The news headlines frequently report today’s economic challenges. We must not overlook the benefits of homeownership.  These are some uplifting thoughts about homeownership!

“Buying Your First Home”
   Presented by YAHOO

Home ownership is the cornerstone of the American Dream. But before you start looking, there are a number of things you need to consider. First, you should determine what your needs are and whether owning your own home will meet those needs. Do you picture yourself mowing the lawn on Saturday, or leaving your urban condo for the beach? The best advice is to look at buying a home as a lifestyle investment, and only secondly as a financial investment.

Even if housing prices don’t continue to increase at the torrid pace seen in recent years in many areas, buying a home can be a good financial investment. Making mortgage payments forces you to save, and after 15 to 30 years you will own a substantial asset that can be converted into cash to help fund retirement or a child’s education. There are also tax benefits.

Like many other investments, however, real estate prices can fluctuate considerably. If you aren’t ready to settle down in one spot for a few years, you probably should defer buying a home until you are. If you are ready to take the plunge, you’ll need to determine how much you can spend and where you want to live.

CAROL PERDEW
Prudential California Realty
(209) 239-7979
wwwCentralValleyHomes.com

First Time Buyers

Congratulations! You are first time buyer. Welcome to your home buying guide. Here are a few things to bear in mind when considering this important step in your life:

• Deposit: The first thing to be aware of is that most lenders will look favorably on you having a cash deposit to put down on a property. This deposit can range from 5-15% of the purchase price. If you were buying a property for $300,000, an expected deposit would range from $15,000-$35,000. In certain cases, a lower or higher down payment may be necessary.
• Find a REALTOR®: Don’t buy a home without one. Besides helping you find the home of your dreams, a REALTOR® assists you with every aspect of your homebuying experience. From appraisals to inspections, contracts to disclosures, questions and concerns, our sales professional are experts in the industry and are eager to help you every step of the way.
• Credit Score: As a first time buyer, your credit score will be used to determine your loan and interest rate options. Credit scores range from 340 to 820. The higher your credit score, the better your loan and interest rate options will be. Guarantee Pacific Mortgage, our in-house lender, specializes in helping first time buyers and can provide you with financial assistance you’ll need to purchase your first home.
• Mortgage Payments: Make sure you know what your interest rate is. Many first time buyers go for a fixed rate so they know exactly how much their total mortgage each month.
• Bills: Buying and maintaining a property is not just about keeping up with the mortgage payments; it is also about paying your bills. Besides your mortgage payment, you will be responsible for gas, electric, water, and sewage bills, not to mention other household amenities (i.e. telephone, television and internet bills). Plan in advance for these costs to make sure you can afford to pay them each month.
• The Rewards: Once you have bought your first home, you can enjoy the benefits of freedom and independence. You will soon discover that it is the best thing you ever did, not just in terms of doing as you please, but also that financially you have made a start in paying back the biggest investment of your life. With property prices seen to be rising higher in the coming years make no mistake that your home will become your most valuable possession. Congratulations and enjoy your new home!

Your Realtor,
CAROL PERDEW
Prudential California Realty
(209) 239-7979
wwwCentralValleyHomes

Mortgage apps down on higher rates

Interest in FHA purchase loans up

By Inman News, January 19th

Mortgage applications fell 38.8 percent last week as interest rates on most loans remained elevated above recent lows, the Mortgage Bankers Association said.

Applications for refinance loans fell 48 percent from the previous week during the week ending Jan. 23, while applications for purchase loans were off a more modest 2.9 percent, the MBA said.

While applications for conventional purchase loans were down 7.8 percent, applications for loans covered by government guarantee programs (largely FHA) were up 8.8 percent. The numbers were seasonally adjusted and also took into account the shortened holiday week.

Refinance loans represented a smaller share of total applications last week — 72.8 percent, compared with 83.3 percent the previous week. The share of applications for adjustable-rate mortgages rose to 2.4 percent, up from 1.5 percent the week before.

The MBA’s weekly application survey of members showed the average contract interest rate for 30-year fixed-rate mortgages decreased to 5.22 percent from 5.24 percent the week before, with points decreasing to 1.05 (including the origination fee) for 80 percent loan-to-value (LTV) ratio loans.

The average contract interest rate for 15-year fixed-rate mortgages decreased to 4.98 percent from 4.99 percent, with points decreasing to 1.13 from 1.2 for 80 percent LTV loans.

