because they had visions of grandeur in their eyes,” David E. Cole, chairman of the Center for Automotive Research in Ann Arbor, Mich., said. “Now they’re saying, ‘Oh my, what have we done?’ ”

Besides the drop in demand caused by the tight credit and a weak economy, the quality of vehicles themselves has improved to the point where consumers do not need to replace them as often.

Twenty years ago, the median age of cars and trucks in use in the United States was about six years. Now the typical vehicle on the road is nine years old, according to federal statistics.

“You may not want to drive your car for 10 years, but you can if you need to,” Mr. Cole said.

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WASHINGTON — Two weeks before assuming power, President-elect Barack Obama took his economic recovery package to Capitol Hill on Monday and worked to build a bipartisan coalition to endorse his plan of tax cuts and new spending with an urgent appeal “to break the momentum of this recession.”

Mr. Obama, on his first full day in Washington since the election, held a series of face-to-face meetings with Democrats and Republicans as he began spending his political capital. He spoke of the nation’s economic condition in dark terms and urged Congress to pass the legislation within a month.

“Right now, the most important task for us is to stabilize the patient,” Mr. Obama said. “The economy is badly damaged — it is very sick. So we have to take whatever steps are required to make sure that it is stabilized.”

The meetings were a mix of symbolism and substance between the man who will be sworn in as the 44th president and the Congressional leaders who hold the fate of his agenda in their hands. The sessions, aides said, were particularly aimed at encouraging Republicans to buy into the plan and help ease resistance over a $775 billion price tag.

Mr. Obama pledged to help advance the legislation in any way he could, participants said, including inviting skeptical members of Congress to meet with him at his transition headquarters or at his temporary residence, the Hay-Adams Hotel.

“This is not a Republican problem or a Democratic problem at this stage,” Mr. Obama said Monday afternoon. “It is an American problem, and we’re going to all have to chip in and do what the American people expect.”

After meeting for about an hour in the Lyndon B. Johnson Room near the Senate chamber, Congressional leaders said they expected a bipartisan effort to approve the economic stimulus package by early February. Lawmakers said they were waiting for Mr. Obama to present a written proposal — perhaps even draft legislation — within days. Various House and Senate committees would fill out the details.

For Mr. Obama, it was his first return to the Capitol since he was elected on Nov. 4, and another reminder of how rapid his ascent has been. Four years after he took his first steps into the building, arriving as a freshman senator from Illinois, he swept in Monday under the cover of considerable security, with some roads barricaded outside the building and corridors inside closed off to accommodate his movements. At one point, large groups of tourists were forced to linger in the Rotunda to wait for Mr. Obama to leave his morning meeting with Speaker Nancy Pelosi.

The president-elect returned to the Capitol in the afternoon for a meeting with Vice President-elect Joseph R. Biden Jr. and Senator Harry Reid, the majority leader. He then proceeded past a huge crowd of photographers to the meeting with House and Senate leaders from both parties.

Mr. Obama listened as Republicans raised concerns about waste and transparency in the economic stimulus plan. He agreed with a suggestion raised by Representative Eric Cantor, Republican of Virginia, about putting the entire contents of the legislation online in a user-friendly way to see how the money is being spent.

But participants in the private meetings said there did not seem to be agreement on the scale of the package. Mr. Reid said many economists have urged a bill of $800 billion to $1.2 trillion, while Mr. Obama’s advisers estimated legislation at no more than $775 billion.

The House Republican leader, Representative John A. Boehner of Ohio, said he was concerned about the overall size of the stimulus package. He said the American public was rightly agitated by the lack of accountability in the bailout bills that were abruptly approved last fall.

“While we want to get the economy moving again,” Mr. Boehner said, “the overall size and how we craft this is going to be very important.”

Still, Republicans praised Mr. Obama’s willingness to hear their ideas, which is something they have often felt did not take place under President Bush. They urged Mr. Obama to use the stimulus bill to provide a substantial tax cut to middle-class families and small businesses, but also pressed him to ensure that the legislative process would be fair to the diminished Republican minorities in both chambers.

The Senate Republican leader, Mitch McConnell of Kentucky, also said he encouraged Mr. Obama to consider providing aid to states in the form of loans that would have to be repaid, as a means of preventing wasteful spending.

“I thought the atmosphere for bipartisan cooperation was sincere on all sides,” Mr. McConnell said after the meeting. He added, “The best way to stimulate the economy obviously is to put money directly in the pockets of taxpayers.”

The legislation, which Mr. Obama and his economic advisers discussed Monday, includes about $300 billion in tax cuts for workers and businesses. A part of the plan that was a centerpiece of the presidential campaign would provide credits of up to $500 for most workers at an overall price of $150 billion. The plan also includes more than $100 billion in tax incentives for business to create jobs and invest in factories and equipment.

The series of meetings with lawmakers on Capitol Hill highlighted the fact that the new president is coming from their own ranks, for the first time since John F. Kennedy.

Mr. Reid, speaking to reporters after the meeting, said lawmakers were committed to adopting the economic plan as quickly as possible. But Congressional Democrats and the Obama transition team have pushed back their timetable, which originally called for the legislation to be ready for Mr. Obama to sign on the day of his inauguration. Instead, they said their goal was to have the bill completed no later than the Presidents’ Day holiday in mid-February.

Ms. Pelosi, who met with Mr. Obama twice on Monday, said that the stimulus bill would be taken up first in the House and that there was agreement to move swiftly.

“I won’t make any announcement about how soon, but we all know what our tasks are,” Ms. Pelosi said. “We know what the time constraints are. They are dictated by the sense of urgency that the American people have about their economic well-being.”

As the stimulus plan began to take shape, the search intensified for a new commerce secretary, one day after Gov. Bill Richardson of New Mexico withdrew from consideration for the position.

Democratic officials familiar with the search said prospective candidates include William Daley, who served as commerce secretary in the Clinton administration, and Laura Tyson, who has advised Mr. Obama on the economy and served as chairwoman of the Council of Economic Advisers under Mr. Clinton.

Mr. Obama, aides said, would like to make an announcement before week’s end.

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Fed appears ready to cut key interest rate again

WASHINGTON – With the country spiraling deeper into recession, the Federal Reserve is ready to slash its key interest rate — perhaps to an all-time low — in hopes of cushioning some of the economic fallout felt by many struggling Americans.

To battle the worst financial crisis since the 1930s, Fed Chairman Ben Bernanke and his colleagues already have ratcheted down their main lever for influencing the economy — the federal funds rate — to 1 percent, a level seen only once before in the last half-century.

The Fed opens a two-day meeting Monday to assess to economy and decide its next move on rates. Another reduction to the funds rate, the interest banks charge each other on overnight loans, is all but certain to be announced Tuesday.

Many economists predict the Fed will cut its rate in half — to just 0.50 percent. A few think the Fed could opt for an even more forceful action — lowering rates by a whopping three-quarters percentage point or more. If that larger cut occurs, it would be the lowest on records that track the monthly average of the targeted funds rate going back to 1954.

Even an aggressive rate reduction won’t turn the economy around, analysts said.

“It is not so much going to give the economy a big push forward. It’s more a case of trying to help the economy from being pushed further backward by all these negative events,” said Stuart Hoffman, chief economist at PNC Financial Services Group.

However deeply the Fed decides to cut rates, the prime rate — now at 4 percent — for many consumer and small-business loans would drop by a corresponding amount. The prime lending rate is used to peg rates on home equity loans, certain credit cards and other consumer loans. Cheaper rates could give pinched borrowers a dose of relief.

The goal of lower borrowing costs is to entice people and businesses to spend more, which would revive the flat-lined economy. So far, though, the Fed’s aggressive rate reductions have failed to lift the country out of a recession that started last December.

Clobbered by the financial crisis, worried banks have hoarded their cash and been extremely reluctant to lend money to customers. Fearful consumers, watching jobs vanish and their investments tank, have sharply cut back their spending, including big-ticket purchases like homes and cars that typically involve financing.

The negative forces have fed off each other, creating a vicious cycle that Bernanke and Treasury Secretary Henry Paulson have been desperately trying to break.

To unlock lending and get financial markets to operate more normally, the U.S. has resorted to a string of radical actions, including a $700 billion financial bailout where the government is making cash injections in banks in return for partial ownership stakes.

In terms of rate cuts, the Fed is getting ever closer to running out of ammunition.

It can lower the funds rate only so far — to zero. Even if that were to happen — a point of debate among economists — the prime rate would fall to 3 percent but no lower.

