When we think about Thanksgiving and the holiday season we think about traveling and shopping, just to name a few. So what is the travel and sales outlook for 2010? Let’s start with the hustle and bustle of travel for Thanksgiving.
For the 2010 Thanksgiving holiday season AAA is projecting an increase of 11.4% from 2009, with approximately 42.2 million travelers taking a trip at least 50 miles away from home. Trips by automobile remain the dominant mode of transportation for holiday travel with 94% of travelers, or 39.7 million people, reaching their destination by driving. Leisure air travel is expected to account for four percent of overall travel with 1.62 million holiday flyers, an increase of 3.5 percent from last year’s 1.57 million flyers. The 2010 thanksgiving holiday travel period is defined as Wednesday, November 24 to Sunday, November 28.
What’s going on locally? The total number of Illinois travelers will be 2.25 million with 2.1 million traveling by auto and 87,000 traveling by air. Illinois is up nearly 12% in total travelers over thanksgiving weekend 2009. Gas price will remain high as travelers take to the roads this weekend.
More presents may be under the tree this year too. This season, the National Retail Federation estimate 2010 holiday sales will increase 2.3% to $447.1 billion, much improved from last year’s 0.4% uptick and the dismal 3.9 sale decline in 2008.
“While consumers have shown they are once again willing to spend on what’s important to them, they will still be very conscientious about price,” said NRF Chief Economist Jack Kleinhenz, Ph.D. “Retailers are expected to compensate for this fundamental shift in shopper mentality by offering significant promotions throughout the holiday season and emphasizing value throughout their marketing efforts.”

Whether you’re traveling for Thanksgiving or fighting the crowds for holiday shopping one thing is for sure, there will be more people out there doing the same.
(Sources: AAA.com/news and The National Retail Federation (nrf.com)

If you’re like most of us, you’re happy that the mid-term election commercials are finally over. However, there is one more political battle left this year that may affect us all. In late November, President Obama will meet with House and Senate leaders of both parties to formally discuss the terms of potentially extending the Bush tax cuts.
If Congress does nothing by the end of the year, and no tax cut extension is approved, everyone’s income and investment tax rate will go back up to where they were before 2001, when the tax cuts were first introduced. Bottom line, this means your taxes in 2011 will go up – making employers start taking more money out of your pay checks (and your wallet) as early as this January. To put things in perspective, use this example. Say you make $70,000 and are a married with two kids – if the tax cuts expire, you could pay up to $2,600 more in taxes next year (Source: Tax Policy Center).
The main argument for extending the tax cuts is to keep more money in our pockets for us to spend and stimulate the economy. However, critics of this say that most people will not notice a difference in their bottom line so spending more is unlikely. Critics also say that by extending the tax cuts, or even making them permanent, will significantly hurt the economy in the long run by adding to the U.S. debt. This is a driving reason of why many only want this extension to be a temporary one.
There is some good news in all this if you don’t make over $200,000. Both republicans and democrats want to ensure that the tax cuts are preserved for lower and middle income families. President Obama and many Democrats have said they want the Bush tax cuts to expire for individuals who make over $200,000 ($250,000 for couples). So why are these people being singled out? The argument is that wealthy taxpayers don’t need the extra cash, and if they did have it, they would save it and not spend it. Lower or middle income families would more likely spend the extra income because they would be more economically strapped. If President Obama’s tax reform does get passed, high income households could see up to 4.5% increases in their income tax rate, and up to a 5% increase in their investment tax rate.
Can’t everybody just get along? Republicans and some democrats argue that extending the tax rates now for everyone is in the best interest for both parties. The economy is in too much of a fragile state to raise anybody’s tax bill, no matter what income class they are in. Only time will tell as this plays out on Capitol Hill.

By Martin Vaughan

The Internal Revenue Service needs a strategy to recoup first-time homebuyer tax credits from at least a million taxpayers who will be required by law to repay them, an internal Treasury Department auditor said Thursday.

The tax agency has taken several important steps to enforce the repayment requirements in the law, but has also had some blunders, according to the report from Treasury’s Inspector General for Tax Administration, or TIGTA.

Bloomberg News

The IRS recorded the wrong home purchase date for about 73,000 that claimed the credit, about 4% of all of those claiming the credit in 2009. That would have led to many being asked to pay back money they weren’t required to repay, the report said.

