From Prudential Fox & Roach (no link):
Unseasonably Cold Weather Leads to Dip in Southern New Jersey Real Estate Market
According to The Prudential Fox & Roach, REALTORS® HomExpert Pending Home Sales Index©, the number of sales under contract was down in March due to winter storms and cold weather
April 30, 2007 – DEVON, PA – Pending home sales in March fell due to continued unseasonable weather throughout the five-county Southern New Jersey region. With several winter storms and a colder than average month, the HomExpert Pending Home Sales Index©, declined 13.2 percent from 99.9 in February to 86.7 in March, according to Prudential Fox & Roach, REALTORS®.
“Unseasonably frigid weather throughout the country and particularly in this region kept the pace slower than what is traditionally expected, “said Steve Storti, senior vice president of marketing for Prudential Fox & Roach. “As we enter the spring and the busiest time of year for buying and selling, we will look for the market to pick up.”
The following is the March 2007 HomExpert Pending Home Sales Index for the five-county southern New Jersey region:
Burlington
March Index 81.0
February Index 88.7
Percent Change -7.5
Camden
March Index 86.2
February Index 103.1
Percent Change -16.2
Gloucester
March Index 83.5
February Index 102.7
Percent Change -15.4
Mercer
March Index 92.6
February Index 107.5
Percent Change -15.6
Salem
March Index 97.5
February Index 111.8
Percent Change -10.1
From the Record:
Weathering the housing slump
We’ve come a long way since the giddy heights of 2005, when the real estate market peaked.
Homeowners have seen their once-spiraling house values plummet back to earth. Sellers dreaming of cashing in on their ever-increasing investment have had to reduce their expectations along with their asking prices. And the recent subprime crisis, coupled with the rising number of foreclosures, has made the future even more murky.
These are challenging times for the housing industry as well. One New Jersey builder, Kara Homes, has filed for bankruptcy, and others are reporting losses. Red Bank-based Hovnanian Enterprises Inc., the nation’s sixth-largest home builder, has lost a total of more than $174 million for the past two quarters, its first losses in at least nine years.
Ara Hovnanian, the company’s 49-year-old CEO, has been there through it all. The publicly held company was founded by his father in 1959, and he joined it 20 years later after receiving his bachelor’s and MBA from the Wharton School of the University of Pennsylvania.
…
Q. How’s the outlook for housing for the rest of 2007?
My response is different today than it would have been a couple of months ago. Had you asked in January or February, I would have said it really looks like the market is stabilizing. Then this whole issue regarding the subprime mortgage industry came out, and that caused sales to dip. Now my prognosis is not as optimistic as it was. Obviously, the industry is still selling a lot of houses, but the recovery and spring bounce-back we had been hoping for seems to be stalled.
Q. When do you think things might start looking better?
My guess is at least a few quarters. I think we’re right near the bottom of the marketplace. I think it is likely to stay flat along the bottom for two to three quarters. The market needs to work off some of the excess inventory of housing.
Q. So we’re talking about the beginning of 2008?
That’s probably a reasonable guess at this point.
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. How is demand for your houses in New Jersey?
New Jersey is not one of our best states today; it’s not one of our worst states. It’s somewhere in the middle. The things that are very close to New York City are doing well. As you get further out, it gets less of the benefit of New York City. New York City is driven a lot by the financial industry, and they’ve had a fabulous couple of years.
From Bloomberg:
Housing? What Housing? I Don’t See Any Housing: Caroline Baum
Excluding housing, the U.S. economy is doing just fine.
That’s the latest rationalization of a select group of operators who think that the Bush administration’s 4.6 percentage point cut in the top marginal tax rate and 5-point reduction in the top capital gains rate can protect the economy from any and all ills.
To say that ex-housing the economy is doing just fine is tantamount to claiming that, ex-Iraq, Bush’s Middle-East policy is a rousing success.
How valid is the claim that outside of housing everything is hunky dory? Let’s go to the videotape to see how housing- centric the U.S. economy’s weakness really is.
The Commerce Department reported Friday that real gross domestic product rose 1.3 percent in the first quarter, the slowest pace in four years. The year-over-year growth rate slipped to 2.1 percent, also a four-year low.
