The U.S. government took control of Fannie and its rival Freddie Mac, the main providers of funding for home mortgages, in September 2008 through a legal process known as conservatorship amid huge losses from defaults. The two companies own or guarantee around half of the U.S. residential mortgages outstanding.

By year end, Fannie and Freddie will have received a total of $112 billion of capital from the government. To keep the companies afloat, the U.S. Treasury agreed in 2008 to purchase up to $100 billion of preferred stock in each company. In February 2009, the Treasury doubled that support to as much as $200 billion in each company. The Congressional Budget Office in March said the total cost of conservatorship to taxpayers could reach $389 billion.

The Treasury’s authority to expand those purchases without congressional approval expires at year end. The companies would have to be placed into receivership if they ran out of money and Congress didn’t authorize increased capital injections. Barclays analysts on Friday recommended that Treasury increase Fannie’s lifeline to $300 billion.

Barclays estimates that Fannie and Freddie will require around $130 billion and $100 billion in Treasury money, respectively, under a base-case scenario. But under a more stressful scenario, such as a double-dip recession, Fannie’s losses could rise to $180 billion, a level that would make the current backstop “too close for comfort.” A separate report earlier this year by analysts at Keefe, Bruyette & Woods said that Fannie could require $279 billion in Treasury backing under a worst-case scenario.

The Obama administration has said it will release early next year its recommendations on how to remake America’s $11 trillion mortgage market, and interest groups and Wall Street analysts have published their own proposals in recent weeks. The Barclays report said the debate over the future of Fannie and Freddie could take a decade or more to resolve.

While no clear consensus over the future of the companies has  emerged, a consensus over what not to do may be taking shape. Options for the future of the companies fall broadly into three categories: nationalization, privatization, and some type of hybrid public-private model.

Rising losses at the Federal Housing Administration, for example, could make nationalization less attractive, said Andrew Davidson, a mortgage-industry consultant. At the same time, the dearth of private investment in mortgages in the aftermath of last fall’s financial panic suggests that “at least under the most stressed conditions, some form of government backstop may be necessary to ensure continued securitization of mortgages,” said Federal Reserve Governor Elizabeth Duke in a speech Thursday.

But Ms. Duke also warned that restarting the government-run finance companies “in their old forms would do nothing but ask for a repeat of recent history.” Public-private options for the companies including creating a public-utility model or a cooperative owned by lending institutions.

So far, the Obama administration has been in no hurry to remake the companies as it works instead to stabilize the housing market. It has used the companies to help modify loans of troubled borrowers, and the Federal Reserve has helped drive mortgage rates to near-record lows this year by committing to buy up to $1.25 trillion in debt and mortgage-backed securities issued by Fannie and Freddie through next March.

Follow Nick for more housing and mortgage industry news on Twitter: twitter.com/NickTimiraos

Erica Beckman for The Wall Street Journal

Bank of America sold this historic Manhattan townhouse for $29.4 million.

Bank of America sells a historic Manhattan townhouse for $29.4 million, property records show. The five-story neo-Georgian building near Fifth Avenue is part of a row of mansions built around 1900 that housed members of the Rockefeller family in the last century. The architects of the Bank of America townhouse, McKim, Mead and White, also designed the arch in Manhattan’s Washington Square Park and Washington’s National Museum of American History. The townhouse formerly belonged to U.S. Trust, a private bank that used it for events for top clients, including intimate dinners with politicians, private concerts and cocktail parties. Bank of America acquired U.S. Trust for $3.3 billion in 2007. (WSJ)

The Paris apartment of the late designer Yves Saint Laurent hits the market for €23.5 million ($34.6 million). Located in a 19th-century building in the city’s 7th Arrondissement, the 5,600-square-foot duplex comes with a garden and courtyard. The designer began renting the apartment in 1970, bought it eight years later and lived there until his death last year, according to listing broker Anne de Cambiaire of Emile Garcin Paris. (WSJ)

Fashion designer Tory Burch lists a house in Southampton, N.Y., for $17.9 million after agreeing to buy another home nearby. The 1980 oceanfront contemporary home on the market sits on 4.5 acres and measures 6,000 square feet. It has six bedrooms, eight bathrooms, a pool and 200 feet of ocean frontage. Ms. Burch bought the property from her ex-husband, venture capitalist Chris Burch, for $22.5 million in July 2008, records show. Southampton officials then approved Ms. Burch’s plans to tear down the home and replace it with a 7,100-square-foot, seven bedroom beach house. The property is being offered with the approved plans for a new house. In October, Ms. Burch went into contract to buy a 25-room Georgian house in Southampton’s estate section that had belonged to the late attorney Howard Gittis. (WSJ)

Fashion designer Randolph Duke sells his 4,800-square-foot home in the Hollywood Hills of Los Angeles, Calif., for $5.3 million. The three-bedroom, three-and-a-half bathroom home won the American Institute of Architects Los Angeles chapter award for residential design in 2007. Located on a promontory, it has 6,500 square feet of outdoor terraces, decks and gardens. The property hit the market a year ago with a price tag of $8.25 million. (Los Angeles Times)

Fashion photographer David LaChapelle sells his 1,912-square-foot home in the Sunset Strip area of Los Angeles for $1.6 million. The Spanish-style home was built in the 1920s and has three bedrooms, one-and-a-half bathrooms, a remodeled kitchen, hardwood floors, a pool and a spa. The property last sold in 1999 for $800,000 according to public records. (Los Angeles Times)

South Beach Diet founder Dr. Arthur Agatston pays $7 million for a 6,400-square-foot home in the East Hamptons, records show. The home has seven bedrooms and seven-and-a-half bathrooms. (Curbed Hamptons)

Gansevoort Hotel Group

The hotel’s rooftop pool is a local hotspot

Father and son hotel developers William and Michael Achenbaum envisioned the Gansevoort South becoming one of the trendiest of South Beach’s trendy locales when they reopened the renovated, 334-room hotel in 2007.