Against that backdrop, Bernanke says the central bank is exploring other ways to stimulate the economy.

The Fed could buy longer-term Treasury or agency securities on the open market in substantial quantities, Bernanke says. This might lower rates on these securities and help spur buying appetites.

Another option the Fed has mulled: issuing its own debt, which would give the central bank cash and more flexibility to battle the financial crisis. To do that, however, the Fed would need new powers from Congress.

“The Fed wants to show that it has tools and options and is not out of tricks because interest rates are very low,” said Michael Feroli, economist at JPMorgan Economics. “The problems holding back the economy are fairly long lived in nature.”

To combat the financial crisis, the Fed already has created first-of-its-kind programs, such as getting cash directly to companies by buying up mounds of “commercial paper,” the short-term debt firms use to pay everyday expenses such as payroll and supplies.

It also recently launched massive programs to boost the availability of consumer credit, including that for cars, student loans, homes and credit cards. The Fed also is making loans to banks, is providing a financial backstop to the mutual fund industry, and has injected billions of dollars in financial markets here and abroad.

The Fed could opt to expand programs by enlarging loans it’s now making, providing loans to other types of companies, or buying more and different types of debt. The Fed’s balance sheet has ballooned to $2.2 trillion, from close to $900 billion in September, reflecting some of those other activities to get credit flowing again.

Even with all the bold moves, the economy continues to sink deeper into despair.

Skittish employers axed 533,000 jobs in November alone. That drove the unemployment rate up to 6.7 percent, a 15-year high.

Since the start of the recession, the economy has shed nearly 2 million jobs. Analysts predict another 3 million more will be lost between now and the spring of 2010.

Last week alone, Bank of America Corp., tool maker Stanley Works and Sara Lee Corp., known for food brands such as Jimmy Dean and Hillshire Farm, announced job cuts.

General Motors Corp., Chrysler LLC and Ford Motor Co., meanwhile, are fighting for their survival. GM and Chrysler have said they’re in danger of running out of money within weeks. The White House is exploring new ways to help Detroit after rescue efforts collapsed in Congress.

With the employment market eroding and consumers retrenching, the economy could stagger backward at a shocking 6 percent rate in the current October-December quarter, analysts predict. It shrank at a 0.5 percent pace in the third quarter.

President-elect Barack Obama is advocating an economic recovery plan that includes spending on big public works projects to bolster jobs. His plan also includes tax cuts to spur consumers to spend more and businesses to step up investment and hiring.

Americans are sorely feeling the toll of the housing, credit and financial crises.

Households’ net worth fell 4.7 percent in the third quarter to $56.5 trillion as people watched the value of their homes and investments tank. It marked the fourth straight quarterly decline, the Fed said.

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• Fed looks likely to cut key interest rate again

Like others who got caught up in the recent commercial real estate frenzy, Joseph Moinian, the owner of 20 million square feet of office towers, apartment buildings and hotels throughout the country, sought to take advantage of the huge run-up in values as banks feverishly competed to make loans with exceedingly generous terms.

But now that office rents in Manhattan and elsewhere are declining and empty space is beginning to flood the market, Mr. Moinian, who is developing a 58-story W hotel and residential tower just south of the World Trade Center, finds himself with a problem.

He recently missed part of a $319,000 monthly payment on a $66.5 million mortgage for 60 Madison Avenue, a second-tier Midtown Manhattan office building that he refinanced in April 2007, Commercial Mortgage Alert, a trade publication, reported in October. The cash flow from the property does not come close to what was projected in the loan documents, according to Realpoint, a credit ratings agency which has put the loan on its watch list.

Mr. Moinian quickly made good on the delinquent payment and has pledged to keep current on future payments, but his difficulties demonstrate that the troubles that have already begun to afflict the commercial real estate industry will be widespread and not limited to high-profile deals.

So far, the delinquency rate for loans that were packaged and sold to investors as commercial mortgage-backed securities and are at least 30 days behind is only 0.63 percent, Realpoint said. But the unpaid balance of delinquent loans — $5.3 billion as of October — has increased by 70 percent since January.

And analysts say the low default rate is deceptive. For one thing, as banks competed for business during the heady period from 2005 to 2007, most of the loans they wrote were interest-only, at least initially, so monthly payments were artificially low for the first few years, said Mike Kirby, a principal in Green Street Advisors, a research company.

Delinquencies are expected to accelerate next year. And many more delinquencies and defaults are expected in 2010, when five-year interest-only loans issued in 2005 begin to mature and borrowers are unable to refinance them because credit is scarce and property values have declined instead of risen.

“Defaults on mortgages are a trickle right now, but the pace will pick up over the next year, more than I would have thought in October,” Mr. Kirby said. “It’s coming, and it can’t be avoided. There’s going to be a lot of it, and it’s going to be bad.”

As the market heated up in the middle of the decade, the volume of securitized loans exploded — to $200 billion a year in the period from 2005 to 2007, from $70 billion a year in the 2000-to-2004 period, according to Green Street. And as volume picked up, projections of rent growth became increasingly optimistic and the reserve funds intended to make up for the amount not covered by the property’s cash flow were often inadequate, analysts said. The $1.5 million debt-service reserve fund for 60 Madison Avenue has dwindled to $7.80, Realpoint said.

“The underwriters were very aggressive,” said Victor Franco M. Calanog, the senior economist at Reis, a research company. “They were under a lot of pressure for deals to be made. They allowed investors to take a lot of risks.”

When Mr. Moinian refinanced 60 Madison Avenue, a 1910 building at 27th Street, it was 86.5 percent occupied. But the 10-year loan was underwritten for occupancy of 95.1 percent, according to documents filed with the Securities and Exchange Commission. In the interim, the building has lost tenants instead of gaining them. CoStar Group, a research company, said that occupancy was now 66 percent.

The mortgage was written as if the annual net cash flow from the building amounted to $4.9 million, when in fact the building was generating only $3.2 million then and is bringing in only $1.9 million now, Realpoint said.

Mr. Moinian, a co-owner of the Sears Tower in Chicago, declined to be interviewed. But he told Commercial Mortgage Alert that he made up the shortfall in the debt service payment as soon as he learned about it. “We will continue to make all payments promptly,” he said in a statement.

Some borrowers are already rushing to try to renegotiate their loans because the current terms are untenable. This can only be done by transferring the mortgage to a special servicer, a financial services unit that is charged with resolving problems with distressed assets in the interests of investors.

Last month, the industry was shocked to discover that two loans JPMorgan Chase had packaged with other mortgages and sold to investors in May as a commercial-mortgage-backed security were delinquent. Both loans — one for an open-air shopping center in the Southern California community of Corona, and another for Westin hotels in Tucson and Hilton Head, S.C. — were transferred to a so-called special servicer.

The transfer startled investors because the loans were originated and sold to investors long after the credit squeeze became apparent in the summer of 2007, said Steve Kuritz, a Realpoint senior vice president. “You would figure a 2008 deal would be a little cleaner,” he said.

The 350,000-square-foot shopping center, the Promenade Shops at Dos Lagos, was developed by Poag & McEwen, a Memphis company that is often credited with originating the concept of “lifestyle center” — a retail property without a roof or a traditional department store anchor that is aimed at relatively affluent shoppers. The loan anticipated that the shopping center would bring in $10.5 million a year, but the net operating income for 2007 was only $6.3 million, Realpoint said.

Josh Poag, the chief operating officer of Poag & McEwen, said the shopping center had been on track to achieve revenue goals until the retail industry began to struggle. He said the shopping center also faced competition from other projects that sprang up anticipating further growth in the counties east of Los Angeles, where Corona is located. Instead, the area is among those hit especially hard by the housing crisis.

“We’ve had three retailers close their doors,” Mr. Poag said. “Other retailers are struggling to meet their payments and some are getting dangerously late — are on the verge of not paying the rent.” He said the company believed in the shopping center’s prospects and hoped to work out a solution with the special servicer.

As the recession progresses, many borrowers with leveraged loans will seek to modify terms, said Alan L. Todd, an analyst at JPMorgan Chase. “If the borrower knows that going forward, the cash flow, or net operating income, is expected to drop, the first time they hit a 30-day delinquency, they’re going to say, ‘I need help,’ “ he said. “They can see how it is going to play out.”

But there is likely to be a tug of war between property owners and investors who bought the bonds backed by the mortgages. The owners will want their mortgages extended, said Orest Mandzy, the managing editor of Commercial Real Estate Direct, a news service. But holders of AAA-rated bonds, the least risky, are likely to press the special servicer to sell the loan so that they can get their money back. “That’s going to be the sort of battle that goes on,” Mr. Mandzy said.