Investment in housing, the purported culprit, fell 17 percent, less than in the fourth quarter. Residential investment, as it’s known in the GDP accounts, subtracted from growth for the sixth consecutive quarter, something that hasn’t happened since 1980.
The first quarter’s sluggish growth wasn’t confined to housing, however. Exports declined, inventories were a small drag, and capital spending (investment in equipment and software) rebounded 1.9 percent — better than expected based on monthly data on shipments but nothing to write home about after declines in the second and fourth quarters of last year.
“The initial weakness was in housing, but the weakness in capital spending is not a cross-infection from housing,” says Ian Shepherdson, chief U.S. economist at High Frequency Economics in Valhalla, New York.
One year ago, capital spending was growing at a 9 percent year-over-year rate, he points out. Now it’s zero.
“A year ago, people said capital spending was going to rescue us as housing slowed,” he says. “Capital spending is down to zero (year-on-year). There’s been an unambiguous slowdown.”
From the Philly Inquirer:
Mortgage loans are going global
If you get a home mortgage from Abington Community Bank in Jenkintown, chances are the money will come from deposits kept there by other residents of Philadelphia’s northern suburbs.
The 140-year-old bank has been making loans this way for decades, and then keeping the loans on its books instead of selling them. “We are looking for the relationship with the customer,” said Tom Wasekanes, vice president of originations.
While Abington has stayed with community-lending methods, the U.S. mortgage industry has transformed itself in a way that has opened conduits to global capital markets.
By turning mortgages into securities, many lenders have opened up vast distances between homeowners and their mortgage holders, who can be anywhere in the world. Investor appetite for mortgage-backed securities contributed to the explosive growth in recent years of subprime lending, and allowed credit standards to evolve to the point that 100 percent financing with no proof of income became acceptable.
But savings banks don’t go there, leaving them playing an ever smaller role in the mortgage market. From 1996 through 2006, savings banks’ share of U.S. mortgage holdings fell from 14 percent to 8.5 percent, according to Federal Reserve Board data.
…
Abington has a “very healthy attitude, but it’s a very narrow and small attitude,” said Guy Cecala, publisher of Inside Mortgage Finance in Bethesda, Md. “You can be a mortgage broker originating mortgages out of the trunk of your car and do billions” of dollars more in mortgages than a community bank, he said.
That’s possible because the mortgage broker does not lend money. The broker takes applications and shops around for a mortgage lender who will fund the loan. The lender turns the loan over to an investment bank, which pools the loan with thousands of others in a residential-mortgage-backed security.
That security is sliced and diced to isolate the key forms of risk in mortgage loans: interest-rate risk and credit risk. The process is called securitization; it enables investors, such as hedge funds, that want to take on a lot of risk to do just that. Insurance companies and other more conservative investors can pay more to take on less risk.
The lucrative business of securitization has boomed. Cecala said that almost 66 percent of mortgages were securitized last year, up from 41 percent in 2000.
From Newsday:
Their homes hang in the balance
Thomas and Joy Geist have lived in the same house in East Meadow for more than 50 years. Their home is the focal point of their family, the place where children and grandchildren gather for holidays or simply for love. “Grandma is always home, Grandma always has cookies,” the Geists’ daughter, Nancy Hirsch of Elmont, said.
Currently, however, the Geists’ house is a source of family worry. The couple, who paid off their original mortgage 30 years ago, are struggling to make monthly payments on a new $280,000, 30-year mortgage that their lawyer is contending should never have been made to them.
“We’re living a lot more stringently than we used to, but it’s very hard” to make the payments, Thomas Geist, who retired two decades ago from Hazeltine, now part of BAE Systems, said. “I don’t know if we can do it much longer.”
Thomas Geist is 82, and his wife is 80. They are among dozens of individuals, many of them elderly, ill or living on modest incomes, who fear that they face foreclosure on their homes as a result of an alleged Ponzi scheme by a Uniondale-based financial adviser.
As part of that scheme, the adviser, Peter Dawson, persuaded clients to take out mortgages for which there was no rational justification and have the proceeds paid directly to him, according to a lawsuit filed on behalf of the Geists and 38 other people in State Supreme Court in Mineola. The suit says Dawson promised to make the mortgage payments, and to produce profits by investing the money at a higher rate of return than the interest on the loan.