It has indeed become a chic venue for celebrities and party people alike. No so much for lenders.

A Credit Suisse AG unit that supplied the Achenbaums an $89 million mezzanine loan on the hotel has declared a default and scheduled a foreclosure auction of its ownership stake for Jan. 28. The Achenbaums in turn are attempting to negotiate with the Credit Suisse unit to buy back the mezzanine loan and retain ownership of the hotel on South Beach’s Collins Avenue.

A statement released this week by the Achenbaums notes that the Gansevoort South’s hotel is “profitable and capable of covering its respective debt.” However, sales of the project’s condominiums have been weak, leaving the hotel alone to support the entire project’s debt, which it can’t, the statement reads. The owners intend for the hotel to remain open as the ownership situation is sorted out.

All told, the Gansevoort South has 334 hotel rooms, 259 condos, a rooftop pool and 63,000 square feet of shops, salons and restaurants. It has a $314 million mortgage that has first claim to the property ahead of the mezzanine debt. Brokerage Jones Lang LaSalle is handling the Jan. 28 auction. The story was reported earlier by the Miami Herald.

The Gansevoort South is one of four such hotels operated by the Achenbaums’ Gansevoort Hotel Group. The company owns two other Gansevoorts in Manhattan and manages one in the Turks and Caicos islands.

Foreclosure Rescue Disappoints (WSJ): Fewer than 5% of borrowers participating in the U.S.’s foreclosure-prevention program, about 31,000 in all, have received permanent loan modifications.

PCCP to Acquire Lehman Real-Estate Funds (WSJ): Lehman Brothers is expected to announce the sale of two real estate private-equity funds. PCCP will acquire the two funds, which have roughly $2 billion in assets under management.

Mortgage Rates Rise for First Time in Five Weeks (WSJ): The 30-year fixed-rate home loan remains below 5%, averaging 4.81% for the week ended Dec. 10.

U.S. Households’ Net Worth Rises (WSJ): The net worth of U.S. households rose 5% in the third quarter as stock markets continued rebounding, the Federal Reserve said Thursday.

The number of default notices and scheduled auctions and repossessions fell by 8% in November from the previous month and to their lowest level since February. But foreclosure activity is still up 18% from one year ago.

The main driver behind the depressed foreclosure numbers: more loan servicers are aggressively working to modify loans—so far with limited success. The Obama administration said yesterday that of some 650,000 trial loan modifications so far,  just 10,000 have converted into permanent modifications. (See Mortgages Trimmed for 10,000 Homeowners)

One big question heading into 2010: What happens to foreclosure levels if more modifications aren’t made permanent? The likely answer: Foreclosures continue to rise. Also expect to see an increase in short sales, where borrowers sell their home for less than the amount they owe.

For now, the administration’s tack is one of “shaming” loan servicers to do a better job making loan modifications. Many borrowers say they’ve given up trying to get a loan modification because the process is too confusing and complain that they’ve had to resubmit the same paperwork a half-dozen times.

But as HSH.com notes, other borrowers haven’t completed the paperwork that’s needed to document their income and to demonstrate hardship. More than half of all borrowers haven’t submitted any paperwork or have submitted incomplete files, according to the White House.

One possibility is that the administration will relax documentation requirements for loan modifications in order to make those workouts permanent.

Follow me on Twitter for more housing news: Twitter.com/NickTimiraos

The New American Dream: Default and then Rent (WSJ): Thanks to a rare confluence of factors, more families feel that the new American dream home is a rental.

Mortgage Program Reaches 10,000 (WSJ): Fewer than 5% of homeowners enrolled in the Obama administration’s mortgage-relief plan had their payments permanently lowered to more affordable levels by October, a report said.

Data Raise Fears of China Property Bubble (WSJ): China’s urban property prices grew at their fastest pace in 16 months in November, increasing concerns a market bubble may be forming.

Firm Takes Heat on East Palo Alto Crime (WSJ): A wave of robberies and burglaries is hitting East Palo Alto. One reason behind the surge is the financial troubles of real-estate firm Page Mill, some say.

Everett Collection

Controlling the dinosaurs in “Jurassic Park” proved difficult.

As he appeared before the House Financial Services Committee Tuesday to discuss the slow progress of government efforts to force lenders to ease payment terms on home mortgages, Anthony B. Sanders was reminded of the movie “Jurassic Park.”

It might be possible to bring dinosaurs back to life, but does that make it a good idea? Similarly, says Dr. Sanders, a professor of real estate finance at George Mason University, it might be possible to slash interest rates on millions of loans, but that doesn’t mean we should.

What if the government’s Home Affordable Modification Program somehow finally gains traction and manages to reduce interest rates to 2% on millions of loans and extend their terms to 40 years? That would just create fresh problems, Dr. Sanders says.

“Our banking industry, Fannie Mae, Freddie Mac and our Federal Reserve would now be sitting on trillions of dollars of mortgages, many at super-low interest rates and stretched maturities to 40 years,” he writes. Any rise in inflation and interest rates would then slash the value of those mortgages. “When one considers the precarious balance sheets of our lending institutions and our government agencies, we should think very, very carefully about loading up their balance sheets with these mortgages,” he warns, adding:

“Congress and the Administration should bear in mind that it is not just the banks that will suffer, but our pension funds, our own government agencies and the viability of the economy going forward.” Banks would be “stuck with low-interest, long-maturity loans on their books that will prevent them from lending to other borrowers or small businesses for a long, long time.”