The average contract interest rate for one-year ARMs increased to 5.96 percent from 5.89 percent, with points decreasing to 0.06 from 0.07.

Search for Foreclosure Homes at wwwCentralValleyHomes.com 

CAROL PERDEW
Prudential California Realty
(209) 239-7979
wwwCentralValleyHomes.com

Short Sale – Buyer & Broker Beware!
by Walt Harvey
 

Hardest and Easiest Places to Sell a Home

Francesca Levy
Forbes.com

As the dismal U.S. housing market slides further downhill–home prices in July posted a 16.3% annual drop–some sellers are unloading their homes to bargain-hunters.

But in cities like Seattle, Jacksonville, Fla., and St. Louis–the hardest major cities in which to sell a home–even sellers who have substantially lowered their prices aren’t finding it easy to move their houses.

In others, including Philadelphia, Sacramento, Calif., and Las Vegas, plummeting home prices spurred by high foreclosure rates have added more reasonably priced houses and condominiums to the market and sparked a rise in buying and selling.

Factors like banks’ reluctance to lend, the slow movement of foreclosed homes through some state systems and gun-shy buyers in others have restricted selling in many cities. In others, income-squeezed households have a better chance of turning their homes to cash, even if it’s not as much cash as they’d like.

In the second quarter of 2008, the median price of a single-family home dropped 23.6% in Las Vegas from the previous year, to $235,300, according to National Association of Realtors reports. In Washington, D.C., prices fell 16.8% to $370,300, and in Chicago that number went down 9%, to $257,600. 

Behind the Numbers

Radar Logic, a New York City-based real estate data and analytics company, today released housing sales transaction numbers for a sampling of homes in 25 of the country’s major metropolitan areas. This story is based on these numbers.

Of the cities measured, Philadelphia has had by far the steepest increase in home sales, with transactions more than doubling from the same time the previous year. Seattle marks the other end of the sales spectrum, having seen its transaction numbers drop by 43.7% from the previous year. Radar records transactions for sales where complete data were provided.

Although Philadelphia made the top of Radar Logic’s transaction count list in July, Michael Feder, Radar’s president and CEO, warned against interpreting too much from the sharp rise in percentage of transactions for that city.

“It can mean that there’s a more stable market in Philadelphia,” he says. “But sometimes a county will go dark for a month and not file any data from public records sources. Philadelphia is not wonderful in terms of this. So there are not necessarily a lot more transactions there.”

Sacramento, which saw swift sales in July, also had the greatest second-quarter drop in home prices from the previous year of any metropolitan area, with the median price of single-family homes down 35.6% to $229,500. There, and in other nearby cities hardest hit by the subprime disaster, houses have started to move in part because the effects of the foreclosure crisis have had more time to set in.

“In the places hardest hit a year and a half ago, prices have come way down,” says Glenn Kelman, CEO of online real estate broker Redfin Corporation. “In San Diego, Los Angeles, Las Vegas and Sacramento, they have all acknowledged the reality of home prices.”

But in Miami, also a foreclosure-rich area, buyers seem to be holding out for a better deal. Here, the number of sales has dropped 23.2%.

“Miami has a significant oversupply, and people are somewhat waiting it out,” says Rachel Drew, a research analyst at the Harvard Joint Center for Housing Studies. “There’s a lot of stock to move and people are waiting to see where the bottom is.”

Foreclosures play a complex role in the rate of home sales. In cities like Sacramento and Phoenix, foreclosed homes have flooded the market with discounts.

But real estate laws can have as much to do with homes hitting the market as foreclosure rates.

In California and Arizona, the law restricts deficiency judgments–a court’s ability to collect on the remaining value of a foreclosed home once it has been sold. In these states, homeowners with negative equity can walk away from the property, resulting in what some call “jingle letters,” house keys sent to the bank in an envelope. While the practice has consequences for lenders and borrowers, it speeds turnover in a foreclosure-ridden market.

“Lenders get the house back very rapidly and can move to sell the house very rapidly,” says Anthony Sanders, a professor of finance and real estate at Arizona State University. “In other states, deficiency judgments can slow foreclosure markets to a crawl. You go to Georgia and it’s much tougher.”

In Phoenix, which had 9.4% more recorded transactions than the previous year, many foreclosed homes weren’t on the market until recently. Sales of homes owned by banks and other financial institutions were nearly 10 times higher in July than they were the previous year. Sanders says that early in the crisis, banks held on to foreclosed properties.