Most of the plaintiffs in the suit live on Long Island or are Long Island natives who live in Florida. The others are from the metropolitan area.
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Very interesting story out of the Asbury Park Press this morning:
Prepayment of home loan can be costly
As most of your know, loan pre-payment penalties are not allowed in New Jersey. These penalties, as the name implies, require that borrowers pay the lender an additional fee for paying the mortgage off earlier than previously agreed. They don’t necessarily go for the life of the loan, but typically only for the first few years. Unfortunately, things are changing that might seriously change the NJ mortgage industry.
And a U.S. Supreme Court decision nearly two weeks ago gave further leeway to nationally licensed banks to bypass state consumer laws.
New Jersey regulators, who enforce the ban on prepayment penalties, have even weakened consumer protections themselves. They have let state-licensed banks and savings and loans levy prepayment penalties in order to help them compete for business.
Prepayment penalties were created to protect the lender from the losses associated with an early loan payoff. Unfortunately, in a down market, it makes it even harder for homeowners to refinance their loans.
Phyllis Salowe-Kaye, executive director of New Jersey Citizen Action, Newark, said the group’s housing counselors have talked to hundreds of homeowners in the last year who faced possible foreclosures because they cannot meet their monthly payments. And even if they do refinance, they are hit with prepayment penalties costing thousands of dollars.
“People pay the penalty, because in the long run it’ll be more expensive” to keep the subprime loan, Salowe-Kaye said. “This is one factor that makes it more difficult to put people into a better mortgage when they do run into trouble.”
Salowe-Kaye said she believes the penalties have caught consumers unaware because New Jersey had a long-standing prohibition against prepayment penalties.
The problem is already beginning to catch borrowers off guard. With prepayment penalties that can reach tens of thousands of dollars, borrowers are finding it almost impossible to refinance out of their ever adjusting ARMS.
Last year, as the loan adjusted, the monthly payments began to increase, which he knew could happen. He then calculated that the loan would add $10,000 to his mortgage debt each year for three years.
His monthly payment would eventually double in that time, from less than $1,500 to $3,000 a month.
Soodul figured he would just refinance with another lender. But at the closing, the bank asked for $10,000 to cover Countrywide’s prepayment penalty.
“I said, “It’s New Jersey. How can there be a prepayment penalty?’ ” Soodul recounted.
Soodul said he did not have the money to close on the new loan. He said the loan salesman never told him about the prepayment penalty.
Countrywide did not respond to requests for comment. Soodul has filed a complaint with the state. Countrywide responded to the complaint by saying Soodul was given full disclosure on the terms of the loan.
From the NY Times:
A New Law May Hurt More Than It Helps
NEW YORK STATE’S Home Equity Theft Prevention Act, which took effect on Feb. 1, is meant to protect homeowners who have defaulted on their mortgages from predators intent on bilking them out of their property. But lawyers and title insurers say the law may have some unintended consequences.
“The Legislature’s intentions were good,” said John Martin, the general counsel for All New York Title in White Plains. “But this law is going to cause problems for the very people it was intended to protect.”
The law applies to the owner of a one- to four-family home who is facing foreclosure or who is more than two months behind on mortgage payments. If he sells the house to avoid foreclosure, under some circumstances he can rescind the sale for up to two years.
The law was intended to curtail scams in which a buyer approaches an owner in financial distress, offers to buy the house for less than it is worth while allowing the owner to remain in it, and then promises to sell the house back if the owner makes payments to the buyer.
While the law does protect homeowners from such tactics, Mr. Martin said, it will also make it difficult for owners facing foreclosure to find investors to help them out.
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Under the new law, if a homeowner in default sells to an “equity purchaser” — basically, someone who is not going to use the house as his principal residence — the owner has two years to rescind the sale if the buyer has not fully complied with the law.
“And there are a host of requirements to comply with,” said Bruce Bergman, a mortgage lawyer in Garden City, N.Y. He pointed out that the law is so detailed it specifies the type size to be used in various parts of the sales contract. “Even if a purchaser crosses every t and dots every i,” he said, “he can never be sure that his compliance with the law won’t be attacked. Title insurers have the same concerns.”