The solution, he says, is to encourage financial institutions to sell distressed loans and mortgage securities at big discounts from face value to private investors, who could then restructure the loans on realistic terms related to today’s house prices. Such sales would force banks and other financial institutions to book big losses, but perhaps regulators could allow those losses to be absorbed in stages over five years.

If U.S. financial institutions don’t clean up their balance sheets by shedding dud assets soon, “we will make the Japanese zombie banks look the role model for a healthy financial system,” Dr. Sanders says.

But what about all those borrowers struggling to avoid foreclosure? “The (loan) servicers and financial institutions should be able to modify distressed loans as they see as economically appropriate,” Dr. Sanders says. “After all, these are private market contracts between borrowers and lenders.”

Please follow me for housing news on Twitter at: http://twitter.com/jamesrhagerty

But mortgage rates rose modestly last week, to an average 4.88% from 4.79%, according to the Mortgage Bankers Association, ending a six-week run of declining 30-year fixed rates.

The boost in applications was driven primarily by refinance interest, and the MBA’s Refinance Index gained 11% from the previous week, while the Purchase Index was up 4%. New home loan applications were driven almost wholly by demand for government-backed loans from the Federal Housing Administration and other federal agencies.

Mortgage rates have been at near-record low territory for the last couple of months, but the big question is what will happen next year, when the Federal Reserve is scheduled to end its purchase of mortgage-backed securities that has helped push rates down for much of 2009.

Real Estate News compiles a daily wrap-up from each morning’s Wall Street Journal and other news sources.

Dubai World’s $282 Million Hit: W (WSJ): Dubai World’s private-equity arm made a last-ditch effort to keep control of the W Hotel Union Square in Manhattan in a foreclosure auction but ended up losing the property, which it bought for $282 million.

Housing Inventory Declines (WSJ): The supply of homes available for sale declined 2.4% in November compared with the month before, according to ZipRealty Inc.

Hot, Cold for REIT IPOs (WSJ): The initial public offering for Pebblebrook Hotel Trust priced on Tuesday, while Chesapeake Lodging Trust pulled its IPO.

Naked Ambition for Rick’s Cabaret (WSJ): Strip-club operator to build new club near Dallas airport.

A Big Bet on Spanish Property (WSJ): Colonial’s planned debt refinancing signals an improving market.

Simon to Buy Outlet Landlord (WSJ): Simon Property acquired outlet-center owner Prime Outlets for $700 million in cash and stock, plus $1.6 billion in assumed debt.

Chicago’s Hotel 71 Sale Upends Condo-Hybrid Model (WSJ): A Chicago hotel that was part of developer Robert Falor’s ill-fated effort to build a condo-hotel empire has sold for a fraction of its debt.

GE Capital Expects to See $7 Billion in CRE Losses (MarketWatch): Executives from GE Capital, a unit of General Electric Co., said on Tuesday that the company expects to have about $7 billion in unrealized losses in the battered commercial real estate sector.

In a Soft Leasing Market, Pet Shops Find Room to Grow (NYT): New Yorkers may be buying fewer luxuries for themselves in this recession, but they seem reluctant to skimp on their pets. As a result, real estate professionals report, there is a small explosion of pet retailers in New York City.

James R. Hagerty

Mr. Feinberg bought this Phoenix house in September for $230,000.

Hal Feinberg is a power flipper: So far this year, he has bought 31 houses in the Phoenix area at trustee sales, and sold 28 of them. His aim is to sell within a month or two of buying.

An Atlanta native who stayed in Arizona after studying business and playing tennis at the University of Arizona, Mr. Feinberg says he has been making good money on those flips. His work days are full of the kind of suspense known only vicariously by addicts of real-estate fix-up-and-flip TV shows. But he has a surprising desire: “I’d like to get back to buying and holding.”

So why is he flipping up a desert storm? Mr. Feinberg says it all comes down to financing. Lenders over the past couple of years have grown very stingy with long-term mortgage loans for people who own more than a few investment homes. But he can still easily get short-term loans from so-called hard-money lenders charging interest of up to around 18%. Those loans allow him to buy houses, make any needed repairs and quickly resell them, often to Canadian buyers.

Until conventional mortgage lenders loosen terms for people who own dozens of houses, Mr. Feinberg is part of the gang of trustee-sale bidders we described in a story in today’s Wall Street Journal.

A little background: Before a lender can take possession of a home through foreclosure, a public auction of the property is held, typically in or outside of a county courthouse or at the office of a trustee appointed to handle the sale. These auctions often are called trustee sales or sheriff sales. If investors are willing to pay more than a minimum amount set by the lender, they get the property, and the bank gets the cash. Otherwise, the bank gets the house and faces the expenses of fixing it up and selling it.

This isn’t a game for amateurs. Typically, the auction buyer needs to pay a big deposit immediately and the full price for the home within 24 hours or so. That means there is no time to arrange for a 30-year mortgage. Buyers need lots of cash or access to hard-money lenders. They also need intimate knowledge of neighborhoods to know how much they can safely bid. Usually, they don’t get a chance to view the interior of a house before bidding. Nasty surprises can include cement poured down the toilet or granite countertops ripped out by a disgruntled former occupant. Even the palm trees may vanish.

“There are a lot of nuances that could really bite you if you don’t know what you’re doing,” Mr. Feinberg says. In one case, he had to go to court to evict the former owner of a home. That took four months and added $8,000 of legal and financing costs he hadn’t expected, cutting deeply into his profit on the transaction.

Mr. Feinberg, who has been a full-time property investor for about seven years, still has about 25 rental homes in the Phoenix area that he bought when long-term financing for investors was still readily available. He also has rental homes in Indianapolis, Kansas City, Mo., and Birmingham, Ala. His wife, Stacy, does the books for the family real estate business. He works from home or from his car as he scours the Phoenix area for his next deal.

