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Next year is expected to be a long, hard year for lumber producers and dealers amid predictions that the home-building slump may not bottom out until the fourth quarter.

An actual rebound in newhome sales likely will wait until 2009, according to the National Association of Realtors. In a paper dated Dec. 10, the Realtors group’s chief economist, Lawrence Yun, said existinghome sales are projected to trend slightly higher in 2008.

After problems with subprime mortgages began to show up earlier this year, troubles with other mortgages and house valuations followed, and those led to a year of mortgage-rate problems. House values declined, foreclosures increased, home sales fell, housing starts plummeted, and lumber prices dipped to levels well below profitable for the mills.

The result has been protracted losses at North American lumber mills, especially those in Canada that sell most of their production into the United States in U. S. funds. A weakening U. S. dollar meant producers got less for their products, so the bottom line for the mills got squeezed.

Even U. S. government intervention to slow the rate of foreclosures may not do enough to actually reverse the trend until late next year, market analysts said.

November foreclosures were down 10 percentage points in November from October, according to RealtyTrac, a mortgage research company. However, they were up 68 percent nationwide from a year earlier, RealtyTrac said.

One lumber market analyst said that even if the rate of foreclosures declines before the fourth quarter, the uncertainty about pending foreclosures may keep housing and lumber markets on edge for a while. Only well-publicized reports about foreclosure rates, home sales or other economic factors indicating an end to the housing slump would turn investors into buyers of lumber, houses or even homebuilder stock, he said.

Market analysts make a point that the housing market will need to begin drawing down its inventory of unsold existing and new houses before a serious recovery can take place. An unknown among most is just how the foreclosed houses are affecting the overall number of existing homes already up for sale.

Walter Malony, the Realtors group senior public affairs associate involved with industry trends, research studies and reports, said many foreclosures don’t end up with a Realtor’s “for sale” sign out front. Many are auctioned to clear the bank’s books. He said some also could go to brokers who specialize in disposing of foreclosed houses.

Brian Leonard, Chicago Mercantile Exchange floor trader and lumber market analyst for Rosenthal-Collins Group LLC, said the current, unprecedented rate of lumber-mill production cuts could lead to tightening supplies, even at the currently slower rate of consumption.

The current production cuts could lead to a gradual tightening of lumber stockpiles at mills, wholesalers and distribution yards, and Leonard said this could lead to a short-term rally in lumber prices in the next few weeks that could stretch into January.

However, after that, the market may fade again as buyers pull away from the higher quotes, Leonard said. The market could see another seasonal price rally into the spring as just-in-time buyers fill orders for new houses and for remodeling.

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If you’re still waiting to refinance that adjustable-rate mortgage, you may have blown it.

Mortgage rates rose over the past week from two-year lows, even as the Federal Reserve lowered short-term interest rates again, according to a survey by Freddie Mac (FRE).

The average rate on benchmark 30-year, fixed-rate mortgages was 6.11% in the week ended Thursday, up 15 basis points from 5.96% the previous week.

A basis point is a hundredth of a percentage point.

That’s bad news for anyone who was holding out on purchasing a new home — or refinancing an existing loan — in the hopes that mortgage rates would continue to fall after the Fed cut by a quarter-point Tuesday to 4.25%. (And based on the email I got in response to the story on Freddie’s previous mortgage survey, some people definitely were.)

The fact is that fixed mortgage rates tend to move in line with yields on long-term Treasury bonds, not short-term rates. The benchmark for a 30-year mortgage is actually the 10-year Treasury, because after 10 years, the average borrower has sold his or her house or refinanced. And Treasury yields, which move in the opposite direction of their prices, crept up over the past week as people became a little less concerned about the economy and moved money out of bonds and back into stocks.

“November’s employment report showed stronger job growth, no change in the unemployment rate and a jump in wages, suggesting to some market participants that the probability of an upcoming recession might be lower than originally thought,” Frank Nothaft, Freddie Mac’s vice president and chief economist, said in a press release.

“This led to a rise in interest rates for U.S. Treasury securities this week and mortgage rates followed.”

That doesn’t mean the housing market is about to turn around. Nothaft also notes that the percentage of borrowers with good credit and conventional 30-year mortgages who are more than three months behind on their payments rose to 1.31% in the third quarter from just 0.79% a year earlier. And the percentage of subprime loans that are even more behind on their payments rose to 11.38% from 6.78% over the same period. “So the housing segment of the economy still has a way to go before bottoming out.”

Whether this dim outlook for the housing market eventually translates into more people buying Treasuries — and pushing mortgage rates back down — remains to be seen.

Meanwhile, the average rate on 15-year fixed-rate mortgages rose to 5.78% for the week ended Thursday from 5.65% the previous week. Five-year Treasury-indexed hybrid adjustable-rate mortgages, or ARMs, averaged 5.89% this week, up from 5.75% last week. And one-year Treasury-indexed ARMs averaged 5.50%, up from 5.46% last week.

Freddie’s numbers are just averages. There are still some banks in some parts of the country that are quoting 30-year rates at 6%, or even a little lower. You can search for the best rates offered by lenders in your area on BankingMyWay.com. Just make sure you understand whether the lender is discounting the rate it quotes you my charging a “point” or fee based on the size of the loan. Sourse

With the foreclosure crisis still in full swing, sending new ripples through the economy with every cycle of ARM resets, defaults, and foreclosures, the true effects of this giant market correction are yet to be seen. Therefore, it seems that the only sure bet these days is that the economic woe that began with the sub-prime lending meltdown will trickle down to affect the financial circumstances of virtually every consumer, with even those who are in no direct danger of foreclosure feeling the pinch as home values continue to decline and credit markets tighten.

