housing crisis

National housing prices showed modest increases in 17 cities tracked by The Standard & Poor's/Case-Shiller 20-city home price index, according to its Tuesday news release. A look at the top 20 markets shows that home prices in Chicago, Detroit and Minneapolis rose by 2.5 percent in June, just ahead of the 1 percent national average increase, while Las Vegas was the only city to show a decline. Phoenix and Seattle were both flat.

Although housing prices appear to have rebounded from critical lows, other recent housing indicators, such as the expiration of tax credits, homeowners with conventional loans sliding toward foreclosure, and the influx of past homeowners now renting and likelihood of underwater homes to increase show that the housing crisis is not yet behind us.

If there is one financial firm that remains inseparable from the real estate calamity of the last two years, it's Lehman Brothers. Today's shocker? Lehman's back in business, as an aggressive player in the post-crisis commercial real estate market. Remember that Lehman filed for Chapter 11 bankruptcy on September 15, 2008, marking the largest bankruptcy -- with $600 billion in assets -- in U.S. history. The firm's failure precipitated a stock market free fall and the Great Recession. After a restructuring, Lehman fired its senior banks and relegated its portfolio to mid- and junior-level employees. Now, thanks to its deep institutional knowledge and unique bankruptcy status, the new Lehman manages $14.4 billion in real estate securities.

Once viewed as a suburban promised land, Nevada is now something of an economic desert. The state's unemployment rate skyrocketed to 14.2 percent in June, more than any other state. Around 6 percent of Nevada's homes fell into foreclosure in the first 6 months of the year. But while Nevada's problems are more severe than most states, the causes of its problems aren't that different from elsewhere. Indeed, some economists fear that the entire U.S. will soon resemble Nevada if its real estate problems persist unchecked. Everybody place your bets.

Leave it to American ingenuity. As more and more homeowners find themselves underwater -- that is, in possession of mortgages for greater amounts than their current homes are actually worth -- some are trying to improve their situations by selling their current homes at a loss and buying ones double the size for not much more money. Some experts say it makes a lot of sense, since homeowners can get out of bad, old mortgages and get into fresh, larger ones, without raising their monthly payment much. That's because home prices have dropped and interest rates have gone so low. Risky? Only if you believe the housing market won't recover for decades.

Maybe you had an open house last weekend and nobody came. You weren't alone. The number of people buying homes fell steeply in May, according to one of the first reports to describe home buying activity for the month, an index of mortgages applications to buy homes.

The Purchase Index for May from the Mortgage Bankers Association, hit its lowest level in more than a year. This marks a huge turnaround from earlier this spring, when demand for housing went through a mini-boom ignited by the expanded $8,000 homebuyer tax credit.

That mini-housing boom is over now, and we're just beginning to see how deep the mini-housing crash that follows is likely to be.

So what's the story? Are the creeps at Goldman Sachs the most crooked thieves known to humanity, or are they simply going about business as usual on Wall Street?

Both sides of the saga have their merits. It doesn't help Goldman's case when emails surface from its reps about selling "shi***y" bonds, or from Fabrice "Fabulous Fab" Tourre boasting about unloading junk bonds to widows.

Then again, Wall Street is always about a gamble. (Insert Vegas or card-playing analogy here.) Wall Street lives in its own bubble. Is the real crime the disconnect it has with Washington? Didn't Gordon Gekko say in the movie "Wall Street," "Greed is good"?

Who's to blame for the collapse of the U.S. housing market? That question is at the root of the hearings being held by the Financial Crisis inquiry Commission, a bipartisan commission of former political officials. Republicans want to blame Fannie and Freddie for their risky loan practices, or federal officials for their lofty housing goals. The favored target of Democrats is Wall Street and predatory lenders.

The reality of the situation is that all three forces are to blame. The cast of characters and motivations reads like "The Bonfire of the Vanities": execs at Fannie Mae and Freddie Mac were worried about corporate profits; the government wanted to expand home ownership to low income families; and Wall Street and lenders were just looking to make an easy buck. All got what they wanted -- creating the perfect storm that ultimately led to the collapse of the U.S. housing marketplace.

So, it's doubtful the commission will be able to pinpoint a single culprit or the root cause of the problem. But that's not to say that the hearings aren't fleshing out some interesting plot lines.

Many banks give away plush animals and sports posters to lure in customers, but one East Coast bank is pulling out all stops amid the housing crisis with a sweepstakes that will pay off your home mortgage up to $250,000. The Big Three -- Bank of America, Wells Fargo and Chase -- could take a lesson or two from this marketing campaign given their various consumer woes. (The Wells Fargo $60,000 contest mentioned on WalletPop just doesn't compare).

Here's how the sweepstakes works: If you apply for a mortgage online or in person through TD Bank anywhere from now through April 30, you'll be entered into the Big Mortgage Payoff Sweepstakes for the $250,000 grand prize. There are also six weekly winners who receive $2,500 each. Applicants for a refinance or a new mortgage are eligible. Those who are already TD Bank mortgage customers are automatically entered too. But there's more.