Why real estate? Mr. Feinberg likes being his own boss, to “try to control my own destiny a bit.”

Please follow me for housing news on Twitter at: http://twitter.com/jamesrhagerty

House Flipping Makes a Comeback (WSJ): Four years after the collapse of the U.S. housing bubble, flipping homes is back in fashion. But today’s game is only for those with cash, lots of local market knowledge and strong nerves.

Former New Century Executives Charged (WSJ): The SEC filed civil fraud charges against three former executives of mortgage lender New Century Financial, alleging they misled investors and improperly overstated profits.

Loan Delinquencies to Decline (WSJ): Mortgage and credit-card delinquencies are expected to retreat next year as bad debt works its way off lenders’ books.

Push to Finish Tallest Tower (WSJ): The stalled construction of the Chicago Spire, a 150-story luxury residential building, may get a boost from unionized construction workers desperate for jobs.

Banks Step Up ‘Short Sales’ As Foreclosures Mount (Bloomberg): Banks are beginning to go along with short sales in increasing numbers, three years into a U.S. housing slump that pushed the economy into a recession and cut resale values by 30% from a July 2006 peak.

Corcoran Group

Malcolm Glazer sold La Bellucia to Jeffrey Greene for $24 million in Palm Beach, Fla.’s biggest deal of the year.

Malcolm Glazer, the owner of the NFL’s Tampa Bay Buccaneers who also has controlling stakes in soccer team Manchester United, has closed Palm Beach, Fla.’s biggest deal of the year with the sale of a nearly-12,000-square-foot spread on 3.8 acres for $24 million. The buyer was real estate investor Jeff Greene.

Called La Bellucia, the nine-bedroom, nine-and-a-half-bathroom home at 1200 S. Ocean Blvd., had a price tag of $27.5 million and was on the market for less than 30 days, says Dana Koch of Corcoran Group, who shared the listing with Paulette Koch. The oceanfront home has stone and hardwood floors, outdoor terraces and an oversized swimming pool.

Willey J. Kingsley, a physician and capitalist in Rome, N.Y., built the home in 1924. He named it after his wife, Lucy, according to the Palm Beach Daily News. The home exchanged hands several times over the years, and Mr. Glazer’s company, First Allied Jacksonville Corp., bought it in July 2000 for $14 million. “Their plan was to renovate the entire property back to its former grandeur,” Mr. Koch says. But he says the Glazers decided against the renovations and have decided to remain in their current home nearby, also on Palm Beach’s Billionaire’s Row. Though the Glazers never lived in La Bellucia, they maintained the property “meticulously,” Mr. Koch says.

Mr. Koch says the unit had multiple offers and that the quick sale didn’t surprise him because it was “priced properly.”

Unable to sell a 25-acre estate in Beverly Hills, Calif., Mr. Greene, the buyer of La Bellucia, put that property up for lease in October, asking $250,000 a month. Mr. Greene bought the unfinished property out of receivership for $35 million in 2006 and has spent nearly three years and $15 million finishing it. The 43,000-square-foot main house has 11 bedrooms, 14 bathrooms and a 6,000-square-foot ballroom. Six acres of vineyards produce 400 cases of wine annually on the property. Mr. Greene held his wedding there in 2007, but, he says, the home is too lavish for him and his wife to occupy full-time. Instead, they spent most of their time at a Miami condominium.

This commentary from the Federal Reserve Bank of Cleveland singles out America’s lax lending standards as a leading culprit:

Monetary policy was very similar in both countries from 2000 to 2008, but housing prices rose much faster in the U.S. than in Canada. This suggests that some other factor both drove the more rapid appreciation in U.S. prices and set the stage for the housing bust. A likely candidate is cross-country differences in the structure and regulation of subprime lending markets. That mortgage delinquencies began to climb before the recession in the U.S. but only began to rise recently in Canada (after the economic slowdown began), points to the significance of those structural and regulatory differences in explaining the U.S. housing crash.

In short, lending standards poured more gas onto the fire than did low central bank interest rates, and those standards were too loose in the States.

In the U.S., for example, the ratio of mortgage debt to disposable income jumped by nearly 50%, rising from two-thirds to 100%. Canada saw roughly half of that increase, with the debt-income ratio increase to 90% from 70%. Canada also had much fewer high loan-to-value borrowers. Around 12% of U.S. households had loan-to-values of 90% or more, compared to around 6% of Canadian households.

The subprime market grew to around 22% of the U.S. mortgage market by 2006, but in Canada, it never accounted for more than 5% of mortgage originations.  Securitization, or the practice of bundling loans and selling mortgage-backed debt to investors, was also much more common in the U.S. About six in ten loans were securitized in the U.S. in 2007, compared to one-quarter in Canada.

Why was Canada’s subprime market smaller?  The study’s author, James MacGee, suggests that in part, Canada was just plain “lucky” to be a “late adopter” of American housing-finance innovations. The subprime share of Canada’s market, for example, was growing rapidly just as the U.S. home price collapse began, and the Canadian government clamped down on some riskier forms of lending in July 2008.

Mr. MacGee notes that Canada, which has seen home prices begin to fall, could still see a bigger correction in the months ahead, but recent data portend that a slowdown is more likely than an outright bust. “Canada’s smaller subprime market share and fewer households with high LTV ratios…suggest that the country is less likely to see the rapid increase in defaults that helped trigger the bust in U.S. housing prices,” he writes.

Paradise Lost for Wealthy Resort Novice (WSJ): Trophy hotel investments made during the real-estate boom have turned into major burdens for some ultrawealthy investors, including Robert Sillerman.