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Five or 10 years from now, when the financial crisis has ended and housing prices are up smartly once more, we will look in the rearview mirror and realize that we missed a golden age for first-time home buyers.

Then, everyone who sat on their down payment savings accounts for a few years too long will kick themselves for not taking advantage of what may turn out to be the buying opportunity of a lifetime for those who can qualify for a mortgage.

Unfortunately, we do not know when this golden age will begin, because we will be able to identify a bottom to the housing market only with the benefit of hindsight. But as it does with the stock market, the moment will probably arrive when everyone is feeling the most pessimistic.

That moment is certainly getting closer. Housing prices have fallen drastically from their peak levels in many areas of the country. Rates on 30-year fixed-rate mortgages are already close to 5.5 percent, and this week there were suggestions that the federal government might try to drive them down to 4.5 percent, a truly incredible figure to be able to lock in for three decades.

Meanwhile, first-time home buyers have the same advantage they have always had, which is that they do not have to sell their old place before buying a new one. That is an added advantage in areas where many available houses simply are not moving, because the people trying to sell them will not be bidding against you.

If you’re hoping for a recovery in the housing market, you ought to be cheering on the first-time home buyers. When they purchase homes, their sellers are free to move on or move up, stimulating further sales.

But if you are a potential first-time buyer yourself, or lending or giving the down payment to one, you are probably as frightened as you are tempted by all the “For Sale” signs that have become “On Sale” signs. So let’s quickly review some of the still-grim pricing data in certain areas — and consider the reasoning offered up by first-time buyers who have forged ahead anyhow.

As is always the case with real estate, much depends on location. One study, “The Changing Prospects for Building Home Equity,” tries to predict where today’s first-time buyers in the 100 biggest metropolitan areas may actually have less home equity by 2012 as a result of continued price declines. The verdict was that buyers in 33 of the markets could see a decline by 2012, including potential six-figure drops on an average home in the New York City, Los Angeles, San Francisco and Seattle metropolitan areas.

This is obviously scary. (I’ve linked to the study, a joint effort of the Center for Economic and Policy Research and the National Low Income Housing Coalition, from the version of this article at nytimes.com/yourmoney.) It’s worth noting, however, that these predictions came before the government made its most recent move to reduce borrowing costs.

Also, the price projections in the study are based, in part, on the fact that the ratio of purchase prices to annual rents is still higher in many areas than the historical average, which is roughly 15 times rents. While past figures may well have some predictive value, I have never been convinced that first-time buyers compare a home that they could own and one that they would rent in purely or even primarily economic terms.

When Jaime and Michael Proman moved this fall to Minneapolis, his hometown, from New York City, they craved a different sort of life after two years together in a 450-square-foot studio apartment. “We didn’t want a sterile apartment feel,” said Mr. Proman, who is 28 (his wife is 26). “We wanted something that was permanent and very much a reflection of us.”

The fact is, in many parts of the country there are few if any attractive rentals for people looking to put down roots and enjoy the sort of amenities they may spot on cable television home improvement shows. Comparing a rental with a place that you may own seems almost pointless in these situations, especially for those who are now grown up enough to want to make their own decisions about décor without consulting the landlord.

Still, for anyone feeling the urge to buy, a number of practical considerations have changed in the last year or two. The basics are back, like spending no more than 28 percent of your pretax income on mortgage payments, taxes and insurance. Even if a lender does not hold you to this when you go in for preapproval, you should hold yourself to it.

You will also want to start now on any project to improve your credit score because it may take several months to get it above the 720 level that qualifies you for many of the best mortgage rates.

John Ulzheimer, president of consumer education for credit.com, a consumer credit information and application site, suggests starting to pay down and put away credit cards months before you apply for a loan. That is because the credit scoring system could penalize you if you use a lot of credit each month, even if you always pay in full. Also, check your three credit reports (it’s free) at annualcreditreport.com and dispute errors.

While no one can easily predict the likelihood of losing a job, Friday’s startling unemployment figures suggest the need for caution if you think you might be vulnerable. A. C. Panella, who teaches communications at Pasadena City College in California, waited until she had a tenure-track job before buying a home in the Highland Park section of Los Angeles with her partner, Amy Goldman, a lawyer for a nonprofit organization. “We could afford the mortgage payment on one salary, were something to come up,” Ms. Panella, 31, said. “It’s really about being able to stay within our means.”

For many first-time home buyers, that philosophy stretches to the down payment, too. Ms. Panella and her partner put down 20 percent when they bought their home in September, as did the Promans when they bought their home in the Lowry Hill neighborhood of Minneapolis.

Alison Nowak, 29, put just 3 percent down on a Federal Housing Administration-backed loan last month when she and her partner, Lacey Mamak, bought a $149,900, 800-square-foot home several miles south of where the Promans live. “Anything that is an opportunity also has a bit of risk,” she said. Her house was in foreclosure before a plumber bought it and fixed it up. “One way we mitigated it was that we bought a really tiny house in a very good neighborhood.”

One other strategy might be to buy new instead of used. Ian Shepherdson, chief United States economist for the research firm High Frequency Economics, says he believes that a steep drop-off in inventory of new homes is coming soon, thanks to a rapid decrease in home builder activity.

Since prices generally soften in the winter, it may make sense to start looking seriously once the mercury bottoms out. “If you look at new developments next spring, you may not have the choice you thought you would have or be in the bargaining position you thought you would be,” Mr. Shepherdson said. Also, if you wait after June 30, you will miss out on a $7,500 federal tax credit for income-eligible first-time home buyers that works like an interest-free loan.

Finally, allow yourself to consider how it would feel if you bought and then prices dropped another 10 or 15 percent. It might not bother you if you plan to stick around. Plenty of people seem to be making a longer commitment to their homes. According to a survey that the National Association of Realtors released last month, typical first-time buyers plan to stay in their home 10 years, up from 7 last year.

Perhaps people are more aware that they will not be able to build equity as rapidly as others did in the real estate boom. Or they simply have more confidence in hard, hometown assets now than in other markets.

“We wouldn’t let another decline bother us,” said Michael Proman. “You can never time a bottom. This is a long-term investment for us, and it truly is the best investment we have in our portfolio right now.”

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WASHINGTON — Even as House Democrats pressed for a vote Wednesday afternoon on a government rescue of the automobile industry, the Bush administration failed to generate enough support for the measure among Senate Republicans who have the power to kill the bill, dimming the prospects for the $15 billion plan.

The White House chief of staff, Joshua B. Bolten, attended a weekly lunch of Republican senators in an effort to persuade them to support the auto rescue plan. But he encountered stiff resistance. Some senators said the automakers should be allowed to go into bankruptcy while others said the White House plan for a car czar was weak.

Senator George V. Voinovich, Republican of Ohio, and one of the few outspoken Republican supporters of a government rescue for the auto industry, emerged from the lunch and suggested there was little hope that the bill could be approved. He said that even substantial changes to the bill may not change the minds of many colleagues.

Efforts by the Bush administration and Congressional Democrats to fashion a government rescue of the foundering American auto industry hit other snags on Wednesday, with a dispute over the precise wording of the bill. That led the House and Senate to put forward competing versions of the legislation.

The last-minute disagreement centered on a single word — with the Senate bill requiring the automakers “to comply with all applicable federal fuel efficiency and emissions requirements” and the House bill referring to “all applicable fuel efficiency requirements,” which would include state emissions rules that the automakers oppose.

Aides to House Speaker Nancy Pelosi said that she was prepared to push ahead with plans for a vote on the legislation Wednesday afternoon, while Democratic Senate aides warned that the House version of the bill was doomed in the Senate because it would be rejected by Republicans and would never be signed by President Bush.

Even as negotiators sought to iron out that final disagreement, a group of Republican senators held a news conference to say that they would oppose an auto bailout in any form and that they stood ready to filibuster the bill. It was not immediately clear if the opposition would be sufficient to block the measure.

Senator Richard C. Shelby, Republican of Alabama, said he remained opposed to a bailout. “I intend to talk to the American people about it from the Senate floor,” he said.

In the broadest sense, the competing bills provide an identical government rescue of the two most imperiled automakers, General Motors and Chrysler, in the form of $15 billion in emergency loans. In exchange for the loans, the auto manufacturers would have to submit to strict government oversight and carry out sweeping reorganization plans.