The IRS said it is correcting those errors so that there will be no adverse impact on taxpayers.

More than 2.6 million have claimed the first-time home-buyer tax credit since it was enacted in July 2008, for a total of $19 billion in tax breaks.

At first, the credit was structured like a no-interest loan of up to $7,500, and required taxpayers to pay it back over a 15-year period.

Congress later eliminated the repayment requirement for homes purchased after 2008. But taxpayers who claimed the credit for homes purchased in 2008 will still be required to repay it in 15 equal installments, beginning when they file their 2010 income tax return. That will apply to about 950,000 taxpayers, TIGTA said.

Some who claimed the credit for homes purchased in 2009 and 2010 will also be required to repay it. For instance, repayment is required if the home is sold within 36 months of the date of purchase by the taxpayer claiming the credit, provided there is a gain on the sale.

The IRS created new forms and instructions that will ask taxpayers to disclose a change in the home’s status that would trigger repayment. The agency will also review third-party property records to determine whether repayment is required.

The report said the IRS “is developing a comprehensive strategy” to ensure that amounts owed the Treasury are repaid.

Nevertheless, “currently, the IRS does not have the ability to identify individuals who received the Credit and their purchased homes cease to be their main residences,” the report said.

Short sales – when a lender sells a property for less than the full amount owed on the mortgage – are notorious for being long and painful. Some realtors even refuse to touch short sales because of the uncertainty involved. In spite of the growing backlog of distressed homes, banks have been taking up to several months to respond to short sale offers, often because they lack the staffing and know-how to process such sales faster. That is leaving many homeowners and their real estate agents in an interminable waiting game.

But homeowners who are underwater and struggling to offload their homes through a short sale may get relief soon through Home Affordable Foreclosure Alternatives (HAFA). Part of the government’s Making Home Affordable program, HAFA is designed to incentivize borrowers and lenders to avoid foreclosure. It takes effect April 5, lasts through Dec. 31, 2012, and is aimed at homeowners who are eligible for a loan modification but unable to complete the process.

What banks are doing….

Already, some banks appear to be working to facilitate the short-sale process, perhaps in anticipation of HAFA. A JP Morgan Chase spokesman says the bank doubled its short-sale staff during 2009. And in response to the rise in volume, a Bank of America spokeswoman says the bank “increased the number of associates working in short sales to keep in line with the increased demand for short sales.”

Indeed, short sales jumped to 15.9% of home purchase transactions in January, from 12.4% in November, according to a monthly survey by research firm Campbell Surveys and Inside Mortgage Finance, a trade publication. Just in the last 30 to 45 days, some banks have significantly increased their staff handling short sales and the amount of short sales they’re approving, says Rob Lattas, a real estate attorney in Chicago who handles short sales. Typically, it’s taken anywhere from four to six months – and sometimes more – to complete one of these transactions. “We’re seeing short sales now come out between 30 and 60 days, which is crazy. We’re seeing banks being more cooperative,” Lattas says.

HAFA changes…

Under the HAFA guidelines, borrowers receive preapproved short-sale terms before listing the property (including the minimum acceptable net proceeds). Before, sellers submitted a buyer’s offer without knowing if the lender would accept the amount. “Now we will know what the bank’s threshold is before we go through this whole rigmarole,” says Lattas.

The loan servicer must respond within 30 days of a homeowner requesting a short sale. And they must respond within 10 days of receiving a sale contract as to whether they’ll approve or deny it.

The new rules also require the lender to forgive the seller’s mortgage debt (on their first mortgage). This is a promise that the bank will not pursue the seller for the outstanding balance on the mortgage.

And financial incentives include $1,500 for the borrower for relocation assistance and $1,000 for servicers to cover administrative and processing costs.

Real estate professionals are hopeful the new guidelines and incentives will make short sales easier to accomplish. “If the HAFA guidelines are actually followed, it’s a great thing for the short-sale marketplace. The biggest frustration I have as attorney is clients saying ‘I’m still waiting to hear from the bank.’ Now banks have 10 business days to say whether they’ll approve or deny the sale,” Lattas says.

Obstacles remain….

Of course, even with the new regulations, things may still get held up.