Dubai Crisis Snags American (WSJ): The Dubai debt crisis is billed as a distinctly Middle Eastern affair. But it turns out there is an American in the middle of the action: 43-year-old deal maker David Jackson.

Ten Questions for Home Buyers (WSJ): Here are 10 questions that prospective buyers or renters ought to ask to find out how green a house or apartment is.

BofA Tosses Aside Mortgage Crutch (WSJ): Bank of America sold a $60 million bond deal backed by commercial mortgages, the first such deal to be sold without government baking in more than a year.

Soured Loans Put Lenders on the Hook (WSJ): Fannie Mae and Freddie Mac are aggressively bouncing back defectively underwritten loans to lenders as home loans sour at a rapid clip. The result: higher loan-loss reserves for the lenders.

State of the Cooper Union (WSJ): Its angled forms and slashed openings upend conventional notions of “contextual” harmony. But, as Ada Louis Huxtable reminds us, Cooper Union’s latest building is as radical today as its Foundation Building was 150 years ago.

When Parents Gift a Down Payment (WSJ): A reader asks if her parents, who aren’t U.S. citizens, will be on the hook for taxes if they give her $150,000 to help buy a house. June Fletcher explains.

Associated Press

What would Santa do with $1.91 billion?

As the holiday season approaches, spare a thought for Robert Toll. While the rest of us scurry after trifles in the malls, he must figure out what to do with $1.91 billion in cash and Treasury securities.

That is the hoard of liquidity as of Oct. 31 on the balance sheet of Toll Brothers Inc., the home-building company where Mr. Toll serves as chairman and CEO. That stash isn’t earning a lot of cash for the shareholders – probably around 2% a year, or $38 million, says Megan McGrath, an analyst at Barclays Capital. So she and other analysts naturally are wondering how some of it might be put to better use.

Playful as usual on Thursday’s quarterly conference call with analysts, Mr. Toll was coy about his plans for the loot. “We are thinking about all of our options,” he said.

Here are a few of them:

• Rush out and buy lots of land from foreclosing lenders and other distressed sellers. Mr. Toll confirmed that the company, along with lots of other builders, is ogling land parcels, but Toll Brothers isn’t bidding very aggressively. “Having gotten whacked” by write-downs of land bought at silly prices during the housing boom, Toll Brothers will proceed cautiously in sifting through the rubble, “at least until our memories fade and we get greedy again,” Mr. Toll quipped. “We want to make sure we don’t repeat past errors in overpaying.”

• Start putting roads and other infrastructure on land already owned by the company in preparation to build lots of new houses. But Mr. Toll was cautious about how many homes can be sold in the near future. The company said it expects completed sales to be lower in the current fiscal year than they were in the one ended Oct. 31. Demand in recent months as been “choppy,” Mr. Toll said. He expects that the outlook will be clearer in a few months, after the holiday-season lull in home sales.

• Pay off some debt early to reduce interest expenses. Toll Brothers’ net debt already is low, just 7.4% of capital. Still, Mr. Toll said “we are thinking about paying down debt.” That would help Toll Brothers edge closer to profitability.

• Buy back shares. That probably would give at least a slight boost to the stock price. Mr. Toll said the company might consider it.

• Pay a special dividend. Toll Brothers doesn’t pay dividends. But, since it is the season to be jolly, perhaps an exception could be made? “Probably not,” Mr. Toll said in his best Grinch-like tone.

What do the analysts think?

At Barclays Capital, Ms. McGrath says it would make sense for Toll Brothers to pay down some of its debt but still keep a fairly large chunk of cash available in case any spectacular land deals pop up. She doesn’t expect any aggressive moves to spend cash in the near term. “Companies want to feel more confident that we are in a sustainable, long-term recovery” before opening their wallets. Judging by Mr. Toll’s cautious comments Thursday, she says, “he’s not there yet.”

Ivy Zelman, chief executive of Zelman & Associates, says Toll Brothers “should definitely consider a special dividend,” though she doesn’t expect one to be paid. She agrees that paying down debt would be another wise move.

Gentle Readers, we’ve heard from Wall Street. Can you help Mr. Toll by offering more imaginative spending suggestions?

Please follow me for housing news on Twitter at: http://twitter.com/jamesrhagerty

So far, most criticism on the Home Affordable Mortgage Program, i.e., HAMP, has centered on why so few borrowers with trial modifications are converting into permanent modifications. The common refrain from loan servicers is that they haven’t been able to get paperwork from borrowers to help finalize the loan modification — important because servicers get paid for each mod, and need to prove that borrowers actually face hardship.

But at ForeclosureRadar’s blog, Sean O’Toole raises a different, potentially more problematic issue: “Permanent” loan modifications last for only five years. He posits that reason for the low uptake of the loan modification program:

Maybe borrowers have figured out that this program is really only another exotic mortgage like one they fell prey to when they bought or refinanced the house that resulted in their current predicament. HAMP and the administration’s newly announced campaign isn’t digging borrowers out of a hole. It’s only digging them a new one, and delaying the inevitable.

To be sure, the five-year period tries to give borrowers a lifeline—a chance to get their life back on track. In five years, the thinking behind the plan goes, more borrowers may be financially whole again, able to make their mortgage payments, or, if housing prices have stabilized, some may be able to refinance or sell their homes.

But what about those borrowers who have loans modified who aren’t ever going to be able to afford their higher payments, which is what they’ll have to pay after the five-year modification expires?  Are loan mods just creating a new batch of loan resets and delaying the inevitable foreclosure for borrowers who bought too much home, or who were sold a loan that they didn’t understand and couldn’t afford? Mr. O’Toole is blunt in his criticism:

The new hole offered by HAMP is all the downside with none of the upside.