The auto bailout plan would be supervised by a so-called car czar to be appointed by President Bush within the executive branch.

The bill also provides for extensive taxpayer protections that would give the government warrants to take an equity stake in the automakers. It would limit executive pay, bar “golden parachute” severance packages and prohibit the paying of shareholder dividends while the emergency government loans are outstanding.

The bill would require the companies and their stakeholders, including creditors, labor unions, and dealers to agree on sweeping reorganization plans that would lead to long-term financial viability. If they fail to agree, the auto czar would be able to impose a plan, and could also force the companies into bankruptcy if they fail to meet requirements.

Even if the final dispute over the legislation could be resolved on Wednesday, it seemed likely that the Senate would not be able to approve the bill until sometime next week.

Senator Shelby was joined by three other Republican senators, John Ensign of Nevada, Tom Coburn of Oklahoma and David Vitter of Louisiana, in speaking against a bailout.

“How does anybody expect some ‘car czar’ to make the decisions that are right?” Mr. Ensign asked rhetorically as he and his colleagues alluded to the decades-long, systemic problems of the domestic auto industry.

Before the unexpected snag, Congressional aides said a deal between House Democrats and the White House was close, and White House aides said good progress had been made. But House Republicans, who are at a 236-to-198 disadvantage, were circulating an alternate plan that they said would allow the car companies to be competitive again without putting public money at risk.

Some Republicans, notably Mr. Shelby, have said the carmakers’ problems were of their own making and they should be forced into bankruptcy, if necessary. Others, like Mitch McConnell of Kentucky, the minority leader, have said they would like to find a way to save the companies without putting taxpayers’ money at risk.

Republican support for a rescue is vital in the Senate, since 60 votes are needed to advance the measure because of procedural rules. With the resignation of President-elect Barack Obama, Democrats have only a 5o-to-49 advantage in the Senate, and it is not clear if the White House can muster broad support among Republicans.

The rescue plan would extend $15 billion in emergency loans to General Motors and Chrysler, the two most imperiled automakers, and would subject them to far-reaching government oversight at the direction of a so-called car czar to be named by Mr. Bush.

Ford is not seeking short-term loans because it is not as bad off as the other two big automakers.

By Tuesday evening, White House and Democratic Congressional negotiators, meeting at the Capitol, had narrowed their differences to one major issue: a proposal to bar the automakers from fighting state laws that seek to cap greenhouse gas emissions.

A senior administration official said that bill would set a firm deadline of March 31 for the car czar to certify that the automakers and their stakeholders, including creditors, labor unions and dealers, had agreed to carry out a long-term viability plan and that the bill would set out “a hard economic definition of what it means to be a viable firm.”

The official said that if there were no such agreement, the auto czar would be required to demand repayment of the administration rather than giving the czar discretion to call in the loan, which Democrats had initially proposed. The bill would also allow the auto czar to impose a viability plan, which could force a company into bankruptcy.

To address concerns raised by the White House on Monday, the bill will require the car czar to call in the emergency loans for repayment should the auto companies fail to carry out aggressive reorganization plans or meet other obligations in the law.

Congressional Democrats also agreed to a White House request to raise to $100 million, from $25 million, the size of business transactions requiring the approval of the auto overseer. The administration said it did not want to micromanage the automakers.

Aides suggested that Speaker Pelosi, whose district is in California, where an emissions lawsuit is under way, might be willing to compromise on that point in exchange for White House assurances that Republican lawmakers would support the bill.

Meanwhile, House Republicans were putting forth a proposal calling for the government to provide insurance to cover up to half the losses of new investment in the auto industry in the case of default. That way, they said, taxpayers’ money would be protected and private investment would be encouraged.

The Senate majority leader, Harry Reid of Nevada, said that lawmakers might need to work through the weekend to get the rescue plan approved. But he expressed resolve.

“There will be no stalling us from doing this,” Mr. Reid said on the Senate floor on Tuesday afternoon. “We are going to complete this legislation.”

The Democrats may face difficulties generating votes in their own caucus as well. There were 10 Democrats who voted against the $700 billion financial system bailout in October, some of whom could similarly oppose a taxpayer rescue of the auto companies.

In addition, Senators John Kerry of Massachusetts and Amy Klobuchar of Minnesota, both Democrats, are scheduled to leave Washington on Wednesday for a trip overseas.

Mr. Reid said he would urge lawmakers in both parties to be available to vote on the auto-rescue package. “I would suggest it’s not a very good vote to miss,” he said. “Maybe multiple votes.”

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Job market is awful, but may get worse

Friday’s report showing the biggest monthly job loss in 34 years confirmed forecasters’ worst fears that the decline in the U.S. economy accelerated in November, after the financial system seized up and consumers hunkered down. As the government scrambles to break the downward spiral, some economists are predicting the unemployment rate is headed substantially higher through next year.

Since the start of the recession in December 2007, the economy has lost 1.9 million jobs, lifting the number of Americans out of work to 2.7 million. At 6.7 percent, the jobless rate has now risen 2.3 percentage points since it bottomed in March 2007.

Most sectors of the economy are now losing jobs, including manufacturing, construction, financial firms, retailers, and the leisure and hospitality industries. Only government, education and health services managed to post job gains.

Friday’s report also slashed another 200,000 jobs from the numbers already reported for September and October — a sign that the economy was hit harder than first reported when the credit crunch deepened.

Economists, who had been expecting a loss of some 350,000 jobs last month, were stunned by the news, describing the report as “horrendous,” “horrific” and “eye-poppingly bad.”

“We’re scrambling around here for historical parallels,” said Robert Barbera, chief economist at ITG, an investment advisory firm.

More big job cuts are on the way, as companies slash costs to try to offset the expected drop in revenues. In just the past few weeks, major employers like AT&T Inc., DuPont, Citibank, JPMorgan Chase and Pratt & Whitney have announced steep job cuts.

“These numbers are shocking,” said economist Joel Naroff, president of Naroff Economic Advisors. “Companies are sharply reacting to the economy’s problems and slashing costs. They are not trying to ride it out.”

Chrysler, General Motors and Ford continued to fight for survival Friday with another round of testimony on Capitol Hill, where the companies’ CEOs are asking lawmakers for as much as $34 billion in emergency aid. But the auto industry has already sustained major damage. Car sales cratered to a 26-year low last month after the financial storm erupted in September.

“This is unprecedented in the history of the industry — and it happened from one day to the next,” said Mike Jackson, chairman and CEO of AutoNation, the largest U.S. chain of car dealers. “The strong will survive and the weak will be swept away by this toxic combination of Depression sales level and the lack of credit for business. It’s going to be painful and unfortunate, but it does need to happen.”

What makes the latest data so worrisome is that they point to an economic decline that is picking up speed.

“The economy is now locked in a vicious downward spiral in which employment, incomes and spending are collapsing together,” said Nigel Gault, chief U.S. economist at IHS Global insight.

Consumers also are taking a hit to their finances as the collapse in housing prices and the rise in foreclosures that tipped the economy into recession show no signs of abating.

A record one in 10 American homeowners with a mortgage were either in foreclosure or at least a month behind on their payments at the end of September, according the latest survey released Friday by the Mortgage Bankers Association. The percentage of auto loans that was behind by 60 days or more rose 15.9 percent in the third quarter compared to last year, according to credit reporting agency TransUnion.

As consumers struggle to keep up with existing debts, lenders have cut credit card limits and tightened up on extending new loans, which has further crimped spending. The collapse of the stock market has wiped out trillions of dollars of personal wealth, forcing consumers to try to increase savings to make up for those losses.

All of which is accelerating the pullback in consumer spending – the main engine of the U.S. economy that accounts for roughly two-thirds of gross domestic product. Consumption dropped 3.7 percent in the third quarter; the spending pullback is expected to worsen during the holiday season that retailers rely on for the bulk of their profits. Gault expects consumer spending to shrink by 4.7 percent in the fourth quarter.

Economists already have begun comparing the current downturn to the back-to-back recessions of 1980-1982. The unemployment rate peaked at 10.8 percent then after the government pushed interest rates to high double-digits to try to break a decadelong inflationary spiral.

“You had interest rates that soared, the credit system shut down, and everything stopped,” said Barbera. “That’s what this (jobs) number says, and that’s what it suggests for the GDP numbers.”

Before Friday’s jobs data, economists had expected GDP to contract at a sharp 4 to 5 percent rate in the current fourth quarter. Barbera said the latest data indicated the drop could be more like 8 percent.