One possible obstacle: If the current buyer for a short sale decides to terminate the purchase – say, because it’s taking too long – often the real estate agent involved in the sale ends up back at square one. They have to re-submit the short-sale package to the lender and are given another negotiator (the person who negotiates the sale on behalf of the lender) – essentially forcing them to start all over again, says Stephanie Fix, a realtor with ReMax Professionals in Denver.

Another potential snag involves second-lien holders. Typically, short sales are made additionally complicated when sellers have more than one loan on their property. HAFA requires second-lien mortgage holders to drop financial claims against borrowers exceeding $3,000 (they are often owed many times more than that).

These lenders must agree to release the lien for the transaction to close. But even with the $3,000 limit, they may hold the deal ransom and demand more from the first-lien holder or seller in exchange for releasing their claims. “A lot of these short sale deals have fallen through because of the second lien,” says Fix. “It will be interesting to see how the banks – the ones participating in HAMP – will follow these guidelines.”

Real Estate by Lisa Scherzer

Tens of thousands of homeowners with adjustable-rate mortgages have seen their monthly payments jump or stay high even as they have fallen for other homeowners. This disparity owes to the obscure indexes used to calculate those payments have moved in unexpected ways.

The behavior of these indexes, which have controlled monthly payments on more than $100 billion of adjustable-rate mortgages, means that many homeowners are paying as much as 25% more than homeowners with similar loans. The higher payments, which can total $269 a month on a $250,000 loan, come as many homeowners are struggling to avoid default.

Few homeowners have heard of or understand these indexes, which have acronyms like Cosi, Codi and Cofi, along with the better-known Libor. And few know how they are calculated or what they mean for borrowers. The mortgage loans are pegged to the indexes because the loans, unliked fixed-rate loans, adjust to changing market moves.
[COSI]

“The lack of transparency is what is very difficult,” said Greg Tibbitts, a certified public accountant whose father has a $4.5 million loan based on the Cosi for three apartment buildings in San Diego. Mr. Tibbitts and his brother are minority owners in two of the buildings.

All of the indexes have one thing in common: They effectively measure the rates banks pay to borrow money. Banks then add about 2.5 percentage points to the rate when they lend the money to borrowers.

These indexes are no longer used for adjustable-rate loans, which now make up a tiny portion of the mortgage market, compared with roughly half during the housing bubble.

Some of the moves in these mortgage indexes are directly or indirectly linked to Wells Fargo & Co., one of the biggest mortgage lenders in the country. Wells inherited some of the mortgages through its purchase of Wachovia, which itself bought Golden West Financial in 2006 just before the housing crisis hit.

In some cases, borrowers could choose which index their mortgage would be tied to. The indexes had historically moved in the same direction at similar times and were presented to customers as nearly identical. Borrowers who got mortgages from Golden West used three indexes to set their payments: Cosi, or the cost of savings index, which was tied to the bank’s own deposits and Codi, or the certificates of deposit index, which was based on the price of three-month certificates of deposit. A third index overseen by the Federal Home Loan Bank of San Francisco was a lesser used benchmark.

Cosi accounted for 54% of Golden West’s mortgage balance of $121 billion, or $65 billion, as of May 2006 when Wachovia agreed to buy Golden West. Codi accounted for 37% of the Golden West portfolio, or $44 billion. The unpaid balance for the portfolio of loans tied to Cosi and Codi was about $103 billion at the end of 2009.

There was one difference between the two indexes: 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.
[cosi0203] Bloomberg News

he behavior ofobscure indexes, which have controlled monthly payments on more than $100 billion of adjustable-rate mortgages, means that many homeowners are paying as much as 25% more than homeowners with similar loans. Above, a house for sale in Aurora, Colo.

The net result is that in the most recent postings for the two indexes, Codi was at a super-cheap 0.4875%, while Cosi was 2.35% as of Jan. 14.

“In a rational environment, all of these indices, and especially Cosi and Codi, should be fairly closely correlated,” said Ed Craine, the chief executive of Smith-Craine Real Estate Financing, a mortgage broker in San Francisco, in an email. “However, as you can see, Cosi has gone ‘off the tracks.’ ”

Mr. Craine said borrowers that opted for a loan tethered to Cosi are dismayed to find their mortgage costs are substantially higher than loans taken out by their friends that are tethered to other indexes.