“Banks, like everyone else, were hoping for a turnaround in the housing market. They were hoping that they could sell a house for more,” he says. “As the evidence comes out that this isn’t happening, they’ve wised up and started reducing house prices to get it out of their inventory.”

Radar Logic’s Feder says that increased sales of foreclosed homes in places like Phoenix and Los Angeles will be good for the market.

“Median prices are affected by these heavily discounted homes. As foreclosed homes are absorbed, we will be left with nonforeclosed homes, and we will start to see stability in the housing market,” he says. “The question is, how long will that take?”

A handful of major cities around the country have seen a sharp rise in transactions, but most are still waiting uneasily for the market to bottom out and buyers are finding loans increasingly difficult to get. In some west coast and Florida cities badly affected by subprime loans and dropping house prices, foreclosed homes are being sold at a faster rate and may be moving those cities toward a housing recovery.

But in New York, whose economy is expected to be hit hard by troubles in the financial services sector, housing prices have just begun to drop, down 5.3% in the second quarter. Sales have dropped 24.5%, suggesting the worst may be yet to come.

Even in stable markets, “less is happening,” says Feder. “It doesn’t necessarily mean buyers have plummeted, it just means buyers and sellers still don’t agree on prices.”

CAROL PERDEW
Prudential California Realty
(209) 239-7979
www.CentralValleyHomes.com

Experts: No quick housing fix

Credit crunch stalls buyer activity

By Glenn Roberts Jr.
Presented By Inman News
 

U.S. economic troubles, including the compounding credit crisis, are taking a toll on the housing market, said real estate industry experts during a conference call Thursday hosted by real estate search company Trulia.

“Bad news is always the worst thing to hit the market, more than fact or reality,” said Barbara Corcoran, a real estate veteran and author who founded Manhattan’s Corcoran Group and is a contributor to CNBC and NBC’s “Today Show.” It takes a “brave soul” to be in the market these days, she said.

The heavy focus on the proposed federal mortgage bailout plan, which could cost hundreds of billions of dollars, has definitely hurt the housing market, said Corcoran, causing some would-be buyers to “run for the hills” and to “position themselves on fences and wait this out.” She likened the “battered market” to “a sail fluttering in the wind.”

“I feel like I’m watching the American Dream disseminate … disappear in air,” she said. “People these days are more willing to drop their house than to drop their credit card.”

Jonathan Miller, co-founder of Miller Samuel Inc., a Manhattan real estate appraisal and consulting company, said the nation must fix the credit crisis before the housing market can mend, adding that he expects the recovery curve to look more like an “L” with a long leveling period after the sharp downturn than a “V” with a sharp upward trend following the downturn.

There are too many unknowns to predict a bottom in the market, Miller said. “There are a lot of problems on the table right now and frankly, there isn’t much in the way of tangible solutions. I really don’t know what the plan is going to be by the government yet, in its final form.”

He also said he doesn’t expect much to change in the next six months, and he does expect it could take two to three years to sort out the nation’s credit problems. The nation is in about the second or third inning of a game, he said, so there is still some ways to go. “At least (there is) some progress.”

The Manhattan market — one of the last U.S. real estate markets to feel the effects of the housing downturn — will be hurt by the Wall Street layoffs and dramatic drop in bonus pay but is still in “a fairly good position” heading into the weaker economic times, as there was not widespread speculation as seen in some other hard-hit markets and the for-sale inventory level is “rather modest.”

Corcoran said she is not optimistic that the federal government’s very active involvement in resolving the credit crunch will find quick solutions. “Just figuring out the rules, regulations and handling the new printed paperwork takes six months alone,” she said.

A major housing bill passed by Congress on July 30, HR 3221, doesn’t do enough to solve housing market problems, Corcoran also said, adding that she hopes for more substantial help for homeowners in the latest congressional effort.

“We really need a leader to come up to the plate to make a big, sweeping change,” she said.

David Michonski, chairman and CEO for Coldwell Banker Hunt Kennedy, a Manhattan-based brokerage company, said that the median price has been a bit unpredictable lately — “it’s what we call a ’sloppy bottom’ here that the market is trying to find,” he said.

Foreign buyers have helped to prop up sales, he said, and the company’s agents report that about 40 percent of transactions each month are with international buyers.