“We’re in a deep contraction with very little offset now,” said former Treasury Secretary John Snow. “The consumer is parked. China is slowing. India’s slowing — Brazil, Mexico. Virtually every sector of the American economy is being affected.”

To some observers, the current economy is in even worse shape than the early 1980s recession that was brought on by the government-induced credit squeeze. Once the government cut rates, the economy recovered quickly.

Now the government has so far been unable to halt the steep decline, despite the commitment of trillions of dollars in spending, investment and loan guarantees.

The current credit drought follows the excesses of a prolonged period of low interest rates and easy-money lending that began to reverse course in 2007 and all but shut down lending in mid-September. To spur borrowing, the Federal Reserve has cut the target overnight lending rate to 1 percent and is expected to cut by as much as a half-percentage point on Dec. 16. But short term market rates have been well below the Fed’s official target for weeks.

With short-term rates approaching zero, the Treasury and the Fed are considering other measures to try to drive down the cost of long-term borrowing, including mortgage rates.

President-elect Barack Obama already has called for a half-trillion-dollar government spending package to generate 2.5 million jobs over his first two years in office, which Congress is hoping to have ready by Inauguration Day in January. The latest data may prompt enactment of an even bigger spending package.

“We had assumed a $550 billion package over three years — we will need more than that,” said Gault. “The trick will be making the stimulus effective quickly, which is difficult since infrastructure projects take time to gear up.”

Regardless of the size of the package, Friday’s jobs report heightens the urgency of an aggressive government response, said Mark Zandi, an economist at Moodys’ Economy.com.

“The only way out is for government to be extremely aggressive on every front — the Federal Reserve, economic stimulus, help for the automakers, extending out TARP money (to buy bad assets from banks) — everything,” he said.  “Because we’re now in this self-reinforcing, negative cycle, and the only way out is for the government to fill the void.”

Even if the government acts quickly and stems the slide in the financial markets and the economy, some economists believe the jobless rate will top 10 percent before beginning to subside.  If this recession drags on past mid-2009, it would be the longest since the Great Depression. (The recessions of 1973-75 and 1981-82 both lasted 16 months according to the National Bureau of Economic Research.)

In any case, the eventual recovery will likely be more gradual and weaker than after past recessions, according to Stuart Hoffman, chief economist at PNC Financial.

“I think the mind-set will be different on the other side of this recession over the next couple of years,” he said. “That will prevent borrowers and would-be borrowers and lenders from saying, “Alright, game’s back on. Let’s start running house prices up and credit cards and credit limits up. It’s not going to happen.”

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Treasury weighs action on mortgage rates

The Treasury Department is strongly considering a plan to intervene directly in the mortgage industry to dramatically force down rates and stimulate the moribund housing market, according to sources familiar with the proposal.

Under the initiative, the Treasury would offer to buy securities that finance newly issued loans for home purchases, according to the sources. But to participate in the government’s program, mortgage lenders would have to set exceptionally low interest rates, for instance, no more than 4.5 percent for traditional, 30-year fixed-rate loans.

These securities would be purchased primarily from Fannie Mae and Freddie Mac, the financing giants that buy most mortgages from U.S. lenders, according to sources who spoke on condition of anonymity because the plan has not been finalized.

The cost of the plan and source of funding remain unclear. One possibility is for the Treasury to raise money by issuing bonds to the public at 3 percent interest. This could allow the government to turn a profit because it would be buying securities that pay 4.5 percent.

At a meeting attended by the Treasury’s Interim Assistant Secretary for Financial Stability Neel Kashkari and the National Association of Realtors in mid-November, senior Treasury officials said they were optimistic that subsidizing lower mortgage rates with taxpayer dollars would help revive the housing market, sources said.

Treasury officials told the Realtors that the plan could be a more effective way to help homeowners than focusing efforts solely on borrowers who are struggling to meet their monthly payments, the sources said. Democratic lawmakers have been advocating a proposal to modify the mortgages of distressed homeowners.

A source said Treasury officials suggested at the meeting that the Realtors start a grass-roots campaign to press the mortgage rate plan with lawmakers.

Treasury officials described the situation as fluid and said the plan was still being finalized, according to people in contact with the department. The officials expressed concerns yesterday that premature disclosure of the plan could prompt Americans to put off buying homes and hold out for a better rate, sources added.

Treasury spokeswoman Brookly McLaughlin said she would not comment on the matter.

Key to solving financial crisis
Treasury Secretary Henry M. Paulson Jr. has said that a recovery in the housing market is key to solving the financial crisis. Such a rebound would restore confidence in the banking system and support the value of troubled assets backed by mortgages.

Though he has said a mortgage modification plan proposed by Federal Deposit Insurance Corp. Chairman Sheila C. Bair could help the housing market, Paulson has expressed concerns about whether it would reward borrowers who bought houses they couldn’t afford. Bair’s plan would use tens of billions in federal funds to modify adjustable-rate mortgages for several million financially troubled homeowners.

The initiative under review at the Treasury would be an alternative. Borrowers would have to meet standards set by Fannie Mae, Freddie Mac or the Federal Housing Administrations that include documenting their income, sources said. Fannie and Freddie were put under government control in September. The Treasury plan would not apply to refinances.

Any efforts by the Treasury to lower rates on new mortgages would work in concert with a Federal Reserve plan announced last week to buy $500 billion worth of existing mortgage-backed securities issued by Fannie Mae and Freddie Mac, and $100 billion worth of those companies’ debt.

The Fed was pleasantly surprised that 30-year fixed mortgage rates fell by as much as three-quarters of a percentage point in anticipation of their program. Homeowners rushed to refinance. Cheaper monthly payments may bolster consumer spending, the most important component of U.S. economic activity.

‘Short-term windfall’
News of the Treasury plan spread quickly through the markets. Shares of home builders rose. At Long & Foster, the Washington area’s largest real estate brokerage, top brass informed agents that they should gear up for increased demand from potential buyers.

“This is going to be a short-term windfall that everybody needs to jump on,” said Dave Stevens, the firm’s president and chief operating officer and a former Freddie Mac official. The move by the Treasury certainly would mean “interest rates will drop,” he added.

But it is unclear whether lower mortgage rates will spark home buying, which is a weightier decision for ordinary people than refinancing a loan.

There are also questions about how much the Treasury would spend to buy down the mortgage rate. One industry source said another idea being pushed by trade groups calls for the Treasury to spend $50 billion of its $700 billion financial rescue package to reduce the fees, or points, that home buyers pay when they want a lower rate for a mortgage.

Yesterday, the average rate on a 30-year fixed-rate mortgage increased slightly to 5.75 percent yesterday, up from 5.54 the previous day, said Keith Gumbinger, a vice president at research firm HSH Associates.

“What’s not known is the timing of the purchasing of the mortgage-backed securities and how quickly money will be pumped into the marketplace and that matters as to how low the mortgage rates will go,” Gumbinger said.

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Record 1-in-10 Americans in mortgage trouble

WASHINGTON – A record one in 10 American homeowners with a mortgage were either at least a month behind on their payments or in foreclosure at the end of September as the source of housing market pressure shifted from risky loans to the crumbling U.S. economy.

The percentage of loans at least a month overdue or in foreclosure was up from 9.2 percent in the April-June quarter, and up from 7.3 percent a year earlier, the Mortgage Bankers Association said Friday.

The foreclosure crisis continued to be concentrated in states like Florida, where a stunning 7.3 percent of all loans were in foreclosure at the end of September, by far the highest in the country.

In Nevada, the number was 5.6 percent. It was 3.9 percent in California — compared with about 3 percent nationally.

Distress in the home loan market started about two years ago as increasing numbers of adjustable-rate loans reset to higher interest rates. But the latest wave of delinquencies is coming from the surge in unemployment.

Employers slashed 533,000 jobs in November, the most in 34 years, catapulting the unemployment rate to 6.7 percent, the Labor Department said Friday. “Now it’s a case of job losses hitting more across the board,” Jay Brinkmann, the trade group’s chief economist.

With the economy worsening, the much-anticipated bottom of the housing market likely will be pushed further into the future.

“Things are going to get worse before they get better,” said Northern Virginia housing economist Thomas Lawler.

Most troubling, he said, is that the mortgage bankers’ report reflects conditions before October’s stock market plunge and the resulting economic fallout.

“The number of homes that are in the foreclosure process is so high — right before the economy has fallen off a cliff,” Lawler said.

The U.S. tipped into recession last December, a panel of experts declared earlier this week, and economists fear it could be the longest and most severe in decades. Since the start of the recession, the economy has lost 1.9 million jobs.