“They are frustrated because the index has not declined like other similar commonly used indices,” Mr. Craine said, noting that loans based on Cosi have interest rates that are 1 to 2 percentage points higher in the past year than benchmarks like Codi and Libor, or the London interbank offered rate.

“Wells Fargo does not publish proprietary details of CD rates for competitive reasons,” Wells Fargo spokeswoman Mary Eshet said. “But the Cosi index is audited by a third party and has been approved by our regulators.” She added: “Historically, Codi has been higher than Cosi at times and Cosi has been higher at times than Codi depending on the interest-rate environment and trends.”

A spokesman for the Office of Thrift Supervision said the agency must review and approve any index that isn’t national or regional. The spokesman declined to comment on specific institutions.

The moves in Cosi follow erratic moves that beset another index, Cofi, which is published by the San Francisco FHLB, and Libor. Late last year, Cofi jumped 0.835 percentage point, or two-thirds, to 2.094% from 1.259%. In this case, Wells Fargo’s purchase of Wachovia meant that a remaining Wells unit was ineligible to report data for Cofi.

In 2008, questions centered on whether Libor was correctly reflecting average-bank borrowing costs amid concerns that some banks weren’t reporting high borrowing costs to avoid signaling a desperation for cash.

Joseph Henning, of Huntington, Mass., borrowed $215,250 in January 2006 from Golden West unit World Savings Bank and was one of the customers who received a letter from Wachovia in August 2007 telling him he needed to choose between the Wachovia Cosi, which was replacing the Golden West Cosi, or Codi. “You scratch your head—OK, how do I make a wise choice?” said Mr. Henning, a heating and air-conditioning system salesman.

Mr. Henning opted for Cosi. He is suing a Wachovia unit in federal court in Massachusetts. In a complaint, Mr. Henning alleges that World Savings provided loans to him and others while knowing that the homeowners ultimately would be unable to make payments on adjustable-rate mortgages.

Mr. Henning currently is in default on the loan—as well as a modified version of the loan. In his complaint, Mr. Henning says the language discussing an index for his loan “would be impenetrable to its average customer.”

The bank has disputed Mr. Henning’s claim, according to court records.

Mr. Tibbitts, whose family owns the San Diego apartment buildings and whose father has mortgages tied to the Cosi index, is a certified public accountant and finance chief of a San Diego health-care company. From 1989 to 1993, he audited the books of banks while at Ernst & Young. He also worked for a mortgage bank.

But his finance background and an analysis of Wells Fargo’s securities filings haven’t helped him figure out why Cosi has moved sharply away from Codi as well as Cofi. Mr. Tibbitts says that if he can’t figure it out, “I’ve got to think most people out there can’t.”

By CARRICK MOLLENKAMP – WSJ.com

Home Mortgage Interest is a tax-deductible expense. Mortgage interest is reported on Form 1040, Schedule A along with other itemized deductions such as real estate property taxes, medical expenses, and charitable contributions. Taxpayers paying mortgage interest should fill out Schedule A to see if their itemized deductions exceed their standard deduction. If so, taxpayers will save more money on their taxes by itemizing. Taxpayers who itemize their deductions will need to file the Form 1040 long form.

For more than a year, the government pulled out the stops to revive home buying by driving down mortgage rates.

Now, whether the housing market is ready or not, the government is pulling out.

The wind-down of federal support for mortgage rates, set to end in two months, is a momentous test of whether the Obama administration and the Federal Reserve have succeeded in jump-starting the housing market and ensuring it can hold its own. The stakes for the economy are massive: If the market again falls into a tailspin, homeowners could face another wave of trouble, and it would deal a body blow to President Obama’s efforts to get the economy on track.

Keeping the mortgage rates at historic lows, which required a commitment of more than $1 trillion, was viewed within the administration as a central plank of the economic strategy last year, senior officials said. Though the policy did not attract as much attention as rescue efforts to bail out banks, it helped revitalize home buying in some parts of the country and put money in the pockets of millions of homeowners who were able to refinance into lower monthly payments, the officials added.

“We did what we thought was necessary to stabilize the market, but we don’t think the government should continue special efforts forever,” said Michael S. Barr, an assistant secretary at the Treasury Department. “As you bring stability, private participants come back in. We do expect this now that the market has stabilized. I’m not going to say there will be no effect on rates, but we do think you are seeing market signs and market signals that there should be an orderly transition.”

