“The housing recovery will start in three to six months”.  “Housing prices will bottom out by the third quarter of next year”.  “Existing home sales have increased this month, the first sign of recovery”.  Blah Blah Blah!!

Since January of 2007, almost every “expert” I read or listened to would echo similar verbiage to the quotes listed above.  From every respected independent Economic Study Group, to Government Accounting Offices,  to Chief Financial Officers of every major financial institution……WERE ALL WRONG!!!

Every month for two years now, we’re “3 to 6 months away” from the housing/banking recovery.  From the Wall Street Journal, to the Economist, to MSNBC Business wonks, to the Bloomberg , Forbes and Kiplinger folks.  No one predicted this.  The brightest business minds in the world, smarter than most of us when it comes to the market variables and where they will lead us, can take credit for their forecasts or predictions.  That said, I can confidently spout my own prediction, since the worst I can do is mirror the “experts”.

AS SOON AS BANKS START LOOSEN UP LENDING GUIDELINES, THE HOUSING RECOVERY WILL BEGIN.  Slowly but surely.  I’ve been saying this since March of 2007:  housing will continue it’s downward spiral as long as the supply of lending keeps decreasing.  It was the supply of easy and cheap money that created this bubble, and it’s the lack of easy money—literally any money—causing our housing prices to further cascade at levels not seen since the Great Depression.

MARCH 2007: Sub-prime Mortgages Gone (20% of all loans in 2004 & 2005)

SEPTEMBER 2007: Alternative (“Alt-A”) Mortgages Gone (65% of all loans in 2004 & 2005)

OCT ‘07—TODAY: Tightening up on guidelines-daily- on the only loans left—> FHA & Conv 30 year fixed.

Being on the front line of lending (the supply side of real estate — the buyers), it didn’t take a Rocket Scientist to figure that if you cut out 85% of the buyers, your housing market tanks!!  Add the 90,000 homes for sale in the valley (double what is normal) and you get—presto—housing implosion.

Think about it, ironically, the banks probably doubled their potential losses last September by the cutting off lending, in the effort to shield themselves from those vary losses.  So when anyone says to me, “we should be OK in a few months”, I ask, “what do you base this on?”  Their answer is usually based on either optimism, or some expert they heard in the media.  So many of my real estate associates echoed their National Association of Realtor economists, who up until a couple of months ago, were as wrong as any entity out there.  I pray for a quick recovery, but since I’m allowed my own opinion, I’m entitled to this prediction:  we bottom out between August and October 2009. 

With mortgage defaults surging and politicians urging the industry to do more, six lenders agreed to widen their effort to help borrowers of all loans - NOT just subprime.The plan, called Project Lifeline, is to be announced Tuesday by the Treasury Department and the Department of Housing and Urban Development.

The plan will allow seriously overdue homeowners to suspend foreclosures for 30 days while lenders try to work out more affordable loans.

On a pilot basis, the plan will involve six of the largest mortgage lenders, in hopes that more lenders will sign on. The participants are Bank of America Corp. (BAC, Fortune 500), Citigroup Inc. (C, Fortune 500), Countrywide Financial Corp. (CFC, Fortune 500), JPMorgan Chase & Co. (JPM, Fortune 500), Washington Mutual Inc. (WM, Fortune 500) and Wells Fargo & Co. (WFC, Fortune 500)

All six are involved in Hope Now, a Bush administration organized effort to freeze rates on some high-cost subprime mortgages for five years to aid borrowers whose teaser rates are jumping sharply higher. Since then, Treasury Secretary Henry Paulson has urged lenders to expand that effort to cover struggling homeowners with conventional mortgages.

The new plan applies to seriously delinquent homeowners, those whose mortgages are 90 days or more past due.

The Hope Now alliance, which includes lenders, investors and nonprofit groups, said last week that it helped nearly 8% of subprime borrowers in the second half of 2007 - more than its original estimate.

The group said it helped 545,000 subprime borrowers with spotty credit in the second half of last year, compared with its January estimate of 370,000. That works out to 7.7% of 7.1 million subprime loans outstanding as of September 2007.

Among the subprime borrowers aided, 150,000 were helped through permanent-loan modifications, such as lower interest rates, while 395,000 negotiated repayment plans, which often involve a borrower getting back on track even after missing a few payments.

Consumer groups, however, point out that many borrowers still can’t keep up, even after loan workouts. They say many of the borrowers in the Hope Now effort have negotiated short-term loan modifications or repayment plans, which often involve a borrower getting back on track after missing a few payments. A full-fledged refinancing at a lower rate is preferable, they say. 

 Homeowners behind in payments will get 30 days to work out problems

cnnmoney.com