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William Friedman, a real estate lawyer in Hempstead, N.Y., said lawyers who represent real estate investors will face the problems with the new law head-on. “How can I let a client buy a property knowing that the seller can come back two years from now and demand the rescission of the sale?” he said. “This is going to be a monster problem.”
From the Staten Island Advance:
Dream House to debt nightmare
Helen Rice-Lyles was staying at a homeless shelter in Queens when she got a call from a broker who told her he could help her buy a house on Staten Island.
She had been looking for an apartment when she got the call telling her she could buy a house, notwithstanding her bad credit, with no money down and help from the government.
“It sounded so good. I always wanted to be in a house,” said Ms. Rice-Lyles, whose case may represent one of the most extreme examples of mortgage mania and problem lending in the subprime market.
The Queens-based real estate office shuttled her to the house, helped her apply for $10,000 in government downpayment assistance and, she said, told her she would have monthly mortgage payments of about $1,990. With $3,200 in monthly Social Security disability and survivor benefits, she believed she could make the payments necessary to buy her very first home for herself and her four children.
What Ms. Rice-Lyles got the day of her closing, according to the Foreclosure Prevention Project in St. George, were two mortgages, a monthly payment of $3,745 and $465,000 in debt along with her new home in Mariners Harbor.
In January, the 45-year-old and her children moved right from the shelter to their home on Brabant Street in a neighborhood where there are lots of signs advertising homes for zero money down. Now she faces foreclosure and homelessness again. A friend who co-signed the loan is also on the hook.
From BusinessWeek:
Why This Slump Is Different
First comes the reminder notice that a borrower is late on the mortgage payment. Then the phone calls start. Later a brochure arrives, maybe even a DVD, explaining the homeowner’s options. Around month four, there will be a knock on the door.
Don’t call them bill collectors. Today, the industry has a softer term, “debt counselors,” for the swelling ranks of people who are pounding the pavement trying to stem the tide of mortgage foreclosures. Says Steve Bailey, senior managing director at mortgage giant Countrywide Financial Corp. (CFC ), who oversees the company’s $1.4 trillion portfolio: “You need to keep the revenue stream flowing and keep hope alive.”
As the housing downturn grinds on, that has become the mantra for everyone from homeowners and lenders to agents and investors. There have been previous busts, but this one is markedly different. Never before have home prices fallen so broadly: Median national home prices slipped 0.3% in March from a year earlier, and the National Association of Realtors predicts a fall of 0.7% for 2007, which would mark the first annual drop since the Great Depression era. And foreclosure filings are increasingly common, jumping 42% in 2006 to 1.2 million, calculates RealtyTrac. There’s little relief in sight; in the first quarter, 2 million homeowners were at least 30 days late on their payments, an increase of 26% from last year, according to Moody’s Economy.com Inc.
Foreclosure is never an attractive option, but now it’s even less appealing. With prices falling nationwide, lenders are wary of holding on to properties whose values could sink further. And unlike in previous cycles, a big chunk of the loans made recently are held not by federally insured thrifts or banks but by hard-charging hedge funds and other big investors that are aggressively pushing lenders to stop the bleeding. What’s more, the steep rise in second mortgages that accompanied the boom means lenders in foreclosure proceedings are increasingly fighting one another for the scraps. Such pressures are inspiring some to dream up creative alternatives to foreclosure, from tinkering with loan terms to subsidizing sellers.
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Many of the homeowners in trouble are first-timers who bought recently or investors who got in over their heads. Vikki Kuick, a real estate agent in San Diego, has a listing on a three-bedroom condo that the owners bought as an investment property three years ago for $447,000. Payments on their adjustable-rate loans have since gone from about $2,000 a month to $3,800, while their tenant pays just $1,800. Kuick says she has an offer for $370,000, which she has taken to the couple’s lenders. If the lenders agree, the holder of the second mortgage would receive a token amount—as little as $1,000. “If it goes to foreclosure, [the second lender] may get zero,” she says.