A few federal officials and many industry advocates disagree, saying the government is exiting too soon. They offer dire warnings of higher rates and a slowdown in home sales. Fed leaders say they will end a marquee program supporting the mortgage markets in March. Obama’s economic team, led by Treasury Secretary Timothy F. Geithner, has decided not to replace it and has been shutting down its own related initiatives.

Over the past year, these programs have enabled prospective home buyers to get cheap loans, helping those buying and selling property as well as those eager to refinance existing mortgages. If the end of the initiative drives up interest rates, say from 5 percent to 5.5 percent, homeowners could be deterred from refinancing, industry officials say. A sharper increase in rates could make homes too expensive for many buyers, forcing them from the market and causing the recent pickup in home sales to stall.

“Mortgage rates are the lifeblood of the housing market, and we have cautioned the Fed about the sudden stoppage of this program,” said Lawrence Yun, chief economist of the National Association of Realtors.

But senior government officials said it could be hard to reverse course without damaging the credibility of the Fed and the administration. If the government loses the trust of the financial markets, preparing them for policy changes could be tougher, possibly resulting in economic disruptions. The officials said they also worry that the mortgage market is becoming overly dependent on federal support, inserting the government too deeply into private enterprise.

Only a new crisis would be able to persuade the administration and the Fed to change their minds, officials said.

“This is a worthy experiment to see if they can begin exiting after providing an unprecedented amount of money to one sector of the economy,” said Mark Zandi, chief economist at Moody’s Economy.com. “It’s a close call, though. I can see why they are debating it.”
Filling in the void

The Fed’s policymaking body sets a key interest rate at periodic meetings, which in turn influences rates for all kinds of loans. But mortgage rates also are shaped by the health of the market financing these loans.

Banks typically create giant pools of home loans and turn them into securities that can be traded on the open market. When the system is working, many investors buy these mortgage-backed securities, providing a stream of money for lenders so they can make loans at relatively cheap rates. But the trading of these securities seized up when the financial crisis struck and panicked investors. Government officials feared that the mortgage market would collapse.

The Fed and the Treasury stepped into the breach, becoming the only major buyers of these mortgage-related securities, and they kept the mortgage market flush with cash. The Treasury spent about $220 billion, and the Fed pledged $1.25 trillion, the single largest foray the central bank has made into the markets since the onset of the crisis. In essence, the Fed has been printing money and funneling it to people looking to buy a house or refinance an existing mortgage.

At the same time, the federal government stood behind mortgage-finance companies Fannie Mae and Freddie Mac by taking them over and pledging to cover their losses. That helped the firms lower borrowing costs, since lenders know they can’t fail, and the companies passed on their savings to mortgage borrowers in the form of low rates.

Combined, these federal efforts helped push down the rates ordinary Americans pay for a mortgage. The 30-year fixed-rate mortgage declined from 6.04 percent in November 2008, according to Freddie Mac data, and hit an all-time low of 4.71 percent about a year later.

Refinancings surged, while home buying perked up. Existing-home sales climbed nearly 10 percent in September, their highest level in more than two years.

The policy was the government’s most effective salve for the ailing housing market at a time when other initiatives, such as the administration’s attempts to modify the mortgages of struggling homeowners, produced far more disappointing results.

Now the government wants to end its support for low rates and has been striving to persuade others to buy mortgage securities.

The success of this approach hinges on the willingness of private investors, from China to big Wall Street funds, to buy large amounts of the mortgage securities and fill the void left by the government.

On Christmas Eve, Treasury officials announced a move that would cover losses suffered by investors who buy these securities from Fannie Mae and Freddie Mac, which together now back about half of the nation’s $12 trillion mortgage market. The goal was simple, officials said. They wanted private investors to be reassured that mortgage securities are safe to buy.
Exit strategy

As the economy showed signs of recovery at the end of last year, the administration and the Fed decided to end their support.

The Treasury stopped buying mortgage securities in December. The Fed said it would taper off purchases gradually, ending them by March 31.

Obama’s economic team could have raised the limits on how much mortgage securities Fannie and Freddie can buy, allowing those firms to replace the Fed’s purchasing program. But Barr said the administration thinks the mortgage business will stand on its own without such special assistance, similar to the way the nation’s biggest banks weaned themselves off federal bailout funds by raising private capital.