The downside: exotic re-financing, by which they make payments affordable today, but leave homeowners in the same boat down the road when payments ratchet back up after 5 years.

The bonus downside: there is no reasonable expectation that home values will appreciate anywhere near enough to get these loans above water before the 5 years is up, or before the homeowner runs into a real life event like job loss, divorce or job relocation — leaving them stuck in an upside down prison of debt.

The column in today’s NYT by Floyd Norris raises the same prospect, while offering a little more leeway to the administration.  While he writes that it’s “conceivable that this process is doing more to drag out the foreclosure crisis than to alleviate it,” he adds:

“[P]erhaps we should not be too critical of anybody involved in the modification effort, either the administration or those trying to arrange modifications. The mess was made years ago, when bad loans were made and the ready availability of credit was driving house values to unsustainable levels. Cleaning it up is not going to be a pleasant experience for anyone.”

UPDATE: HSH.com weighs in, noting that while the mods are complicated, they may not necessarily qualify as exotic. That’s because borrowers can calculate upfront the monthly payments they’ll have to make in year five, and then in years six, seven, and eight as interest rates are gradually returned to the lesser of the original interest rate or the market rate when the loan modification was completed.

Follow Nick for more housing news on Twitter: www.twitter.com/NickTimiraos

Dubai’s High Rise And Then Steep Fall (WSJ): Dubai’s construction boom was fueled by easy credit, a poorly regulated market overrun by speculators, and cheerleading from Dubai officials.

Brookfield, Simon Position to Bid on General Growth (WSJ): Brookfield Asset Management and Simon Property have bought portions of General Growth Properties’ bank debt and bonds to position themselves to make bids for all or part the mall giant.

House Builders Missing a Trick (WSJ): House builders have enjoyed something of a rally lately, doubling and even tripling their share prices. But is their future built more on hope, rather than firm foundations?

Mortgage Rate at 38-Year Low (WSJ): Mortgage rates generally fell again this week, with the average rate on 30-year fixed-rate mortgages reaching the lowest level in at least 38 years, according to Freddie Mac’s weekly survey.

British Home Builders Want Stimulus (WSJ): U.K. home builders have started restocking land banks and opening new development sites amid signs of stabilization in the housing market, but cautioned that there will be no sustained improvement until mortgage lending picks up.

Why Many Home Loan Modifications Fail (NYT): The banks, and the government, are soon going to have to decide what to do about borrowers who are making the modified payments but have not provided the documents after repeated efforts to obtain them.

Bair Weighs Principal Cuts to Fight Foreclosure (Bloomberg): Federal Deposit Insurance Corp. Chairman Sheila Bair may ask lenders to cut the principal on as much as $45 billion in mortgages acquired from seized banks, expanding her bid to aid homeowners as unemployment rises.

The Travel Library/Rex USA, Courtesy Everett Collection

Sunset in Aruba doesn’t look so bad

The Internet is aswarm with listings of homes for sale. Even Overstock.com has them, appropriately enough in today’s glutted housing market.

So how is a real estate broker to draw Web traffic to yet another listings site?

Coldwell Banker Real Estate has just launched a beta site whose features include something called BlueScape, designed to help you figure out what kind of home you’d adore. The idea is loosely based on features from other shopping sites, such as Amazon and iTunes, that recommend things to you based on what you bought in the past. Even though iTunes recently had the nerve to suggest I might dig Barry Manilow, I decided to have a go at BlueScape.

Since BlueScape doesn’t know what kind of homes I bought in the past (none of them were bought online), it shows me pictures to gauge my emotional responses. When a picture pops up, I can click on a thumb’s up icon or a thumb’s down.

Here are some of the images I saw: clusters of cherries in a tree, autumn leaves, a sunset over a bay, paint samples, a purplish sunset, a golf course in the mountains, a brick McMansion, a bench by a lake, a young couple carrying shopping bags down an urban sidewalk while nuzzling each other, snowmobiles and a close-up of a welcome mat. After about 20 images, I’d had enough, so I clicked for “results.”

Here’s what I learned: I should consider a bungalow in Altona, N.Y. ($250,000), a three-bedroom house in Port Charlotte, Fla. ($369,900) or a cute little yellow home with a pool in Aruba ($397,500).

“We really wanted to make this a re-envisioning of what we thought a real estate site could be,” explained Michael Fischer, senior vice president of marketing at Coldwell Banker. He says BlueScape isn’t for people who already know just where they want to live and are ready to make an appointment with a Realtor. Instead, it’s for when “you are in that dreaming phase.” The overall site, he said, is designed to be useful but also can be “infotainment.”

If anyone finds this all a bit too whimsical, there is an easy fix, at least for now. Click on a link from the beta and you’re whizzed back to the “classic” Coldwell Banker site.

Please follow me for housing news on Twitter at: http://twitter.com/jamesrhagerty

Lawmakers from high-cost housing districts, for example, want to ensure that the FHA doesn’t disappear from their neighborhoods. They’ve introduced a bill that would make permanent the higher loan limits that Congress temporarily expanded last year. That allowed the agency to insure loans as large as $729,750 in the nation’s most expensive housing markets, up from a $362,000 national cap. California now accounts for around 13% of FHA-backed loans, up from less than 2% during the housing boom, partly because of the higher limits.

Without the higher county-by-county adjustments, “many areas of the country will not get the benefit of the FHA,” said Rep. Barney Frank, the Massachusetts Democrat who chairs the House Financial Services Committee. “We didn’t think it was fair for California to be frozen out of the program.” Mr. Frank said he thinks limits should be increased to around $800,000.

