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Standard & Poor’s: Has the Housing Market Hit Bottom?

""Standard & Poor's"":http://www.standardandpoors.com/home/en/us Tuesday Webinar provided insight into a key industry question - ""Is the housing market bottoming out?"" The broad inquiry served as the title for S&P's web-based presentation, which included contributing analysts Beth Ann Bovino, Erkan Erturk, and Valerie White.

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Offering their take on the current state of U.S. real estate, the participants discussed home pricing, the return of the private-label securitization market, not-for-profit housing, corporate homebuilders, and the nation's housing agencies. The panelists didn't provide a final answer to the ""Webinar's"":https://event.on24.com/eventRegistration/EventLobbyServlet?target=registration.jsp&eventid=410366&sessionid=1&key=1A2954FAD90F57E4E97A38E57AAD6817&sourcepage=register headlining question, but the analysts did make it clear that they feel a market ""bottom"" has arrived or will be reached by the close of 2012.

Bovino provided specific commentary on the direction of specific market sectors, noting that it's likely the ""Federal Housing Finance Agency"":www.fhfa.gov/ home index will not ""reach its trough until next winter."" Bovino went on to reveal her predictions for home pricing, saying, ""We now forecast S&P/Case-Shiller prices will drop another 4 percent from where they are now, to a record 36 percent below the July 2006 peak sometime in the fall.""

Tackling the matter of a reemergence of private-label residential mortgage-backed securities (RMBS), Erturk called the future of private housing finance ""unclear"" and stated that following the

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transition to privatization, ""the mortgage market is likely to [be] smaller.""

Erturk continued, ""We have seen a few private-label RMBS transactions in the market during the last few years, but the sector's revival is still several years away├â┬ó├óÔÇÜ┬¼├óÔé¼┼ôand relies on more than just a turnaround in the housing market, but positive housing news could be just the starting point for a recovery.""

When asked why a privatized RMBS market ""should"" return to the housing industry, Erturk said, ""We believe there is a strong desire by policymakers and market participants to privatize housing finance and reduce the influence of Fannie and Freddie over time, private-label RMBS provides an alternative to agency mortgage securities. Private-label RMBS would also increase the diversification of funding sources and expand the pool of both investors and funds.""

Speaking out on the interest rate decisions made by the country's housing finance agencies during the Webinar, White noted, ""To compete, HFAs lowered mortgage rates on the products they offered to at or below market rates in order to compete with commercial lenders. The resulting factors├â┬ó├óÔÇÜ┬¼├óÔé¼┼ôlow mortgage rates not only limit loan production due to competition with the commercial mortgage market but also limit issuer earnings on bond spread.""

White elaborated, adding, ""In addition, low interest rates on invested monthly mortgage deposits pledged to semiannual bond payments further limit earnings and long-term growth of assets in bond transactions. Lower earnings on bond programs negatively affect the agency's bottom line, particularly in those instances where the agency's sole source of revenue comes from its bond programs. Examination of continued low interest rates in the immediate future through Fed Reserve Board low interest rate period├â┬ó├óÔÇÜ┬¼├óÔé¼┼ôwe projected assumed interest earnings and liability on bond payments would remain constant through 2014.""

For more information on current and upcoming Webinars from S&P, visit the company's ""website"":www.standardandpoors.com/.

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