Miller said that some foreign countries are starting to feel the weight of economic problems too, so the foreign market may not be as dependable moving forward.

Michonski also said he is hopeful that the tightly wound spring of buyer demand — fueled by the simple demographics of a growing U.S. population — will help the housing market to rebound.

Pete Flint, CEO and co-founder of Trulia, noted that the company has commissioned a study which found that the so-called American Dream of homeownership is definitely not a dream shared by all. Less than half of the respondents said that homeownership is a great long-term investment, for example, Flint said, and about 56 percent said that homeownership is “part of achieving the American Dream.”

“So the question we have: Is this a knee-jerk reaction or is this a part of a fundamental change in the U.S. economy?” Flint said. “What does homeownership mean to buyers and sellers today?” He said the company plans to release the full results of the survey soon.

CAROL PERDEW
Prudential California Realty
(209) 239-7979
www.CentralValleyHomes.com

You could save your home Friday
Banks in Manteca in bid to see if they can modify loans on foreclosures

Dennis Wyatt
Manteca Bulletin
Managing Editor

There is a chance that a number of homeowners on the verge of losing their homes to foreclosure could walk away from the Manteca Senior Center on Friday cutting deals with lenders that makes it possible to stay put.

Five lenders – Countrywide, Indy Mac, Wells Fargo, Chase, and Washington Mutual – will have representatives on hand with many authorized to make loan modifications on the spot if they have all of the appropriate information from borrowers. For those who don’t have a loan through one of those five lenders, representatives of five different housing counseling firms that have HUD approval will serve as advocates.

“It means a lot to a lender when they get a call from someone that’s HUD approved,” said Ana Rocha, a Manteca Redevelopment Agency representative.

It’s all part of the grassroots non-profit No Homeowner Left Behind effort that has conducted nine similar efforts in the Northern San Joaquin Valley during the past year that have helped hundreds of families save their homes some times the same day of the workshop.

The Manteca gathering is this Friday from 2 to 8 p.m. at the Manteca Senior Center, 295 Cherry Lane. If you can’t make it Friday, there is also one Saturday from 9 a.m. to 3 p.m. at the Stanislaus Agricultural Center at 3800 Capricornia.

Edward Parcaut – a certified mortgage planner with SourceOne Financial in Modesto who is among the moving forces behind the effort to give homeowners in distress free help that arms them with knowledge and connections necessary to have a solid chance at saving their homes – noted that the chances of getting a resolution has improved significantly in recent months.

“A lot more banks are willing to take steps and modify loans upfront,” Parcaut said. “It saves them a lot more money.”

It’s based on the new reality of home loan math. For example, if a loan is outstanding for $477,000 a bank now realizes if it foreclosures on a home it can only get $277,000. It costs as much as $57,000 in additional costs to foreclosure. The bank looks at that, considers loan modification and is able to reduce their losses upfront.

There is no guarantee that a home can be saved on the spot, but the organizers say it happens every time – or within weeks of the workshop.

As for those that can’t save their homes as a bank may decide against loan modification based on financials and income, organizer Dori Beck noted, “we can work to make sure they leave their homes with the same dignity they had when they moved in.”

Those attending need to bring their loan information and documents, pay stubs for the past month, and current mortgage payment.

“There’s a huge chance it (a loan modification) can happen,” Parcaut said of those who attend the workshop.

The Federal Reserve is helping publicize the Manteca workshop by sending notices all the way back to June 1 who got foreclosure notices in San Joaquin County.

Rocha said the City of Manteca is participating in the effort under the direction of the City Council that wants to do everything it can to help people keep their homes in Manteca.

It is also open to those who have bought homes as an investment.

Parcaut said banks have worked with those people as well adding that many of those homes have renters in them who will lose a place to stay if the bank forecloses.

At such gatherings in the past, some homeowners have been successful with negotiating with bank representatives on the spot to secure 30-year fixed rate loans that have kept them in their homes,

Organizers have cautioned that not all banks are working to that degree. They also warned that some people might simply not be in a position to be helped based on the determination of the bank to get a streamlined loan at a reduced rate. The climate today has vastly improved compared to six months ago when banks were struggling to figure out what to do.

There are over 1,200 homes in Manteca property in various stages of foreclosure. Either the bank have repossessed them, they are in escrow to be transferred to another buyer, are in the final stages of having their home reposed or have just missed their first payment.