I hate to say I told you so.... but we warned you not to believe all the rosy news. Yes, a week and a half ago, I wrote that the headlines crowing about declining foreclosure filings, suggesting a light at the end of the tunnel, were misleading because many homeowners were in limbo waiting for lenders to decide whether they would eventually get a permanent mortgage modification. I said that I thought we'd see foreclosures actually rise again once many, if not most, of these distressed homeowners got turned down by their banks. Many of my colleagues at HousingWatch have warned the same.

Well, today's Wall Street Journal headline says it all: "Supply of Foreclosed Homes on the Rise Again."

And, why is that?

For homeowners struggling to keep up with their mortgage payments, their best hope may be negotiating a lower, more affordable monthly payment while they try to get their financial houses back in order. That's the aim of the government's Home Affordable Modification Program, which encourages lenders to modify loan payments.

It sounds simple: To modify your mortgage, you fill out the paperwork and move forward, right? Don't count on it, say some homeowners who have been there, tried that. Lenders, if they do anything to help you at all, might accept you into the temporary mortgage reduction program, but what happens when you've made those reduced payments and your lender renegs on the deal and forecloses on the home anyway? HAMP officials have been tightening the rules for lenders to make it harder for them to string borrowers along. But in the meantime, many homeowners are fighting back, the American way: by suing and screaming.

More people are taking their lender to court or contacting their congressman, or sometimes both. We looked at some homeowners who have chosen one of these routes -- and won.

For many critics, watching the government pour more and more taxpayer money into Fannie Mae and Freddie Mac is like watching a slow motion horror flick. One critic likened the companies, which were seized by the government in 2008, to monsters like Godzilla, Frankenstein and Dracula.

The reality is a little more complicated -- but not by much. Fannie and Freddie are better summed up by another horror film cliche: Dr. Jekyll and Mr. Hyde.

Like the dual-personality character in the Robert Louis Stevens thriller, Fannie and Freddie had two sides to their businesses. And, as the beleaguered companies come under increasing attack, it is useful to understand the differences.

The founder of every new business hopes that what he or she creates will eventually become not just a business, but an industry. They want their business to scale -- to get as big as possible as fast as possible. But sometimes businesses are forced to scale when they really shouldn't. That's what I have come to realize is at the heart of the current home ownership crisis. And I blame it all on legendary 1980s white-collar criminal Mike Milken.

Before Milken revolutionized the junk bond market at Drexel Burnham Lambert in the 1980s, banking was both more regulated and more sedate -- precisely the attributes being called for in bankers lately from both sides of the aisle in Washington. But with President Reagan working back then to reduce regulation and guys like Mike Milken pushing the envelope on what was possible (ethical, even legal -- remember Mike went to prison), the world of finance quickly changed. Milken was master of a killer new financial technology, the phone bank, and used it to sell enough junk paper in 1987 to score himself a salary and bonus of $550 million (more than $1 billion today), setting in every way the trend we see now.

That trend is using technology to force increases in both supply and demand -- increases that, absent the enabling technology, would have appeared absurd on their face.

Most people register some kind of dissatisfaction with their home: not enough bedrooms; the outdoor space is too small (or non-existent); the boiler's on the fritz or the kitchen woefully lacks a restaurant-quality stove.

The problem with the Salwen family homestead was a little different: it was too big. Too nice. The kitchen was fantastic. It was, in fact, a 6,000-square-foot Atlanta mansion, purchased in 1999, ostensibly to please Kevin and Joan Salwen's kids, Hannah and Joseph, then 7 and 5. "We never asked them. And my guess is that if we had, they might have said what they told us later, which is 'We don't need it.'"

Like a growing number of Americans, the Salwens came to the realization that less can be more. But they have taken this insight to a level that few others have dared.

Now that the owners of Stuyvesant Town have defaulted on their $3 billion mortgage, it's worth asking what happens next to all the overleveraged apartment buildings and see-through condo projects out there – the remnants of many urban developers' ambitious boom-era dreams. In a new article for The American Prospect magazine, I look at one increasingly popular notion: the idea that these doomed projects could turn into the housing many cities really need -- the affordable kind.

New York City is doing exactly that, through something called the Housing Asset Renewal Program, or HARP. Announced last year as Mayor Bloomberg muscled his way into a third term as mayor, HARP gives developers cash subsidies of $50,000 to $75,000 per apartment on the condition that the would-be luxe apartments are turned into housing that's affordable for a middle-class budget. (This is New York City, of course, where "middle class" means income of up to $126,000 a year.)

Not surprisingly, many New Yorkers love the idea. Those with less than Bloomberg-sized budgets understand that it's insane that two out of every five households there spend more than half their income on housing.

Alas, it may be too good to be true.