Shaun Donovan, the secretary of the U.S. Department of Housing and Urban Development, said the agency believes the expanded loan limits should be temporary. The larger loans account for less than 2% of all FHA-backed loans. While default rates are slightly lower than on all FHA-backed loans, the loans have little seasoning, because the FHA only began insuring larger loans last year.

Other lawmakers, meanwhile, want to bring back programs that allowed borrowers to receive FHA-backed loans without making down payments. Congress last year ended widely-used programs that had allowed sellers to fund down payments to borrowers through non-profit charities, and the FHA says that those programs have eroded the net worth of the agency’s reserves by $10.5 billion. At Wednesday’s hearing, Reps. Al Green (D., Texas) and Gary Miller (R., Calif.) pressed for the FHA to find new ways that would let buyers qualify for FHA backed loans without making down payments.

“Let’s develop a program for persons who can pay for a home but who are without the necessary down payment,” said Mr. Green, who said he nonetheless understood why there was “a great deal of consternation” over the seller-funded down payment programs.

FHA borrowers are still able to use gifts from state housing finance agencies or relatives to make down payments. Housing officials are unlikely to support any effort to bring back the seller-funded gift program. “The biggest concern and issue is about having an interested party in the transaction providing a down payment,” said Mr. Donovan. “That has been what has led to the incentives that led the program in the wrong direction.”

A survey this week from Barclay’s Wealth showed that wealthy investors have a renewed appetite for real estate.

The survey, of 2,000 investors world-wide with investible assets of more than $800,000, showed that 75% of respondents felt residential real estate looks attractive from an investment perspective. Of course, that doesn’t mean they are buying: 60% said tight credit was preventing them from taking the plunge.

About half of the respondents expect an increase in the value of their real-estate investments over the next two years. Almost 40% of those with assets of $50 million or more have greater than 50% of their portfolio in real estate (so much for lessons learned).

Perhaps the most interesting part of the survey relates to gender…

Keep reading on WSJ’s Wealth Blog.

Associated Press

Tiger Woods’ home in the gated Isleworth community in Windermere, Fla.

Tiger Woods’ recent ‘transgressions’ put a spotlight on the gated community he calls home near Orlando in Windermere, Fla. Surrounded by an 8-foot security wall, the Isleworth Community boasts clay tennis courts, a golf course designed by Arnold Palmer, outdoor sculptures, lakes and an 89,000-square-foot club house.

Since the neighborhood’s development in the 1980s, it has attracted sports stars and celebrities by the dozen. Former and current residents include Shaquille O’Neal, Penny Hardaway and Dee Brown from the NBA; baseball star Ken Griffey Jr.; Andre Reed of the NFL; former Wimbledon doubles champion Todd Woodbridge; and actor Wesley Snipes. New homes in the community range from $1.5 million to $8 million (Associated Press). AOL’s “Rented Spaces” points out that Mr. Woods’ home is a “behemoth” that could be partly responsible for last week’s accident.  (Rented Spaces)

WSJ/House of the Day: Tour a six-story townhouse on Boston’s Beacon Street that developer Peter Georgantas and his wife bought in 2005 and then renovated. The home now has seven bathrooms, six full bathrooms and three half bathrooms in 8,450 square feet. It is currently on the market for $14.95 million. (WSJ)

Cronkite’s Apartment: The co-op of the late Walter Cronkite hits the market in New York City for $2.995 million. Located on the 25th floor of 870 United Nations Plaza on Manhattan’s East Side, the unit has three bedrooms and five bathrooms. The building is also home to the unit’s broker, Joanna Simon of Fox Residential Group. Ms. Simon, a former opera star and journalist who is also the sister of singer Carly Simon, was Mr. Cronkite’s companion in the last years of his life. (New York Post)

Live like a Beverly Hills Doctor: The home of Robert Rey, the star of E! Entertainment Television’s reality show “Dr. 90210,” hits the market in Beverly Hills, Calif., for $4.395 million. The gated Mediterranean-style house measures 8,000 square feet and has six bedrooms and eight bathrooms. It also has a two-story entry, a gym, a pool and a guesthouse. The three-story home was once owned by actress Raquel Welch. It was listed earlier this year with a price tag of $5.295 million. (Los Angeles Times)

Stone’s Throw: Journalist Stone Phillips, the former co-anchor of “Dateline NBC,” lists his Flatiron loft condo in Manhattan for $4.995 million. The 4,100-square-foot unit has three bedrooms, two-and-a-half bathrooms, a media room and a library. Mr. Phillips paid $4.45 million for the unit in 2005. (New York Post)

Former Mets Player in SoBro: Omni New York, a real estate development company led by former New York Mets first baseman Maurice “Mo” Vaughn, buys 14 deteriorating apartment buildings in the South Bronx at auction for an undisclosed amount. Together the buildings, which were in foreclosure, have a total of 416 units with a mortgage debt of $23.8 million. The seller was Ocelot Capital Group, which had abandoned the buildings and defaulted on their mortgages. Ocelot bought the buildings in 2007 for $36 million. Fannie Mae purchased the $29 million loan from Deutsche Bank and found that the loan did not meet its underwriting standards. In March, the loans went into foreclosure. (Crain’s)

Real Estate News compiles a daily wrap-up from each morning’s Wall Street Journal and other news sources.

Green Acres Is the Place to Be (WSJ): While urban and suburban real estate is still generally under pressure, the rural market is holding up better in many areas. Sometimes dubbed “ruralpolitans,” new city and town dwellers are looking at land as their new safe investment, one they hope could prove more stable than their jobs and 401(k)s—and provide a better lifestyle.

Morgan Stanley Looks to Restructure CMBS (WSJ): A real-estate fund managed by Morgan Stanley is trying to restructure a $1 billion securitized mortgage on five resorts it bought in 2007 in the latest example of a bad commercial-property bet made by the firm.