There is a serious concern about whether the market can continue to absorb foreclosures.

That is why some banks – but not all – are now working with those caught up in the foreclosure process.

For more information contact the Manteca Redevelopment Agency at 239-8427.

CAROL PERDEW
Prudential California Realty
(209) 239-7979
www.CentralValleyHome.com

Foreclosure Trends for United States 

	July 2008	Year-to-Date
New Foreclosure Activity	1,589,249	9,007,087
Number of Sales	66,402	423,713
Avg. Foreclosures Sales Price	$173,645	$165,512
Avg. SavingsThe average percentage below market value that buyers are saving on foreclosure properties in a given area	28%	29%

Source: provided by RealtyTrac | data updated through July 2008 

Top 10 Foreclosure Cities

    1.     Merced, California

    2.     Modesto, California

    3.     Stockton, California

    4.     Riverside, California

    5.     Detroit, Michigan

    6.     Fort Lauderdale, Florida

    7.     Cape Coral, Florida

    8.      Vallejo, California

    9.      Las Vegas, Nevada

Housing Lenders Fear Bigger Wave of

Loan Defaults

by Vikas Bajaj
provided by The New York Times

The first wave of Americans to default on their home mortgages appears to be cresting, but a second, far larger one is quickly building.

Homeowners with good credit are falling behind on their payments in growing numbers, even as the problems with mortgages made to people with weak, or subprime, credit are showing their first, tentative signs of leveling off after two years of spiraling defaults.

The percentage of mortgages in arrears in the category of loans one rung above subprime, so-called alternative-A mortgages, quadrupled to 12 percent in April from a year earlier. Delinquencies among prime loans, which account for most
of the $12 trillion market, doubled to 2.7 percent in that time.

The mortgage troubles have been exacerbated by an economy that is still struggling. Reports last week showed another drop in home prices, slower-than-expected economic growth and a huge loss at General Motors. On Friday, the Labor Department reported that the unemployment rate in July climbed to a four-year high.

While it is difficult to draw precise parallels among various segments of the mortgage market, the arc of the crisis in subprime loans suggests that the problems in the broader market may not peak for another year or two, analysts said.

Defaults are likely to accelerate because many homeowners’ monthly payments are rising rapidly. The higher bills come as home prices continue to decline and banks tighten their lending standards, making it harder for people to refinance loans or sell their homes. Of particular concern are “alt-A” loans, many of which were made to people with good credit scores without proof of their income or assets.

“Subprime was the tip of the iceberg,” said Thomas H. Atteberry, president of First Pacific Advisors, a investment firm in Los Angeles that trades mortgage securities. “Prime will be far bigger in its impact.”

In a conference call with analysts last month, James Dimon, the chairman and chief executive of JPMorgan Chase, said he expected losses on prime loans at his bank to triple in the coming months and described the outlook for them as “terrible.”

Delinquencies on mortgages tend to peak three to five years after loans are made, said Mark Fleming, the chief economist at First American CoreLogic, a research firm. Not surprisingly, subprime loans from 2005 appear closer to the end of defaults than those made in 2007, for which default rates continue to rise steeply.

“We will hit those points in a few years, and that will help in many ways,” Mr. Fleming said, referring to the loans made later in the housing boom. “We just have to survive through this part of the cycle.”

Data on securities backed by subprime mortgages show that 8.41 percent of loans from 2005 were delinquent by 90 days or more or in foreclosure in June, up from 8.35 percent in May, according to CreditSights, a research firm with offices in New York and London. By contrast, 16.6 percent of 2007 loans were troubled in June, up from 15.8 percent.

Some of that reflects basic math. Over the years, some loans will be paid off as homeowners sell or refinance, and some homes will be foreclosed upon and sold. That reduces the number of loans from those earlier years that could default. Also, since the credit market seized up last year, lenders have become much more conservative and have stopped making most subprime loans and cut back on many other popular mortgages.

The resetting of rates on adjustable mortgages, which was a big fear of many analysts in 2006 and 2007, has become less problematic because the short-term interest rates to which many of those loans are tied have fallen significantly as the Federal Reserve has lowered rates. The recent federal tax rebates and efforts to modify more loans have also helped somewhat, analysts say.

What will sting borrowers more than rising interest rates, analysts say, is having to pay interest and principal every month after spending several years paying only interest or sometimes even less than that. Such loan terms were popular during the boom with alt-A and prime borrowers and appeared appealing while home prices were rising and interest rates were low.

