Forecasters at Chapman University in Orange, Calif., are even more confident now that their forecast calling for the U.S. economy to begin turning around during the second half of 2009 is right on target — given the latest economic data.

During the midyear forecast update conference held Wednesday, Chapman President James Doti pointed to a number of factors as positive signs that a recovery from “The Great Recession” — as it has been labeled — is imminent:

• The federal government’s $782 billion stimulus package is starting to have a positive effect on consumer spending, while also helping to lift the financial and banking sectors “out of the woods” and resulting in an improved lending environment
• Initial job claims have dropped since April
• The stock market was up 18 percent in a recent three-month period
• Consumer confidence has picked up

While these are all good news for the housing sector as well, Doti noted that unlike prior deep recessions where consumer spending was able to get the economy into recovery mode rather quickly, this time he expects the recovery to be slower and more protracted.

Key to this prognosis is a $10 trillion drop in household wealth due to the 40 percent drop on Wall Street, plus large declines in home prices. Added to that is consumer savings, which have grown at a rapid pace from practically nothing to almost 6 percent. All these factors are extremely limiting to future consumer spending.

Still, despite weak consumer spending and with insignificant growth of residential construction expected to continue, Chapman is forecasting the nation’s real Gross Domestic Product to decline by 2.9 percent for 2009 before turning the corner and growing 2.4 percent in 2010.

After soaring to price levels of four times the median family income at the peak of the housing bubble, housing affordability has come back down to earth at 2.8 times the median income. Housing prices, Doti believes, are also close to their bottom, projecting that prices will appreciate by 3.7 percent next year due to pent-up consumer demand for housing.

While this is good news, it does not mean that foreclosures will end abruptly either. With such a steep and pronounced recession on tap, job losses expected to continue this year, and the possibility that home prices may decline a bit more before going positive next year, homeowners who were already in financial turmoil still face the prospect of foreclosure.

Look to ForeclosurePulse to stay up to date on the most current trends in foreclosure activity.

Foreclosure Mediation Rules Being Developed In Nev.
San Jose Mercury News

A new Nevada law requiring lenders to meet with homeowners in danger of foreclosure is expected to create numerous requests for mediation. The Nevada Supreme Court, which is drawing up rules for the mediation sessions, held the first of two public hearings on the rules Tuesday. Chief Justice James Hardesty expects there will be 1,200 to 1,500 requests each month.  Under AB149, a homeowner who gets a foreclosure notice can request a meeting with lenders and a trained mediator in efforts to reach a mutually acceptable resolution.

Second Mortgages: Lines of Danger?
Orange County Register

Record foreclosures hitting Orange County involve more than just newbie buyers who got in over their heads. Some housing watchers say evidence is mounting that even veteran homeowners got caught up in housing euphoria and now are paying for it.  The latest argument comes from Michael LaCour-Little, a finance professor at Cal State Fullerton. He is lead author of a new study, which found that during the housing boom some long-time owners borrowed against all their property's equity gain, or paper profits. They treated their houses like cash machines.

Total Jobless Claims Fall for First Time Since January
Wall Street Journal

The total number of U.S. workers claiming state unemployment benefits plunged at the start of June by their largest amount since November 2001, breaking a streak of 21-straight increases in a rare reprieve for the unemployed in this recession. But new jobless claims rose slightly as expected last week, suggesting that while job losses have moderated since the beginning of the year, a rapid turnaround in labor market conditions is unlikely.

California Recovery to be Felt in 2010, Study Says
Los Angeles Times

An economic recovery will begin in the second half of this year, but many Californians won't feel the benefits until 2010, forecasters from Chapman University said Wednesday. That's because the Golden State is in its deepest and most profound recession since the Great Depression, dragged down by sluggish construction activity in both the residential and nonresidential markets. The Chapman forecasters expect nonfarm payroll employment in California to continue falling into next year before beginning to rebound in the fourth quarter of 2010. California will lose an estimated 437,000 jobs in 2009 and an additional 56,000 jobs next year, they said. Orange County will shed 46,000 jobs in 2009 and 2,000 more in 2010, forecasters said, marking its worst recession since the end of World War II.

Rentals, Investment Homes Only Small Part of Foreclosure Picture
Las Vegas Business Press

A new study from the Nevada Realtors Association determined that more than 87 percent of home foreclosures are primary residences. That news runs counter to popular opinion that most foreclosures are the result of rental homes (8.1 percent) or investment properties (3.6 percent). Roughly 500 people statewide were surveyed in the study, which was conducted by SGS with NV Data Mine. More than 60 percent of foreclosures within the state came from married couples and 24 percent earned under $15,000 a year. More than 90 percent are single-family detached homes and 32 percent are between 1,500 to 2,000 square feet in size. Affordability remains a big issue. Around 34 percent of survey respondents said they were paying 56 percent of their monthly income on their mortgage, accounting for the largest group of foreclosures. Almost 24 percent of participants paid less than 40 percent of their monthly earnings on mortgage. More than 68 percent had lost a job in the year prior to their foreclosure, while 11.7 percent had unexpected bills and 7.8 percent had an addition to the family such as a relative move-in or a baby.