Job losses are already having an impact in rising delinquency rates for traditional 30-year fixed rate loans made to borrowers with strong credit. Total delinquencies on those loans rose to 3.35 percent in September from 3.07 percent at the end of June, the Mortgage Bankers Association said.

Lenders appear to be on track to initiate 2.25 million foreclosures this year, up from an average annual pace of less than 1 million during the pre-crisis period, Federal Reserve Chairman Ben Bernanke said this week. In the third quarter, there were about 575,000 new foreclosures, with about 183,000 in California and Florida combined, according to the MBA’s data.

There were some modest signs of stabilization. The number of loans that entered the foreclosure process totaled 1.07 percent of all loans in the third quarter, flat from the second quarter.

That number, however, likely reflects changes in state laws that delay or extend the foreclosure process and efforts to work out or modify loans that could still fall back into foreclosure.

Also, the total delinquency rate on subprime adjustable-rate loans remained just over 21 percent, down from a peak of 22 percent in the first quarter.

With delinquencies still accelerating on many types of loans, efforts to stabilize the U.S. housing market are accelerating. The Treasury Department is now considering a plan to make loans at 4.5 percent as a way to revive the U.S. housing market. The plan being considered would apply to new home purchases, not refinanced loans.

But some analysts worry that the government’s plan will delay a necessary deflation of the housing bubble. With the government effectively lowering mortgage rates, housing prices could be prevented from falling to a more affordable level.

Any government assistance plan should exclude homes that are out of line with rents or other measurements of affordability, said Dean Baker, an economist and co-director of the Center for Economic Policy Research in Washington.

“It’s absolutely counterproductive,” he said, “to try and prop up prices.”

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WASHINGTON – Treasury Secretary Henry Paulson called the financial crisis now plaguing the world economy a “once or twice” in a 100 years event, even as he warned Thursday against imposing too-strict regulations to prevent a repeat calamity.

Paulson’s remarks follow pledges by world leaders attending last week’s emergency economic summit to begin an overhaul of the world’s financial regulatory system.

With the next summit slated for the spring, the work on fleshing out details for the Herculean task will fall to the incoming administration of President-elect Barack Obama and his new Treasury secretary.

Paulson, whose boss President George W. Bush leaves office on Jan. 20, acknowledged that the financial crisis was caused by many factors including “government inaction and mistaken actions, outdated U.S. and global financial regulatory systems, and by the excessive risk-taking of financial institutions.”

Still, he cautioned against the U.S. and other countries developing a too-onerous regulatory response.

“If we do not correctly diagnose the causes, and instead act in haste to implement more rather than better regulations, we can do long-term harm,” Paulson said in a speech in Simi Valley, Calif.

Earlier this week, lawmakers blasted Paulson for his handling of a $700 billion financial bailout package to help ease the crisis and restore stability and confidence to unhinged markets.

Paulson on Thursday again defended his management, including his decision last week to officially abandon the original rescue strategy: buying rotten mortgages and other bad debts from banks to free up their balance sheets and get them to lend more freely.

“By proactively addressing the problems we saw coming and being pragmatic enough to change strategy in the face of changed facts and despite the inevitable criticism — we prevented a far worse financial crisis,” Paulson insisted.

Focusing the bailout program on infusing billions into banks — and possibly other types of companies — to pump up their capital and bolster lending to customers was deemed a faster and more effective approach to stabilizing the financial system than the original centerpiece of the plan, he said.

“There was no playbook for responding to a once or twice in a hundred year event,” Paulson argued, saying he needed to shift strategy to respond to worsening financial and economic conditions.

Paulson again said he believed the Bush administration has taken the necessary steps to prevent a financial market collapse, but he cautioned that it will take time for markets and lending conditions to return to normal.

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Officials: Autos bailout vote put off until Dec.

WASHINGTON – Congressional officials say Democratic leaders have decided to put off a bailout vote for the auto industry until December and will insist that the Big Three first come up with a plan showing how the money would help transform their industry.

An announcement is expected later in the day in the Capitol, where top Democrats in the House and Senate have been meeting. The officials who described the developments did so on condition of anonymity, saying they were not authorized to disclose them.

The big auto companies — General Motors Corp., Ford Motor Co. and Chrysler LLC — have been seeking government loans totaling $25 billion to stay in business until spring. Critics want to make sure the companies will use the money to transform their industry into one that is more competitive.

Earlier, news reports said four senators had reached a bipartisan agreement on a bill to assist the struggling automotive industry.

U.S. automakers GM, Ford and Chrysler have been pleading for $25 billion in emergency government aid to weather a steep business downturn. The CEOs of all three companies testified before two congressional committees this week, but came away empty-handed.

The White House favors using $25 billion already authorized and appropriated through the Energy Department to provide loans for ailing automakers.

Democratic leaders in Congress have argued for carving out $25 billion from the $700 billion financial rescue fund.

Earlier, at a news conference in Detroit, United Auto Workers President Ron Gettelfinger said the Bush administration and Congress need to come to an agreement on aid for the domestic auto industry because “inaction is simply not an option.”

Gettelfinger acknowledged there is disagreement about how aid should be given, but “both the Bush administration and congressional leaders agree that immediate assistance is needed, and the cost of not acting would be devastating.”

Gettelfinger says without help, one or more of the Detroit Three automakers could collapse by the end of this year, and “the costs that would come from this are just too great.”

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U.S. jobless claims jump to 16-year high

WASHINGTON – New claims for unemployment benefits jumped last week to a 16-year high, the Labor Department said Thursday, providing more evidence of a rapidly weakening job market expected to get even worse next year.

The government said new applications for jobless benefits rose to a seasonally adjusted 542,000 from a downwardly revised figure of 515,000 in the previous week. That’s much higher than Wall Street economists’ expectations of 505,000, according to a survey by Thomson Reuters.

That is also the highest level of claims since July 1992, the department said, when the U.S. economy was coming out of a recession.

The four-week average of claims, which smooths out fluctuations, was even worse: it rose to 506,500, the highest in more than 25 years.

In addition, the number of people continuing to claim unemployment insurance rose sharply for the third straight week to more than 4 million, the highest since December 1982, when the economy was in a painful recession.

Those figures partly reflect growth in the labor force, which has increased by about half since the early 1980s.

The figures likely will cause some economists to increase their projections for the unemployment rate this year. Many already expect unemployment to reach 7 percent by early next year and 8 percent by the end of 2009.

The rate in October was 6.5 percent, and last year the rate averaged 4.6 percent.

The Federal Reserve on Wednesday released projections that the jobless rate will climb to between 7.1 percent and 7.6 percent next year, according to documents from the Fed’s Oct. 29 closed-door deliberations on interest rate policy.

Initial claims have been driven higher in the past several months by a slowing economy hit by the financial crisis, and cutbacks in consumer and business spending.

Economists consider jobless claims a timely, if volatile, indication of how rapidly companies are laying off workers. Employees who quit or are fired for cause are not eligible for benefits.

Several companies announced mass layoffs in the past week, including Citigroup Inc., Union Pacific Corp. and Sun Microsystems Inc.

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• U.S. inflation hits 17-year high

Circuit City stores …

Ann Taylor- 117 stores nationwide are to be shuttered

Lane Bryant,, Fashion Bug ,and Catherine’s to close 150 store
nationwide

Eddie Bauer to close stores 27 stores and more after January

Cache will close all stores

Talbots closing down all stores

J. Jill closing all stores

GAP closing 85 stores

Footlocker closing 140 stores more to close after January
Wickes Furniture closing down

Levitz closing down remaining stores

Bombay closing remaining stores

Zales closing down 82 stores and 105 after January.

Whitehall closing all stores

Piercing Pagoda closing all stores

Disney closing 98 stores and will close more after January.

Home Depot closing 15 stores 1 in NJ (New Brunswick )

Macys to close 9 stores after January

Linens and Things closing all stores

Movie Galley Closing all stores

Pacific Sunware closing stores

Pep Boys Closing 33 stores

Sprint/ Nextel closing 133 stores

JC Penney closing a number of stores after January

Ethan Allen closing down 12 stores.

Wilson Leather closing down all stores

Sharper Image closing down all stores

K B Toys closing 356 stores

Loews (not Lowe’s) to close down some stores

Dillard’s to close some stores.

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Dems seek to lower auto bailout expectations

WASHINGTON – Top Senate Democrats suggested Wednesday that a bill to rescue Detroit’s Big Three automakers was stalled and challenged the Bush administration to take steps to save the industry if congressional efforts falter. The White House quickly rebuffed the suggestion.