But now, some borrowers could see their payments jump 50 percent or more, and they may not be able to sell their properties for as much as they owe.

Prime and alt-A borrowers typically had a five- or seven-year grace period before payments toward principal were required. By contrast, subprime loans had a two-to-three-year introductory period. That difference partly explains the lag in delinquencies between the two types of loans, said David Watts, an analyst with CreditSights.

“More delinquencies look like they are on the horizon because so few of them have reset,” Mr. Watts said about alt-A mortgages.

The wave of foreclosures is still rising in states like California, where many homeowners turned to creative mortgages during the boom. From April to June, mortgage companies filed 121,000 notices of default in California, up nearly 7 percent from the first quarter and more than twice as many as in the second quarter of 2007, according to DataQuick, a real estate data firm based in La Jolla, Calif. The firm said the median age of the loans increased to 26 months from 16 months a year earlier.

The mortgage giants Freddie Mac and Fannie Mae, which own or guarantee nearly half of all mortgages, are trying to stem that tide. Last week, they said they would pay more to the mortgage servicing companies that they hire to modify delinquent loans and avoid foreclosures.

Delinquencies in prime and alt-A loans are particularly challenging for banks because they hold more such loans on their books than they do subprime mortgages. Downey Financial, which owns a savings bank that operates in California and Arizona, recently reported that 11.2 percent of its loans were delinquent at the end of June, a big increase from the 6.1 percent that were past due at the end of last year.

The bank’s troubles stem from its $6.2 billion portfolio of so-called option adjustable-rate mortgages, which allow borrowers to pay less than the interest owed on their mortgage in the early years. The unpaid interest is added to the principal due on the loan, so over time borrowers can owe more than the initial loan amount. Eventually, when loans grow by 10 percent or 15 percent, the borrowers are required to start paying both the interest and principal due.

Many borrowers who got these loans during the boom had good credit scores, but many of them owe more than their homes are worth. Analysts believe that many will not be able to or want to make higher payments.

“The wave on the prime side has lagged the wave on the subprime side,” said Rod Dubitsky, head of asset-backed research at Credit Suisse. “The reset of option ARM loans is a big event that will drive the timing of delinquencies.”

SEARCH FOR BANK OWNED HOMES AT WWWCENTRALVALLEYHOMES.COM

CAROL PERDEW
Prudential California Realty
(209) 239-7979
www.CentralValleyHomes.com

Big News broke the business world this week with the announcement of the U.S. taking over Fannie Mae and Freddie Mac mortgage giants.  Since this news broke, mortgage rates have dropped into the upper 5% range for home loans.  Low interest rates and reduced home prices make it great to buy a home.  Go to CentralValleyHomes.com  for current interest rates.

Fannie, Freddie blind to the bubble
By Alan Zibel, AP Business Writer

Mortgage finance companies Fannie Mae, Freddie Mac failed to anticipate scale of housing bust

WASHINGTON (AP) — Mortgage giants Fannie Mae and Freddie Mac — despite their robust cadre of economists and mortgage experts — failed to heed warnings that the most dramatic housing bubble in U.S. history would burst.

The companies — particularly Freddie Mac — didn’t raise enough cash to reassure Wall Street that they would be able to withstand a severe downturn in U.S. home prices.

Federal regulators after scouring the companies’ books with aid from investment bank Morgan Stanley — believe the companies pushed accounting conventions when calculating their financial cushion against losses, a person briefed on the matter said Saturday. The person declined to be named because details of the government’s actions were not yet public.

As their losses started rising at alarming rates over the past year, investors gradually lost confidence, forcing the government’s historic takeover of the two companies, which could be announced as soon as Sunday and was expected to include the ouster of top executives.

Rep. Barney Frank, D-Mass., the chairman of the House Financial Services Committee, said in an interview Saturday that the companies’ financial picture was better than investors assumed, but “it just plainly became clear that elements of the market wouldn’t accept that.”

Investors have had reasons to feel jittery.

On Friday, the Mortgage Bankers Association said that more than 4 million American homeowners with a mortgage, a record 9 percent, were either behind on their payments or in foreclosure at the end of June.