May Housing Starts Jumped 17.2 Percent
Wall Street Journal

Home construction climbed in May far above expectations, with single-family starts rising a third month in a row and giving more evidence of stability in the housing sector. Housing starts increased 17.2% to a seasonally adjusted 532,000 annual rate compared to the prior month, the Commerce Department said Tuesday. Building permits rose; apartment construction surged. The 17.2% increase was much bigger than expected. Economists surveyed by Dow Jones Newswires forecast a 7.0% increase to an annual rate of 490,000.

Where Were Regulators When Banks Were Failing?
USA Today

When ANB Bank of Arkansas failed last year, it was easy to blame executives whose pursuit of high-adrenaline growth led to the bank's demise. But now other key culprits have emerged in ANB's collapse: the government officials who were supposed to be policing the bank. The inspectors general at the U.S. Treasury and the Federal Deposit Insurance Corp. (FDIC) have both issued reports saying that bank failures surged because regulators in some cases didn't step in and prevent hazardous behavior, and in others actively helped banks hide their growing problems. As early as Wednesday, the Obama administration is set to release details of a new regulatory framework for the vast and complex financial system of commercial and investment banks and brokers that has evolved in the last few years. However, the recent reports from the inspectors general highlight that bank regulators failed to do their job properly even when supervising far simpler banking institutions, showcasing the difficulty the administration faces in ensuring the new supervisory system will work effectively.

Budget Woes, Building Drop-off May Prolong Calif.'s Hardships
Los Angeles Times

Despite some healing in the national economy, California still faces significant difficulty, in part because of the state's budget woes, economic forecasters at UCLA say. Unemployment in the state will reach 12.1% by the end of this year and will not return to single digits until late in 2011, economists predicted in the quarterly UCLA Anderson Forecast, which was set to be released today. Driving California's difficulties are a shrinking state budget, a disappearing non-residential construction market and sluggishness in housing construction.

California Foreclosure Moratorium
KCBS

Starting today, banks in California cannot foreclose a mortgage without either renegotiating the loan or giving the homeowner three months notice. There have been more than 365,000 foreclosures in California since 2007, with many more already scheduled. “California is ground zero for foreclosures. We’re getting about 80 to 90,000 foreclosure filings every month. That’s one every 30 seconds, so until we start mitigating the number of foreclosures, our economic recovery is going to be hampered,” said Assemblyman Ted Lieu, the Torrance Democrat who authored the bill.

Beware of Neighbor’s Home Foreclosure
New York Times

When it comes to selling your house or planning your next home equity line of credit, being a nosey neighbor could very well pay off. That’s one implication of a recent report from the Center for Responsible Lending, a consumer advocacy group based in Durham, N.C.  The report, which was released in May, focuses on the ripple effects of home foreclosures, and suggests that homeowners who are concerned about their home’s value should watch for signs of trouble among their closest neighbors. This year alone, it says, foreclosures will cause an estimated 69.5 million nearby homes to suffer price declines averaging $7,200 per home. The loss in property value could total $500 billion.

Details Set for Remake of Financial Regulations
Wall Street Journal

President Barack Obama is expected Wednesday to propose the most sweeping reorganization of financial-market supervision since the 1930s, a revamp that would touch almost every corner of banking from how mortgages are underwritten to the way exotic financial instruments are traded. At the center of the plan, which administration officials are referring to as a "white paper," is a move to remake powers of the Federal Reserve to oversee the biggest financial players, give the government the power to unwind and break up systemically important companies -- much like the Federal Deposit Insurance Corp. does with failed banks -- and create a new regulator for consumer-oriented financial products, according to people involved in the process.

A New Financial Foundation
By Timothy Geithner and Lawrence Summers
Washington Post

Over the past two years, we have faced the most severe financial crisis since the Great Depression. The financial system failed to perform its function as a reducer and distributor of risk. Instead, it magnified risks, precipitating an economic contraction that has hurt families and businesses around the world.  We have taken extraordinary measures to help put America on a path to recovery. But it is not enough to simply repair the damage. The economic pain felt by ordinary Americans is a daily reminder that, even as we labor toward recovery, we must begin today to build the foundation for a stronger and safer system

Ritzy repos are on the rise in Orange County, Calif. — just ask Coto de Caza resident Jeana Keough, who stars in “The Real Housewives of Orange County,” and is fighting to save her swanky chalets from the auction block.

Keough, who is a licensed California real estate agent, reportedly owns four properties that are in various stages of foreclosure. Lender Washington Mutual, which was bought by Chase, slapped a $1,327,000 notice of default on the former Playboy model’s Coto spread, claiming she’s $37,538 in arrears.

The property details on RealtyTrac show that in addition to the $1.3 million loan in foreclosure, the property has a $250,000 credit line loan taken out in January 2006. The Notice of Default was recorded May 11, meaning Keough has at least until August to try work out a loan modification to avoid losing the property at foreclosure auction.

The big bad O.C. star told the Orange County Register she’s working on loan modifications for her properties in Coto de Caza, Trabuco Canyon, Irvine and Rancho Santa Margarita.

“I think all four of my houses have notices of defaults on them, as I’m trying to get loan modifications on them,” Keough told the New York Post this week. “It’s a tough market, everybody’s struggling.”

Keough is certainly right about that. There are many homes in foreclosure in her high-priced neighborhood, as this area map from RealtyTrac shows. Keough’s home is the house icon in the lower left corner.