Write-Downs Hit Toll Brothers Net (WSJ): Toll Brothers Inc.’s fiscal fourth-quarter loss widened amid continued write-downs and a choppy housing market, but the luxury home builder said it is seeing some signs of a gradual recovery.

Oakland’s Temescal Goes From Rundown to Reborn (WSJ): The North Oakland area of Temescal has become a yupster magnet, led by local merchants who embarked five years ago on a deliberate strategy to shed the tawdry Oakland image by fostering a neighborhood art and culinary scene.

BofA, Wells Fargo Say U.S. Home Prices Won’t Suffer New Plunge (Bloomberg): Leaders of Bank of America Corp. and Wells Fargo & Co., the two biggest U.S. mortgage lenders, expect home prices won’t suffer a new plunge in 2010 and that commercial property defaults won’t be a major threat.

Faced with rising losses and falling reserves, the FHA is preparing a series of tweaks to its underwriting guidelines and increase in fees in order to stave off a taxpayer bailout of the traditionally self-funded agency, Shaun Donovan, the secretary of Housing and Urban Development, told Congress in testimony Wednesday afternoon.

Among the changes under consideration:

• Raising the annual insurance premiums that borrowers must pay. This is the easiest place to start, but it would raise borrowing costs for home buyers. The FHA charges an upfront insurance premium of 1.75% of the total cost of the mortgage which most borrowers can roll into their loan, and then they pay additional annual premiums of either 0.5% or 0.55%, depending on their down payment.
• Setting a credit score floor for borrowers. The agency hasn’t decided what that minimum might be, but it says it is looking at requiring borrowers with minimum down payments to have higher credit scores. While the FHA doesn’t currently have a cutoff, most of the nation’s top lenders have instituted a minimum 620 credit score for FHA borrowers.
• Requiring buyers to bring more money to the closing table. The FHA says that it will limit the amount of money that sellers can provide for closing costs on home sales to 3% of the home price, from the current level of 6%. Agency officials say they are also considering potential increases in down payments, but such a move could face heavy opposition from the real-estate industry. The head of the National Association of Realtors says such an effort as would “disenfranchise” FHA borrowers.
• Making FHA-approved lenders more accountable for loans that they submit to the agency. The FHA doesn’t make loans, but it instead insures lenders against losses on loans that conform to its standards. In recent months, the agency has moved more swiftly to expel lenders that it says are putting the agency at risk. For example, on Monday, the agency terminated its approval for Ideal Mortgage Bankers, Ltd. and affiliate Lend America to make FHA-backed loans. Lend America on Tuesday said it would cease operations but that it plans to appeal that decision.

The moves may be too little too late if the economy worsens next year. While the FHA’s independent auditors last month said that the agency wouldn’t run out of money, it did project that the value of its reserves would fall to just 0.5% of the total loan portfolio that it insures. Moreover, around three-quarters of all future losses are expected to come from loans that the agency has already made.

FHA officials say the agency won’t probably won’t need to ask for Treasury money for the 2011 budget, which is being drafted right now. But they say it’s too early to tell what will happen in the years after that.

The FHA largely sat out the subprime boom because its standards were considered too strict. But the New Deal-era agency has seen its market share mushroom to around one-quarter of the U.S. mortgage market, up from 2% three years ago, first as the subprime mortgage market imploded and later as private lenders ratcheted up their standards.

The FHA accounts for more than half of all new home loans in some of the nation’s hardest hit markets. “We should not play this large a role,” David Stevens, the FHA’s commissioner, said in an interview. “It’s certainly not sustainable for the long term.”

Application volume was up 2.1% from two weeks ago. But much of the activity was in refinancing–72.1% of applications.

Average rates continue to fall into record-low territory, meanwhile, on 15-year fixed-rate mortgages. Rates were down to 4.27% last week, the lowest ever recorded in the MBA survey, which dates back to 1972. The previous record-low was hit in October 2009.

Over at the Mortgage Insider blog Mathew Padilla wonders why there’s been little buzz over these low rates. “Perhaps it’s true that everyone who could benefit from a refinance has refinanced,” he speculates.

Readers, have any of you taken advantage of these low rates by refinancing? How long do you expect below-5% rates to last?

FHA Considers Way To Boost Its Reserves (WSJ): The Federal Housing Administration, faced with rising losses on home loans that it insures, is set to announce Wednesday a raft of measures it is considering to protect its dwindling reserves.

London Tops Office-Rental Rates (WSJ): London’s West End can once again lay claim to the dubious distinction of being the world’s most expensive office market after its rental prices surged past those in the inner central district in Tokyo.

Dubai World Holds Key to Property Revival (WSJ): A move by Dubai’s flagship conglomerate to sell some trophy properties could help turn the gears of a commercial real-estate market that has been stalled for more than a year.

General Growth Files $9.7 Billion Restructuring Plan (WSJ): General Growth Properties Inc. filed a plan in bankruptcy court to restructure $9.7 billion in mortgage loans.

Foes and Friends in Trump Bankruptcy (WSJ): Texas banker and math whiz Andrew Beal honed his skills by anticipating other players’ moves in multimillion-dollar poker games. But Mr. Beal got blindsided when his friend and former business partner Donald Trump switched sides in the bankruptcy-court struggle over Trump Entertainment Resorts Inc., which owns the three Trump casinos in Atlantic City, N.J.

SL Green’s Faith in 100 Church St. (WSJ): Can a new owner improve the fortunes of 100 Church St., an office building in downtown Manhattan once dubbed the least-occupied building in the Big Apple?

The Tussle in Time-Shares (WSJ): A battle is brewing over the remains of an ill-fated time-share investment made in 2007 by a Goldman Sachs Group Inc. real-estate fund.