With wages stagnant and credits tightened, can the housing market really recover ?

The average, inflation-adjusted annual wage of Silicon Valley tech workers, including bonuses and stock options, tumbled from $120,100 in 2000 to a low of $87,300 in 2002, and stood at roughly $105,500 in the first six months of 2009.

The TALF program is coming to an end and the loan market has hardly recovered yet.

Investors have a deadline of today for taking out loans through TALF this month. The program, which provides loans to investors buying the debt, began in March 2009 and expires March 31…. TALF was started to jump-start the market for bonds tied to consumer and small-business loans after sales of the debt plummeted 42 percent in 2008, choking off funding to lenders, according to data compiled by Bloomberg. The program spurred $178 billion of securities sales, according to Bank of America…In making the decision to end TALF and three more programs like it, the Fed said in a statement on Jan. 27 that the economy “has continued to strengthen,” while “the pace of economic recovery is likely to be moderate for a time.” The central bank also said it’s “prepared to modify these plans if necessary to support financial stability and economic growth.”

Here’s yet another pitfall which can trap homeowners. Short sales do not automatically mean the bank is forgiving part of your debt. A deficiency judgment can be placed on the borrower for the amount of the difference. It looks like even in non-recourse states like California, that’s the case.

2009 employment numbers are 600K worse than previously stated as the statistician’s birth death models go out of sync with the real world. Labor department economists had estimated new businesses were started and hiring for all of last year except for one month. Obviously that was totally off the mark.

In addition, another 200K dropped off the labor workforce resulting in a “drop in unemployment” !!

Nonfarm payrolls fell by 20,000 compared with a revised 150,000 drop in December, with the December figure revised sharply downward from an originally reported 85,000 drop. The Labor Department’s annual benchmark revision to the survey showed that last year’s job losses were almost 600,000 more than previously reported.

The unemployment rate may have improved because more people gave up their job searches, said Phil Orlando, chief equity market strategist at Federated Investors. The number of discouraged workers grew to 1.1 million in January, up from 929,000 in December, according to the Labor Department..

The downpayment requirement for $1M + homes in California is at nosebleed levels.

A total of 18,621 Golden State homes sold for a million dollars or more last year. That was down 23.8 percent from 24,436 in 2008. In 2007 it was 42,506; in 2006 it was 50,010; and in 2005 it peaked at 54,773… Among buyers who got mortgages, the median down payment was 39.4 percent of the purchase price. Bank of America, Wells Fargo and Union Bank were the top lenders for the $1 million-plus homes, according to DataQuick.

Guess what, short sales do not let borrowers off the hook all the time.

Whether banks can and will pursue deficiency judgments depends on many factors, including what state the borrower lives in and whether there’s a second mortgage or other liens. But if borrowers ignore the possibility of deficiencies, it could haunt them….In the case of foreclosure, lenders can pursue deficiencies in more than 30 states, including Florida, New York and Texas, according to the U.S. Foreclosure Network, an organization of mortgage law firms. …Some states, such as California, are “non-recourse” and don’t allow deficiency judgments. But, even there, if the original loan was refinanced, some or all of it may be subject to claims.

Commercial properties fall into a liquidity trap where a property cannot be refinanced even when payments are current.

Many such deals were structured as so-called “tenant-in-common” ventures, known by the acronym TIC. Often, the TICs took out commercial mortgages that were packaged into commercial-mortgage-backed securities…much of the $223 billion of CMBS debt coming due between now and 2013 is in the form of mortgages of less than $50 million…TICs surged in popularity after the Internal Revenue Service said in 2002 that they could be used by investors to defer capital-gains taxes from the sale of “like kind” properties…If the $14 million mortgage had been held by a bank, it might have been refinanced or modified because the owners were current on their payments when it came due. But the Cherry Road loan, made by KeyCorp, was sold off as CMBS to investors by Merrill Lynch & Co., now part of Bank of America Corp. When the loan matured in April, the owners couldn’t refinance the debt,

Refinancing of bubble era commercial loans is difficult as lenders tighten standards, require higher cash flow and lowering loan to value ratios. Interest only loans have also gone the ways of the dodo. The tightening of standards is a result of the collapse of the loan securitization market. Now that these new loans will end up in the bank’s own books, there’s no wonder why they are hard to get. The easy money days of loan securitization are over.

Five years ago we paid about $13 million with about an $8 million mortgage. It has been cash flowing to us investors, but the loan is due to change from interest only to a higher rate which would wipe out all cash flow to us investors…No new bank will come in and do a 100% loan-to-value loan. They will want cash flow to be 1.2 times the amortized loan payments and you are at 1 times cash flow now.

Here’s another way borrowers can be tripped up by the financial industry.

Codi is based on short-term borrowing costs, which have fallen significantly since the Federal Reserve and other central banks cut interest rates and flooded the economy with cheap money. Cosi includes long-term CDs that are paying higher yields, keeping Cosi elevated above Codi. Wells Fargo doesn’t publicly release the deposit portfolio used to calculate its index.

Would this be enough to stop the new FHA driven train wreck in its tracks ?

* Pay an upfront mortgage insurance premium of 2.25 percent of the total loan amount, up from the current level of 1.75 percent….
* Need a credit score of at least 580 to qualify. Many FHA lenders already require a higher score, but there had been no standard requirement across the program. Borrowers with a score lower than 580 will need a down payment of at least 10 percent.

Rents are falling across the bay area as the bad economy takes its toll on employment. Single digit drops in rent over one year are almost unheard of in this area.

In the San Jose-Sunnyvale-Santa Clara area, the average was $1,484, down 11.6 percent from a year ago, while occupancy stood at 94.6 percent compared with 95 percent a year ago.