“The basic goal is to implement a gradual process where the government’s role in the economy goes down,” Barr said. “It has to be consistent with the basic goal of stability, but it is appropriate.”

Administration and Fed officials expressed confidence that rates will rise only modestly — perhaps a quarter of a percentage point. They attribute their optimism to the lengthy notice they have given the market. The markets already should have anticipated the government’s exit by adjusting interest rates higher. Yet mortgage rates have been falling slightly the past few weeks.

The optimism at the White House and the Fed, however, is not shared across the government. A few senior policymakers at the central bank view the economic recovery as still too fragile, suggesting that purchases perhaps should expand further. These dissenters also warn that mortgage rates could shoot up, perhaps to 6 percent or higher, because private investors buying securities would demand a greater rate of return than the Fed. To reach it, lenders may have to raise rates for consumers.

“Presumably, there is pent-up demand from the private sector, but the question is: At what rate are they going to be interested?” said Eric S. Rosengren, the president of the Federal Reserve Bank of Boston, who has indicated that he supports expanding the Fed’s mortgage securities purchase program.

There also could be unintended consequences to the government’s pull-out. Last year, big investors such as Pimco sold their mortgage-backed securities to the government and used that money to buy bonds and stocks. That extra cash, which propped up stock prices, could drain away after federal support ends.

Real estate and mortgage finance officials said the timing of the government’s exit seems especially ill-conceived, since the Fed’s support would end just a month before a homebuyer tax credit program, which the real estate industry has credited with jump-starting home sales.

Given the importance of the housing market, some industry officials doubt whether the government will follow through with its pledge to exit the mortgage market in March. Fannie and Freddie officials say that the companies together can buy about $300 billion of mortgage securities by the end of the year before they hit their federally mandated limits. Though it appears reluctant to do so, the administration could use that buying power to cushion the blow after the Fed’s program ends, the industry officials said.

“I believe they do want to end it in March, but it’s like all new year’s resolutions,” said Mark Vitner, a senior economist at Wells Fargo Securities. “The Fed’s New Year resolution is to go on a diet, go to the gym, give up drinking and clean the garage. They might be able to do one of those things, but to do all four is tricky. They have to drain all the liquidity they added to the financial market so we don’t see a resurgence in inflation, but do it in a way so that the economy does not slip into recession.”

By David Cho, Neil Irwin and Dina ElBoghdady
Washington Post Staff Writers
Monday, January 25, 2010; A01

Builders, attempting to respond to those consumer demands as well as hold the line on prices, told the NAHB surveyors that they were most likely to include these features as standard in their houses this year:

* Walk-in closets in the master bedroom.
* Laundry rooms.
* Insulated front doors.
* Great rooms.
* Energy-efficient windows.
* Linen closets.
* Programmable thermostats.
* Energy-efficient appliances and lighting.
* Separate shower and tub in master bathrooms.
* Nine-foot ceilings on the first floor.

Among the things that builders said they were least likely to add to houses in 2010:

* Outdoor kitchens.
* Outdoor fireplaces.
* Sunrooms.
* Butler’s pantries.
* Media rooms.
* Desks in kitchens.
* Two-story foyers.
* Eight foot ceilings on the first floor.
* Multiple shower heads in the master bath.
* Smaller kitchens.

The U.S. government’s move to deepen its ties to mortgage-finance giants Fannie Mae and Freddie Mac by agreeing to absorb unlimited losses for the next three years is igniting a debate over whether it should bring the business operations of the companies onto its books.

A decision on how the government treats Fannie and Freddie could have broader political implications. So far, the White House has resisted calls by Republicans to bring Fannie’s and Freddie’s obligations onto the government’s books, a move that could boost the federal deficit by tens of billions of dollars. At a time when the deficit is already at a postwar high, that could create added urgency for Congress and the administration to address the companies’ future.

The Congressional Budget Office has reiterated its support for bringing the companies onto the federal budget—and onto the government books—which would effectively mean accounting for their operations in the federal budget as if they were federal agencies.

“Recent events clearly indicate a strengthening of the federal government’s commitment to the obligations of Fannie Mae and Freddie Mac,” the CBO said in a report.

The CBO pegged the government’s total costs of bailing out the two companies at $291 billion and said the government’s takeover could cost an additional $99 billion in the coming decade.