While many everyday consumers who have financed their homes with stable and affordable fixed rate loans may feel insulated from the current foreclosure crisis, the fact is that all consumers will be in the line of fire in one way or another. Trouble in one sector of the economy often spreads, especially in today’s heavily leveraged financial markets. Debt based economic structures and policies amplify the effects of disruptions in the credit markets, as demonstrated by the progression of the current crisis.

Debt has become a hot commodity in the financial world in recent years, wrapped into neat investment packages. Essentially, investors purchasing consumer debt are gambling that this debt will be honored, with the interest rates earned on these investments the reward for the risk of default. Of course, the incentive for these investors is profit, so as long as returns are good and risk is manageable, funds will flow into the credit markets.

The debt incurred by the homeowners who are now facing default has in most cases been packaged and sold to investors as mortgage backed securities. The sale of these mortgage notes gives lenders the working capital necessary to originate more loans, which are than sold, continuing the cycle. This system depends upon investors to provide the liquidity necessary to keep the mortgage loan funding flowing steadily. As real estate and mortgage lending markets boomed in recent years, mortgage backed investments were very profitable, encouraging more investors to enter the market. More investors resulted in growing liquidity in the mortgage markets, spurring more growth.

As profits soared, adding incentive for lenders to sell loans and investors to buy them, the balance in the mortgage industry began to shift. Sub-prime lenders gained market share against more traditional mortgage lenders, making an ever-rising percentage of new mortgage loans. As the number of sub prime and other non-traditional loans included in mortgage backed securities investment packages rose, so too did the level of risk. Loose lending standards became common as many brokers and lenders began to become more reckless in pursuing those rising profit margins, elevating the risk to mortgage backed securities investors.

The foreclosure crisis has been the source of heavy losses for many of these investors, with figures in the billions of dollars and still climbing. These investments are spread throughout the financial world, held by a wide variety of investors that include banks, hedge funds, and retirement funds. As investors are hit with these losses, or anticipate possible devaluation in securities they own and can no longer unload, economic slowdown is an inevitable result, as cash is held in reserve to balance the books. In this manner, the liquidity crisis from the mortgage industry has spread throughout the economy, the contagion carried by the variety of institutions and corporations that hold mortgage related investments.

For the average consumer, the most obvious consequence will be seen in the continued withering away of credit availability, as financial institutions lose their capital to the crisis or even fail. Credit card companies are very likely to feel the pinch, as financially distressed homeowners declare bankruptcy in the wake of foreclosure, and will surely pass their losses on to customers in higher interest rates. Consumers who would take second mortgages or home equity loans to pay higher interest debt may find that sinking home values and stricter lending standards reduce such options significantly.

Retirement accounts could be affected, especially if the crisis drives the economy into recession, a possibility that is quite real according to many experts. An October survey conducted by The Financial Services Forum found that Wall Street chief executives are predicting a 37% chance for a U.S. recession in the next 12 months, and predictions made in December 5th testimony before the House Budget committee was even more pessimistic, with experts stating that chances for a recession stand at 50 percent.

Thousands of everyday Americans employed in financial and mortgage related fields have lost jobs to the sub-prime meltdown, and more are sure to come. Job losses in many other sectors could rise should the economy fall into a recession, another way in which ordinary Americans could be squeezed by the nation’s economic woes.

So, the fact of the matter is that the mortgage meltdown fiasco and the resulting chaos in the financial markets will affect the working class citizen over the days and years to come. It seems that none are immune from the fallout, except, perhaps, the wizards of high finance that instigated it, should the government save them from the consequences of their latest scheme with yet another bailout plan.

For further information on how to manage personal finances effectively during economically challenging times, more of Sharon Secor’s work can be read at Lenders Mark and Direct Lending Solutions.

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In light of new reports about the Department of Agriculture buying back $34 million in bad business loans made by Business Loan Center, LLC (BLX), Senator John Kerry (D-Mass.) raised concerns and promised aggressive oversight of the country’s largest small business lender. Last month, Kerry held a hearing to examine the Bush Administration’s lax oversight of small business lenders in the wake of a $76 million fraud scheme with loans originated by BLX. The former head of BLX and current Chairman of the Board Robert Tannenhauser testified. Following is a statement from Kerry:

“I’m gravely concerned that there is a pattern of bad loans from BLX. When BLX testified last month, they said they were victims and the bad loans were isolated. BLX and the Administration claimed they have got the lending problems under control. I don’t think they do. Here they are again costing the taxpayers millions,” said Kerry, Chairman of the Committee on Small Business and Entrepreneurship. “The Administration needs to do better oversight and act fast to recover this money and prevent more losses. I will continue to push BLX and the Administration to get to the bottom of this and ensure that small business and rural economic development financing is available to eligible and deserving firms that drive our economy and keep America competitive.”

Senators Olympia Snowe (R-Maine) and Kerry recently introduced legislation to measure the economic outcomes and improve the oversight of the Small Business Administration’s 7(a) (working capital) and 504 (fixed assets) lending programs. The Small Business Lending Oversight and Program Performance Improvements Act (S. 2288) will ensure that the SBA fully assesses the quality and performance of lender portfolios so that these loan programs remain strong and benefit small businesses to the greatest extent possible. The National Association of Government Guaranteed Lenders and the National Association of Development Companies — trade associations for the 7(a) and 504 programs respectively — both support the bill.

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