For the first time in years, houses are hitting the market with asking prices below the value of their mortgages. Stretched owners are hoping for a so-called short sale, in which the lenders forgive the difference. National statistics are scarce, but according to a study performed for BusinessWeek by the online agency ZipRealty, there are 1,100 such listings in Miami, nearly 1,000 in Atlanta, and 700 in the Washington area. In Sacramento, real estate agent Patrick Hake counts 1,079, more than 10% of the total homes on the market. “If home values are falling, short sales are better because they can be done cheaper and quicker [than foreclosures],” says Kevin J. Kanouff, head of the bond group at mortgage consulting firm Clayton Holdings Inc.
From the Wall Street Journal:
Homeowners Wage a Tax Rebellion
Rising Property-Value Assessments Drive Up Appeals as House Prices Decline
By JEFF D. OPDYKE
April 28, 2007; Page B1
Falling home prices and rising property-tax assessments are fueling a grass-roots tax rebellion.
From coastal Florida to the shores of Hawaii, homeowners are lodging record numbers of appeals, fighting against rising assessments that are, in many cases, pushing up annual tax payments significantly.
…
The problem: Tax assessments didn’t keep pace with soaring property values in recent years. Now, assessments are catching up at the worst possible time, just as property prices soften. In theory, municipalities are supposed to roll back tax rates to offset rising property assessments. But many don’t do it regularly, or do so to a lesser degree than they should, says Kenneth Wilkinson, the appraiser for Lee County.
“In today’s market, I’d be lucky to get within $30,000 or $40,000 of my assessed value,” says Jack Shearer, a real-estate broker in Fort Wayne, Ind., who a month ago began the process of appealing a recent reassessment that valued his home at $245,000. Mr. Shearer says he brokered the $185,000 sale of a house in his neighborhood four months ago, yet the assessed value on that house recently came in at close to $220,000.
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That is leading to “sticker shock,” says Stacey O’Day, Allen County’s assessor. The system “is capturing in one swoop the increase in market value that happened over five years.”
It is happening despite the fact that lawmakers in states such as Florida, New Jersey and Nebraska are proposing to cut property taxes or cap increases, or are offering rebate checks to homeowners to take some of the sting out of rising property reassessments.
From Bloomberg:
Consumer Spending May Take a Hit as U.S. Home Prices Decline
Carol Francis says her customers are less likely to make big furniture purchases these days than they were at the height of the housing boom two years ago.
“The housing market right now is affecting everybody’s spending,” said Francis, a design consultant at Thomasville Home Furnishings in Woodbridge, Virginia, 25 miles south of Washington. Before, “I had people who would buy two and three bedrooms of furniture. Now many come in and just buy one piece at a time.”
With home prices in danger of falling this year for the first time in at least four decades, Americans are turning wary about borrowing against their houses to pay for vacations, education or remodeling projects. In a reversal of the “wealth effect,” people who once viewed soaring home values as a rationalization for higher spending appear to be pulling back.
“We’re in a housing recession; it’s not over and it’s going to spread to other parts of the economy, mainly consumer spending,” said Paul Kasriel, director of economic research at Northern Trust Securities in Chicago. “House prices are going to continue to fall, and that’s going to play havoc with consumers because it means the home ATM is now draining, it’s no longer filling.”
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While home sales and construction have been falling for more than a year, the secondary impact on consumer spending, which accounts for 70 percent of the economy, may just be kicking in.
Kevin Logan, senior market economist at Dresdner Kleinwort in New York, says the reverse wealth effect will subtract about 0.7 percentage point from consumer-spending growth this year. He expects spending in the fourth quarter to be 2.7 percent higher than a year earlier, compared with growth of 3.6 percent in the fourth quarter of 2006.
Some economists say the consumer still has staying power.
“People have been a little too quick in looking for the consumer to cash it in,” said Ethan Harris, chief U.S. economist at Lehman Brothers Inc. in New York. “Housing wealth looks like it’s flattening, not collapsing.”
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John Silva, a software salesman in Raleigh, North Carolina, makes about $45,000 a year and has struggled since his monthly mortgage payment adjusted to $1,205 from $945.
“I have a 20-year marriage anniversary coming up, but it won’t be what I had wanted it to be,” he said. “We can’t even afford going to fast-food restaurants, never mind a nice restaurant.”
Median existing-home prices will drop 0.7 percent this year from 2006, the first decline since recordkeeping began in 1968, according to the National Association of Realtors. Prices in March were below year-earlier levels for the eighth consecutive month.
