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UNDERWATER MORTGAGES DECLINE TO 23.7%, CORELOGIC REPORTS to the housing market's recovery, CoreLogic reported in early July that the share of underwater mortgages declined. In the first quarter of 2012, the total number of underwater homes was 11.4 million, accounting for 23.7 percent of all residential properties with a mortgage. In the fourth quarter of 2011, 12.1 million properties, or 25.2 percent, were underwater. A year ago during the first quarter, 11.5 million homes were underwater, and the share of properties with negative equity was 24.7 percent. In terms of dollars, the amount of While negative equity is still a hindrance households "is an important step toward reducing future mortgage default risk." Nevada has the highest share of negative equity with 61 percent of all mortgages in the state underwater. Second is Florida (45 percent), followed by Arizona (43 percent), Georgia (37 percent), and Michigan (35 percent). The average percent of negative equity when combining the five states is 44.5 percent compared to 15.9 percent for the remaining states. States with the lowest negative equity negative equity that exists decreased to $691 billion in the first quarter from $742 billion in the fourth quarter of 2011. This $51 billion drop is largely due to improvements in home prices, according to CoreLogic. "Although it will still be a slow recovery for U.S. homeowners, we see this improvement as a stabilizing and positive development for the mortgage industry," said Anand Nallathambi, president and CEO of CoreLogic. An additional 2.3 million borrowers were share are Alaska (5.6 percent), North Dakota (5.8 percent), and New York (7.8 percent). The report noted the bulk of negative FOMC HOLDS OFF ON Star Institute Acknowledging "economic activity STIMULUS By Mark Lieberman, Economist for the Five decelerated somewhat over the first half of this year" and "growth in employment has been slow in recent months," the Federal Open Market Committee (FOMC) decided in early August to take no new actions to stimulate growth. Concluding a two-day meeting, the FOMC instead said it would maintain its low interest rate policy and continue previously announced programs to reinvest proceeds of maturing Treasury securities it already holds and extend the average maturity of its portfolio. Those actions will not directly address equity is concentrated in the low end of the market, with low-to-mid value homes valued at less than $200,000 holding 31 percent of the share of negative equity. For homes valued greater than $200,000, the share is 15.9 percent. CoreLogic also reported that removing the Federal Reserve's two policy mandates: price stability and maximum sustainable economic growth–usually measured by the unemployment rate. Even the benign inaction drew a dissent categorized as having near-negative equity because they had less than 5 percent equity in their homes as of the end of the first quarter. Together, negative equity and near- negative equity mortgages accounted for 28.5 percent of all residential properties with a mortgage in the first quarter, down from 30.1 percent in the previous quarter. More than 700,000 households saw their equity levels move from negative to positive in the first quarter of this year, according to CoreLogic. "In the first quarter of 2012, rebounding the 125 percent loan-to-value (LTV) cap of the Home Affordable Refinance Program (HARP) means more than 22 million borrowers are eligible for HARP 2.0 when considering LTV alone. Prior to this change, which took effect in March 2012, those with LTVs higher than 125 percent were not eligible for refinancing. Data from CoreLogic includes 48 million properties with a mortgage, which accounts for more than 85 percent of all mortgages in the United States. STAT INSIGHT home prices, a healthier balance of real estate supply and demand, and a slowing share of distressed sales activity helped to reduce the negative equity share," said Mark Fleming, chief economist for CoreLogic. "This is a meaningful improvement that is driven by quickly improving outlooks in some of the hardest hit markets." Fleming said the housing market recovery will likely slow in the second half of 2012 because of the "overall stagnating economic recovery." Still, he stressed that reducing the number of underwater 54 4.8 Million Permanent loan modifications completed since September 2008. Source: HOPE NOW from Jeffery Lacker, president of the Richmond Fed, because he wanted to omit the time period during which rates would be exceptionally low. The FOMC said it would keep interest rates at current levels through the end of 2014. There was no hint in the FOMC's end-of- meeting statement that additional quantitative easing measures might be implemented or signaling a move towards price level, inflation, or nominal GDP targeting. The Fed offered a subdued view of the economy with the only marginally positive comment being an acknowledgement that inflation has declined and "longer term inflation expectations have remained stable," the same language the FOMC used in June at the end of its last meeting. "Household spending appears to be rising at a somewhat slower pace than earlier in the year," the FOMC said in its statement, adding that "despite some further signs of improvement, the housing sector remains depressed." The FOMC voted to maintain the target funds rate in a range of 0 percent to 1/4 percent where it has been since December 2008. In addition, the Fed said it continues to anticipate keeping the funds rate at "exceptionally low levels" through late 2014 because relatively soft economic growth, relatively low levels of resource utilization, and subdued inflation are expected to continue. The Committee said it expects "economic growth to remain moderate … and then pick up very gradually" but that "the unemployment rate will decline only slowly." The major downside risk continues to be "strains in global financial markets," according to Fed officials.

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