Also on Friday, Nevada regulators shut down Silver State Bank, the 11th failure this year of a federally insured bank. In July, regulators seized IndyMac, which had $19 billion in deposits. And earlier this year, the government orchestrated the takeover of investment bank Bear Stearns Cos. by JPMorgan Chase & Co.

Treasury Secretary Henry Paulson has been in contact in recent weeks with foreign governments that hold billions of dollars of Fannie and Freddie debt to reassure them that the United States recognizes the importance of the two companies.

Nevertheless, the Bank of China said in late August that it cut back its portfolio of the Fannie and Freddie’s debt by about one quarter since the end of June.

Washington-based Fannie and McLean, Va.-based Freddie are the engines behind a complex process of buying, bundling and selling mortgages that remains a mystery to millions of Americans whose home loans pass through this system. Together Fannie and Freddie hold or guarantee about $5 trillion in mortgage debt — about half of the nation’s total.

They traditionally backed the safest loans, 30-year fixed rate mortgages that required a down payment of at least 20 percent. But in recent years, they lowered their standards dramatically, matching a decline fueled by Wall Street banks that backed the now-defunct subprime lending industry.

Armando Falcon, who clashed frequently with the companies during his six years as Fannie and Freddie’s chief government regulator, said in an interview last month that the companies’ woes are similar to the downfall of other major corporate titans like Enron and WorldCom earlier this decade. “It boils down to a whole lot of greed and arrogance,” he said.

The companies, he said, took advantage of the perception on Wall Street that the government would stand behind them in a time of crisis, as is now the case.

With that implied government backing, the companies generated large profits for years, but ultimately took on too much risk, causing investors to lose faith in their ability to navigate the historic housing bust.

Economists who long warned the housing boom could not last are baffled that the companies were not better prepared for what they saw as an inevitable downturn.

“How could you look at an enormous rise in prices and not think there was a potential for them to fall?” said Christopher Thornberg, a principal with Beacon Economics in Los Angeles.

Another longtime proponent of the housing bubble concept is Dean Baker, co-director of the Washington-based Center for Economic and Policy Research. He recalls several occasions when he debated top Fannie and Freddie economists, who dismissed the idea that U.S. home prices could decline.

“Even if they didn’t want to listen to me, they should have at least thought this could be a possibility,” he said.

Plummeting home prices are the key to Fannie and Freddie’s troubles. As prices fall — as much as 25 percent over the past 12 months in Las Vegas, Miami, Phoenix and Los Angeles — the value of mortgages the companies hold on their books drops. That means Fannie and Freddie are recovering far less money through foreclosure sales.

While a government intervention had been expected for weeks, its timing came as a surprise.

The companies had been able to raise money through regular debt sales, but analysts say the Treasury Department likely grew concerned that foreign investors were pulling back.

“The main goal is to inject confidence into the foreign debt markets to ensure that the flow of capital to the mortgage market continues,” said Howard Glaser, a Washington-based mortgage industry consultant who has worked for both Fannie and Freddie.

Freddie Mac in particular has had investors and analysts fearful for months. The company, led by CEO Richard Syron, promised to raise $5.5 billion earlier this year to shore up its finances, but failed to do so, and its sinking share price has since made it all but impossible for the company to raise that money from private investors.

Fannie Mae executives are likely to have resisted the proposed takeover because the company’s financial condition isn’t as dire as its sibling company, said Bert Ely, an Alexandria, Va.-based banking industry consultant.

But the government would still have to take over both companies, he said, to allow them to borrow money at the same rates.

“In order to level the playing field between the two companies, you’ve got to take over both of them,” said Ely, a longtime critic of the two companies.

Fannie Mae was created by the government in 1938, and was turned into a shareholder-owned company 30 years later. Freddie Mac was established in 1970 to provide competition for Fannie.

While Fannie and Freddie generally had higher standards for lenders than the subprime mortgage companies that started going belly-up at the end of 2006, the duo lowered their standards during the housing boom and bought securities linked to riskier loans.

Even as the subprime mortgage market collapsed, Fannie and Freddie kept backing risky so-called Alt-A loans, which were made to borrowers with solid credit but little proof of their incomes, or small or no down payments.

For Fannie and Freddie, these Alt-A loans made up roughly 10 percent of their portfolios but accounted for more than half of their credit losses in the second quarter. The souring loans were concentrated in California, Florida, Nevada and Arizona, where speculation was rampant, prices soared and homeowners stretched to the financial limit to afford a home.