Senate Majority Leader Harry Reid of Nevada sought to lower expectations of reaching a deal on the $25 billion proposal before Congress quits for the year.

While he told the Senate he still hoped lawmakers could agree to an auto deal in the “next day or two” of the current lame-duck session, he added: “If we can’t do it here legislatively, I would hope that the secretary of Treasury would listen loud and clear because they could take this into their own hands and do what I think is appropriate from their perspective.”

Responded White House press secretary Dana Perino: “There’s no appetite for that.” She said it was up to Congress to act.

Banking Committee Chairman Chris Dodd, D-Conn., was even more downbeat, calling the possibility of reaching agreement “remote.”

“I don’t see how in the next few days this is going to move forward,” Dodd told reporters. Still, he added, “That does not mean that there are not opportunities.” He suggested that the Federal Reserve could possibly step up to the job.

The difficulties of striking a deal on the package before a new president and a new Congress with expanded Democratic majorities take office appeared to be too great to overcome. The deadlock persisted even as the heads of General Motors, Ford and Chrysler returned for a second day to plead for relief and as their congressional backers urged colleagues not to punish them for past mistakes.

General Motors Corp. CEO Rick Wagoner told the House Financial Services Committee that collapse of the U.S. auto industry could lead to a loss of 3 million jobs within the first year and ripple throughout communities around the nation.

In sometimes contentious testimony, Wagoner was pressed on when GM would run out of money if the loans weren’t extended.

He said he couldn’t say precisely, but that the company now was burning through “$5 billion each month.”

Still, with the $25 billion emergency package, “We think we have a good shot to make it through this,” Wagoner said. He said he anticipated that, if the package is approved, GM would qualify for about $10 billion to $12 billion of the money.

President George W. Bush and Republicans in Congress have been reluctant to use the Treasury Department’s $700 billion financial bailout program to finance the loans.

The White House wants Congress to draw the $25 billion from an Energy Department program established to encourage production of fuel-efficient cars.

Perino said Wednesday the administration supports legislation to authorize just that, but will not go along with the proposal by Democratic leaders that an additional $25 billion be taken from the government’s existing $700 billion Wall Street bailout fund.

“The purpose of the $700 billion was clearly intended for financial institutions, and we wanted to keep that whole,” Perino said.

If Congress quits without taking any action, “then the Congress will bear responsibility for anything that happens in the next couple of months during their long vacation,” Perino said.

During a hearing Wednesday before the House Financial Services Committee, Rep. Brad Sherman, D-Calif., asked the three auto chiefs seated at the witness table before him to raise their hands if they had come to Washington on commercial airliners. No hands went up. Then he asked if any planned to sell their corporate jets. Again, no hands went up.

Sherman and Rep. Gary Ackerman, D-N.Y., told the auto executives they were having a hard time justifying to their constituents bailing out companies whose chiefs fly around in expensive private jets.

Ackerman said there was “a delicious irony in seeing private jets flying into Washington D.C. and people coming off them with tin cups in their hands.”

A Senate vote on an automotive bailout plan, which would also extend jobless benefits, could come as early as Thursday, but it clearly lacks the necessary support to advance.

The technology industry, which resisted the economy’s growing weakness over the last year as customers kept buying laptops and iPhones, has finally succumbed to the slowdown.

In the span of just a few weeks, orders for both business and consumer tech products have collapsed, and technology companies have begun laying off workers. The plunge is so severe that some executives are comparing it with the dot-com bust in 2000, when hundreds of companies disappeared and Silicon Valley lost nearly a fifth of its jobs.

October “was like turning a switch,” said Robert Barbera, chief economist at the Investment Technology Group, a research and trading firm. “Everything pretty much shut down.”

After industry leaders like Intel and Nokia warned of slowing sales this week, investors aggressively sold technology stocks. On Friday, the Nasdaq composite index, which is full of technology names, fell 5 percent. Advanced Micro Devices and eBay both dropped more than 10 percent.

Tech companies directly account for about 4 percent of the nation’s employment. And globally, companies and governments spend about $1.75 trillion on technology a year, according to Forrester Research. But the industry’s importance to the world economy is larger than its size might suggest. Technology has fueled many of the productivity gains of the last two decades. And about half of the capital spending by corporations goes toward technology products, according to Moody’s Economy.com.

As struggling businesses cut back on spending of all kinds, a slowdown in tech proved inevitable.

During the dot-com crash, technology companies were victims of Internet hype that they helped create. Once the enthusiasm faded, so did the boom-era sales on software and infrastructure equipment.

However, consumer enthusiasm for products like video games, wireless phones and high-definition televisions helped the industry recover.

This time around, the tech sector finds itself at the mercy of a double-barreled slump in both corporate and consumer spending caused by the housing decline and the economic crisis on Wall Street. Technology companies are also feeling the effect of frozen credit markets as business and government customers struggle to finance computer and software purchases that can run to millions of dollars.

“We have never seen anything like this in history,” said William T. Coleman III, a Silicon Valley veteran who founded the software maker BEA Systems and is now chief executive at a start-up called Cassatt.

Best Buy, the leading electronics retailer, declared this week that “rapid, seismic changes in consumer behavior” had fostered the worst conditions in its 42-year history, and its main rival, Circuit City Stores, filed for bankruptcy protection. Nokia, the world’s largest maker of cellphones, predicted Friday that global sales of handsets would fall in 2009, which would be only the second decline ever.

Technology giants like Intel, which makes chips for personal computers and servers, and Cisco Systems, which makes network equipment, warned that revenue was plummeting at rates last seen in 2001.

Dozens of start-ups, like the messaging service Twitter and the electric carmaker Tesla Motors, have been cutting staff members as they prepare for a slow economy.

And on Friday, Sun Microsystems, a leading maker of computers used by financial services companies, announced that it would lay off as many as 6,000 employees, or 18 percent of its work force.

The turnaround has been as sudden as it is severe. Until late September, a number of large technology companies maintained an optimistic stance, despite the obvious distress in the global economy.

Cisco was the first large technology company to reveal its sales data from October, noting a 9 percent fall in sales compared with the same month last year. On Nov. 5, Cisco, which is based in San Jose, cautioned that because of a “completely different environment,” revenue in its current quarter could plummet as much as 10 percent – a major reversal from the 7 percent growth that Wall Street had been expecting.

Intel, the world’s largest chip maker, followed this week, warning that sales in the fourth quarter could fall as much as 19 percent compared with the same period last year.

Even Google, an advertising juggernaut that many analysts said they believed would weather a downturn better than other companies, is now feeling the impact.

About eight weeks ago, the company’s chief executive, Eric E. Schmidt, told reporters, “My guess is that the drama is in New York and not here.” A month later, Google surprised Wall Street when it reported strong financial results for the quarter that ended Sept. 30, sending its shares up 10 percent.

But Google’s stock has dropped 16 percent since, as the same analysts who were upbeat about its results have since cut their revenue and profit forecasts. This week, its shares dipped below $300 for the first time in three years, well below their $742 peak. And the company, known for its torrid hiring and free-spending on employee perks, has begun the most serious belt-tightening in its 10-year history.

“We don’t know as managers how long the crisis goes,” Mr. Schmidt said last week.

For all the gloom, the tech industry is still far healthier than Wall Street. Unlike the banks, many technology companies are flush with cash. Cisco has close to $27 billion; Google, $14 billion; and Apple, $24 billion. It is likely that some of these funds will go toward acquiring struggling competitors. “The guys that aren’t as strong will be good pickings,” Mr. Coleman said.

Powered by technology, Silicon Valley has stood out as a bright spot for jobs in the United States, with employment growing at about 2 percent a year while national employment slowed. Through 2007, the region continued to add 20,000 jobs, although that positive trend has started to change.

“With this now having become a worldwide event, it’s clear that the job losses will come,” said Stephen Levy, director of the Center for Continuing Study of the California Economy.

Given the unpredictability of the current economy, the industry’s past experience will only go so far, said Chris Cornell, an economist with Economy.com. “It would be a tragic mistake for C.E.O.’s who did a great job fighting the last recession to think the same tactics will work this time,” he said.

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Paulson: Troubled assets won’t be purchased

WASHINGTON – In a stunning turnabout, the Bush administration Wednesday abandoned the original centerpiece of its $700 billion effort to rescue the financial system and said it will not use the money to purchase troubled bank assets.