So far, the White House has taken a different tack. It only projects costs equal to the actual cash infusions that the Treasury injects into the companies each quarter to keep them afloat. That tab is currently at $112 billion. The CBO’s estimate, as opposed to the White House’s, reflects the amount of taxpayer subsidy used by Fannie and Freddie as a result of lower borrowing costs enabled by their federal backing.

A Treasury official said the administration had no plans to alter how it accounts for Fannie and Freddie in the federal budget. “I don’t anticipate any change,” said Assistant Treasury Secretary Michael Barr. “They’ll have the same appearance that they’ve had before in the budget books.” A spokesman for the White House Office of Management and Budget declined to comment.

Officials have said it wasn’t necessary to bring Fannie and Freddie onto the government books until the administration decided what to do in the long term with them. In September 2008, when the government took over Fannie and Freddie through a legal process known as conservatorship, the Bush administration cited the “temporary nature of the arrangement” in opting against incorporating the obligations of the companies into the federal budget.

But some Republicans say the arrangement has become more than temporary. “These are organisms that have now become a direct arm of the U.S. government and I assume that people who are now buying these securities are looking at them that way,” said Sen. Bob Corker (R., Tenn.), in an interview. He asked Treasury Secretary Tim Geithner in a letter earlier this month to explain the rationale behind the “effective nationalization” of the companies, a move that he said “should absolutely be reflected on the balance sheet of the U.S. Treasury.”

While such a move would raise the federal deficit sharply, critics of the companies argue it would reflect Fannie’s and Freddie’s actual risks to taxpayers. “It should have been done years ago,” says David Kotok, chairman of Cumberland Advisors, a Vineland, N.J., money-management firm.

The debate comes amid growing concerns in Washington over how to limit government spending. The U.S. budget deficit reached a postwar record of $1.4 trillion in fiscal 2009.

Republicans also see the budget issue as an opportunity to jump-start a bigger discussion about how to overhaul Fannie and Freddie. “One of the ways you cause there to be a debate about the future is to debate whether they are or are not part of our country’s obligations,” said Mr. Corker.

The White House said it would weigh in with its proposals on how to reshape Fannie, Freddie and the broader mortgage market when it releases its budget next month. “There’s no question that the future structure of the housing market is going to have to be very different from the structure that led Fannie and Freddie to the point of conservatorship,” said Lawrence Summers, Mr. Obama’s chief economic adviser. “But this is an issue that’s going to play out over time.”

Most investors already see the companies as effectively guaranteed by the government. Changing the budgeting of the companies “would be an accounting change rather than any fundamental change” that would affect the U.S. government’s triple-A credit rating, said Steven Hess, lead U.S. debt analyst for Moody’s Investors Service.

Moving the companies’ assets and liabilities onto the government’s balance sheet would bring the companies full circle. Fannie Mae, founded as a government corporation in 1938, was privatized by President Lyndon B. Johnson in 1968 to slash the government’s debt obligations in the face of rising costs from the Vietnam War.

In an effort to stabilize home values and improve conditions in communities where foreclosure activity is high, HUD Secretary Shaun Donovan today announced a temporary policy that will expand access to FHA mortgage insurance and allow for the quick resale of foreclosed properties.

The policy change will permit buyers to use FHA-insured financing to purchase HUD-owned properties, bank-owned properties, or properties resold through private sales. This will allow homes to resell as quickly as possible, helping to stabilize real estate prices and to revitalize neighborhoods and communities. This temporary waiver will give FHA borrowers access to a broader array of recently foreclosed properties.

The waiver will take effect on February 1, 2010 and is effective for one year, unless otherwise extended or withdrawn by the FHA Commissioner. To protect FHA borrowers against predatory practices of “flipping” where properties are quickly resold at inflated prices to unsuspecting borrowers, this waiver is limited to those sales meeting the following general conditions:
· All transactions must be arms-length, with no identity of interest between the buyer and seller or other parties participating in the sales transaction.
· In cases in which the sales price of the property is 20 percent or more above the seller’s acquisition cost, the waiver will only apply if the lender meets specific conditions.
· The waiver is limited to forward mortgages, and does not apply to the Home Equity Conversion Mortgage (HECM) for purchase program.

Specific conditions and other details of this new temporary policy are in the text of the waiver, available on HUD’s Web site, Hud.gov.