“Without home prices rising any more, people will become more cautious in their spending,” said Raymond Stone, managing director at Stone & McCarthy Research in Skillman, New Jersey.
From the Morris Daily Record:
Economic forum: N.J. must become more business-friendly
New Jersey must become more business-friendly and create more jobs, especially in its northern region, to avoid losing out to more affordable states and to global competition.
That was the theme presented by state officials at the North Jersey Economic Growth forum at the Madison Hotel in Convent Station on Thursday.
Joan Verplanck, president of the N.J. Chamber of Commerce, said the state has suffered economically the past 10 years due to technology advances, global competition, especially with China and India, the economic downturn in the financial markets since the 9/11 terrorist attacks, and existing state budget woes.
She said one thing about New Jersey will never change: “It will always be a high-cost state.”
In the past five years, New Jersey has lost some 23,000 jobs in such fields as pharmaceuticals, finance, science and information technology.
…
Gary Rose, chief of the state Office of Economic Development, said the state needs a more proactive attitude to attract and keep businesses.
“We, as a state, have to be smarter, more focused and more coordinated,” he said.
From Reuters:
U.S. regulators have way to deal with subprime mess
U.S. regulators who failed to restrain excessive lending in the subprime mortgage market may be able help defaulting borrowers from losing their homes by persuading banks to avoid rushing to foreclosure.
While U.S. house prices were rising in the past five years, Wall Street investors rushed into the mortgage market by bankrolling companies that made risky loans to less creditworthy borrowers.
Those loans were often bundled into mortgage backed securities and sold off to investors who farmed out the debt collection work to mortgage servicers, but because the mortgages were not funded by bank deposits, U.S. regulators had little say over lending criteria.
While many of the mortgage lenders that originated subprime loans have now gone out of business, the companies servicing the loans are still in business, and the nation’s largest banks are among their ranks.
Bank regulators may have untapped authority to scrutinize banks’ servicing practices and can pressure them to be lenient on defaulting borrowers, analysts said.
“Can the bank regulators do anything with the servicer? The answer is ‘yes’,” said Gene Ludwig, a former bank regulator who now heads Promontory Financial Group in Washington.
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The regulators “should hold the servicers’ and the investors’ feet to the fire,” Sheila Bair, chairman of the Federal Deposit Insurance Corp., said at a congressional hearing last week.
From the Wall Street Journal:
Home Equity Stalls
As Housing Market Cools and Rates Rise, Owners Grow Wary Of Tapping Lines of Credit; How Banks Are Courting Borrowers
By RUTH SIMON
April 26, 2007; Page D1
After years of piling debt on their homes, Americans are becoming more cautious about using them as a piggy bank.
A cooling housing market and higher interest rates have made homeowners more reluctant to tap the equity they may have built up in their residences. The amount borrowers owe on their home-equity lines of credit has slipped in the past six months, to $561 billion at the end of March, the first such decline since 1999, according to new data from Equifax Inc. and Moody’s Economy.com Inc. Although that decline was partly offset by a pickup in fixed-rate home-equity loans, total home-equity borrowing rose just 9% in the 12 months through March, well below the 21% average annual growth rate of the past five years.
“People are feeling uncertain about the value of their home and are feeling tapped out,” says Doreen Woo Ho, president of Wells Fargo & Co.’s consumer-credit group.
Some homeowners have decided to “wait and see what happens to real estate,” says David Rupp, Bank of America Corp.’s home-equity executive, “or they may view themselves as not needing to borrow.”
During the housing boom, demand for home-equity lines of credit climbed sharply as property values rose, interest rates fell and lenders made it easy for borrowers to tap their equity for everything from home improvements to vacations. Borrowing against home equity freed up roughly $187 billion in cash per year between 2001 and 2005 that was used to pay off other debts and for new spending, according to a recent paper by former Federal Reserve Chairman Alan Greenspan and Fed economist James Kennedy.
Now, the slowdown in home-equity borrowing is leading to weaker sales in some markets for autos, building materials and electronics, says Mark Zandi, chief economist of Economy.com. The slowdown has been particularly notable in parts of the country that are suffering most from housing and mortgage corrections, including Boston, Minneapolis, Miami, Las Vegas and Washington.