“Our assessment at this time is that this (the purchase of toxic assets) is not the most effective way to use funds,” Treasury Secretary Henry Paulson told a news conference.

Paulson said the administration will continue to use $250 billion of the program to purchase stock in banks as a way to bolster their balance sheets and encourage them to resume more normal lending.

But he was noncommittal about direct support for the auto industry, saying it was a “critical industry” but that the bailout plan was not designed for them.

Asked about a Democratic congressional leadership plan to rush financial aid to the industry, Paulson cautioned that “any solution has got to be leading to long-term viability” for the automakers.

Stocks slid broadly, partly because Paulson’s comments at a news briefing underscored the extent of the problems in the financial system. Investors also were concerned that the Treasury will be investing more taxpayer dollars into the banking sector, which will dilute the value of existing shareholders, said Rudy Narvas, senior analyst at 4Cast Ltd. in New York.

Aides to President-elect Barack Obama have been playing down reports of tension with the Bush administration over help for the stricken auto industry.

Struggling General Motors, Ford and Chrysler are seeking $25 billion in additional assistance on top of $25 billion in federal loans approved in September to help them develop more fuel-efficient cars. GM reported last week that it lost $2.5 billion in the latest quarter and does not have enough cash to make it through 2009, raising the prospect of a potential bankruptcy filing. Company executives say they are determined to avoid bankruptcy.

Democratic congressional leaders plan to push for emergency legislation to bail out the  automakers, possibly by amending the $700 billion rescue program,

Paulson on Wednesday said that non-financial firms as well as banks may need additional cash infusions but that he saw “implementation difficulties” aiding companies that were not federally regulated.

Paulson said the administration was looking at a major expansion of the program into the markets that provide support for credit card debt, auto loans and student loans. He said 40 percent of U.S. consumer credit is provided through selling securities that are backed by pools of these loans.

“This market, which is vital for lending and growth, has for all practical purposes ground to a halt,” Paulson said.

Paulson said the massive bailout effort, the largest in U.S. history, was showing results but that more efforts were needed given the most severe downturn being faced in housing.

“Our financial system remains fragile in the face of an economic downturn here and abroad,” Paulson said. “Market turmoil will not abate until the biggest part of the housing correction is behind us. Our primary focus must be recovery and repair.”

Paulson said some of the bailout money also should be used to support efforts to keep mortgage borrowers from losing their homes because of soaring default levels.

He said a proposal to use some of the funds to guarantee mortgages that have been reworked to reduce monthly payments for borrowers is an approach the administration continues to discuss. But he indicated it would not be a part of the rescue program because it went beyond the intent of the legislation Congress passed on Oct. 3.

Asked about what he had in mind to expand the rescue effort to support credit card and other types of consumer debt that is backed by selling securities, Paulson said it would probably take weeks to design the new program and more time to get it implemented, a possible sign that any such proposal would have to be put into place by the incoming administration of President-elect Barack Obama.

Paulson said this weekend’s first-ever summit of leaders of the Group of 20 major industrial and developing countries needs to focus first on how to repair the financial system as a way to bolster the global economy.

Paulson also praised a new set of guidelines issued by the Federal Reserve and other bank regulators, saying that they addressed a crucial issue of making sure that banks continue to lend at adequate levels.

The guidelines urge institutions to continue lending to credit worthy borrowers and to work with mortgage borrowers to avoid defaults. In addition, the guidelines encourage the banks to set dividend payments for shareholders and compensation for executives with the current crisis in mind.

The guidelines address criticism that banks obtaining funds from the rescue plan are simply using the money to replenish their balance sheets and make acquisitions rather than lending more money to businesses and consumers.

“If underwriting standards tighten excessively or banking organizations retreat from making sound credit decisions, the current market conditions may be exacerbated, leading to slower growth and potential damage to the economy,” the regulators said in a joint statement.

The Fed, Federal Deposit Insurance Corp., Office of the Comptroller of the Currency, and Office of Thrift Supervision said all financial institutions were expected to follow the new guidelines, even those not receiving federal assistance.

In addition to the $250 billion committed to the purchase of bank stock, the Bush administration this week allocated another $40 billion toward a $150 billion bailout of troubled insurance giant American International Group.

That leaves only $60 billion of an initial $350 billion approved by Congress under the bailout bill. To access the second $350 billion, this administration or the next will have to make a request to Congress for the money.

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If you’re thinking of getting an MBA, you’re not alone. According to the MBA Association, more than 100,000 new MBAs enter the work force every year.

A master’s degree in business administration is considered a prerequisite in some fields, particularly for anyone who is on the executive track. But is it beneficial for everyone? Is it necessary to spend a significant chunk of time — and a substantial financial investment — to get an MBA?

A wise investment
Over the last several years, the demand for MBAs has remained steady. In a 2007 survey by the Graduate Management Admissions Council, recruiters indicated they were competing to hire qualified MBA graduates.

The number of positions recruiters intended to fill with MBAs grew by 18 percent in both 2006 and 2007.  Those recruiters stated they were willing to pay 84 percent more to MBA degree holders than to an employee who held an undergraduate degree.

“I think getting the MBA played a great role in my life and career and helped shape what I do now,” declares Jeffrey Swedarsky, founder and director for DC Metro Food Tours, a Virginia-based company.

“I utilized my newfound knowledge to start my own business,” Swedarsky says. He agrees, however, that not everyone’s experience is the same. “I believe not all MBAs are created equal. Mine was from a top 20 school, and the name recognition and reputation put me a step ahead.”

Going to graduate school while working a full-time job might seem counterintuitive, but Kirk Imamura, president of recording facility Avatar Studios in New York, believes it can make it easier financially.

“One way I made the investment less burdensome was to have my employer pay part of it,” Imamura explains. “I did the program in two years with no breaks. This makes the experience more valuable because you can apply concepts immediately.”

Attending business school can also be a valuable way to network with new industry contacts. Today’s classmate can be tomorrow’s hiring manager, recruiter or valuable inside contact for an opportunity.

Mark Phelan, assistant manager at Sodaro Estate Winery in Napa, Calif., is convinced his MBA made a difference between good and great. “The enthusiastic networking I did in that environment is what made the difference between having an expensive piece of paper and putting my knowledge and skills to good use.”

Not having an MBA can definitely be a liability. Just ask Troy McClain, who was a contestant on the first season of “The Apprentice.” McClain remembers the moment where he and fellow contestant Kwame Jackson were under review by Donald Trump. “Looking at a man with a high school diploma, versus another with an MBA from Harvard, the choice was obvious,” McClain recalls. “I was fired.”

Just say no
Although an MBA can clearly enhance a stellar résumé and educational background, there are concerns that it may not be a great return on investment for everyone. With new graduates saturating the job market — and a volatile financial sector — MBAs are no longer a guaranteed golden ticket to professional advancement.

“Aside from providing a fundamental understanding of accounting and finance, the courses were a waste of time,” says Benjamin Atkinson, director of risk management at New Jersey-based PeopleLink LLC. “My own reading provided me with vastly more useful and timely information; my professors weren’t even aware of some of the current writings on these subjects.” Atkinson eventually abandoned his quest for an MBA. “I’d hire business experience over a business degree, every time,” he declares.

Though pursuing the degree may not be a waste of time for everyone, some professionals have wondered if the investment of time and tuition makes the MBA a worthwhile goal.

Dave Taylor, a Colorado-based new media and management consultant, isn’t sure his MBA has a substantial impact. “I have to say that the knowledge I gained in terms of business fundamentals has been useful, but I don’t believe that having an MBA has, per se, helped my career,” he summarizes. “It seems more important to have experience with new media than to have a piece of paper or credential.”

Should you stay or should you go?
If you’re on the fence about whether to pick the MBA career path, take a moment to ponder these points before you make the leap:

Think it through. If you recently completed an undergraduate program, and are unsure about your next step, don’t rush into an MBA program. Work in your industry for a few years. Get some practical experience and a professional perspective.
Research your field. Don’t get an MBA simply because it’s icing on the cake. Make sure it acts as a springboard to advancement in your field.  There are a number of specialized MBA programs tailored for different industries, including human resources, information technology and property management.
Talk to your employer. Many companies offer tuition reimbursement, or will pay for part or all of an MBA for their employees. Talk to your employer and see what costs they can cover. If it’s not an existing part of your benefits package, see if you can negotiate it as a perk at your next performance evaluation.

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ELYAC Realty Los Angeles Realtors Specializing in Foreclosure Homes for Sale, Home Loans, and Mortgage Brokers

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