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A debate has sprung up in the San Francisco Chronicle and on other blogs about whether it’s right for homeowners to deliberately stop making payments in order to qualify for programs that reduce their mortgage payments. There’s discussion also about whether journalists should even report that as an option.

I called Evan Wagner, press spokesperson for IndyMac, the big California bank that was seized by the FDIC in July. FDIC chairman Shelia Bair has been using IndyMac as laboratory to test efforts to renegotiate loans en masse. Since she launched her program big banks such as Bark of America and quasi governmental mortgage players Fannie Mae and Freddie Mac have been introducing similar programs. But do you need to stop making payments to get attention?

No, says Wagner. It is true that companies that collect payments on mortgages that were sold on Wall Street are only allowed to modify loans that are in default or at serious risk of default. To qualify for the FDIC program you need to be at least 60 days past due. But Wagner says the bank is working out deals with other borrowers, so it makes much more sense to go that route first.

The simple fact is that to even begin to qualify your house payments have to be greater than 38% of your gross income. Not working a second job or overtime, as some people have suggested, would be crazy in this economy. And deliberately stopping payments could backfire if the FDIC loan officers say you don’t quality, you may actually end up losing your home.

FYI, IndyMac is having an open house at the Van Nuys, Calif. convention centers on Saturday Nov. 22. from 10 AM to 3 PM. They’ll have twenty loan officers out there considering homeowners' loan problems.

Fannie Mae and Freddie Mac are putting a temporary halt to foreclosure sales and evictions of occupied single-family homes during the holiday season.

It’s not just that the government-controlled mortgage finance companies have gotten into the holiday spirit. The idea of the suspension, which will last from Nov. 26 to Jan. 9, is to help service providers implement a new loan modification program for borrowers who are at least 3 months behind on payments. The program is only for loans owned by the two companies.

“Freddie Mac is on track to help three out of every five troubled borrowers with Freddie-Mac-owned loans avoid foreclosure this year,” David M. Moffett, Freddie Mac Chief Executive Officer, said in a statement. “Today’s announcement … provides a new measure of certainty to many of these families during the holidays.”

Here's the Fannie Mae release.

And here's Freddie's release.

The builders are about as pessimistic as they've ever been. Yesterday, we learned that the National Association of Home Builders/Wells Fargo Housing Market Index, which tracks builder sentiment, fell to a record low of 9 in November (sinking from an already low 14 in October).

Today we found out that housing starts fell 4.5% in October and even more concerning, single-family home building permits plummeted 14.5%, meaning that we'll see an even more significant drop in housing starts in coming months.

Patrick Newport, U.S. Economist with IHS Global Insight, seemed downright worried when I spoke with him today. He called the housing start report, a "shocker."

"These are people who know their business," Newport said of the builders. "They’re in better touch with the market than we are and the press is."

The financial crisis, which really got going after Lehman Brothers collapsed on Sept. 15, will likely cause serious damage to the already faltering housing market. It seems that mortgage applications are way down since September, an indication of falling buyer demand.

U.S. home mortgage applications dropped last week by a seasonally adjusted 6.2% compared to the previous week, according to the Mortgage Bankers Association. And the application volume was down 41.3% compared to the same week in 2007.

Treasury Secretary Henry Paulson and FDIC Chairwoman Shelia Bair battled it out on Capitol Hill today over competing plans for the $700 billion Troubled Asset Relief Plan funds.

House of Representatives Financial Services Committee Chairman Barney Frank (D. Mass.) bashed Paulson for shifting his plan for the bailout funds, investing the money in healthy banks rather than buying the troubled mortgages he originally said he would. "The fundamental policy issue is our disappointment that funds are not being used to supplement mortgage foreclosure reduction," Frank said.

Bair, meanwhile, told lawmakers the money should be used to prevent foreclosures. Her plan is to use some of the money to encourage banks to renegotiate loans by guaranteging that lenders get some money back if the loans later fail. Bair says her plan could prevent 1.5 million foreclosures.

Federal Reserve Chairman Ben Bernanke said he supports Bair's approach. Paulson defended his strategy saying the direct investments were needed to shore up the financial system and the best way to support housing prices is for banks to now use that federal money to provide low cost loans.

Many weird stories have popped up at a result of the real estate bust, but none stranger than this recent item from California's Riverside Press-Enterprise.

A character named King Solomon II is filing deeds of sale on foreclosed homes and then renting them out to other people. This is a big problem when the actual owners want to move in. They've got to evict the renters from their house.

King Solomon II, meanwhile, is claiming through his niece that he lives in a sovereign nation (Nevada) and refuses to pay taxes or homeowner's association fees.

The case illustrates how relatively easy it is to file a claim of ownership.

A shameless plug here that I participated in a 30-minute segment on the "state of the housing market" on NPR's Talk of the Nation show yesterday, along with noted Yale economist Robert Shiller. Here's a link to the audiocast, on the off-chance you weren't glued to NPR all day Thursday.

At one point, I interjected and asked Shiller if he thought we were hurtling toward a depression. What prompted me to ask were comments Shiller had made in a separate interview recently where he was pretty bearish. On Talk of the Nation, Shiller seemed a little more hopeful that we can dig our way out this time -- noting that after the Crash of 1929, the country had to wait three years for do-nothing Hoover to leave office and make way for FDR and his aggressive agenda to create jobs through public works programs. This time, we only have to wait another two months (though even that short delay could be enough time for GM and the other automakers to file bankruptcy first).

Photo credit: The National Post, which published an interview with Shiller in early October and which is recommended reading.

I visited the Building Industry Association of Southern California’s annual trade show in Long Beach, Calif. yesterday. This is the big show for Southern California homebuilders, where suppliers of everything from appliances to Astroturf pitch their wares.

Folks tried to inject a little fun into the event. The Hooters girls were meeting and greeting at one booth. A company called Universal Truss was handing out Nerf dart guns (Hari Kari anyone?) But the most popular booth was one from Suncoast Framing which had a working bar set up. The theme for the show was “Setting the Stage” for a recovery. Drowning your sorrows was more like it.

In one of the conference rooms, Lisa Grobar, a professor of economics at Cal State Long Beach, predicted the recovery would come next year. Foreclosures will peak in the first half of the year, she said, but not before a second wave of people loses their homes, due to unemployment, not toxic mortgages.

Steve Johnson, of the research firm Metrostudy, made a convincing case that the California market must be bumping pretty close to a bottom. The number of new houses starting construction, for example, is just 13,000. That’s about 20% of what they were two years ago. The state hasn’t seen this little new construction since the 1950s. “We have virtually turned the engine off,” Johnson said.

That wasn’t news to the panelists at an afternoon session on “Surviving a Down Market.” Of the four panel members, three had either changed or lost their jobs just since the show program was printed. The only one who was still at the same company was executive recruiter Kipp Gillian who said he’s gone from getting a 100 resumes a month to 100 a day. Brandon Clements, who recently got laid off from builder Toll Brothers, says he’s been using the free time taking classes to get licensed as a real estate broker and a construction contractor.

Mike Hunter, a land acquisition specialist, said this was now his fifth down cycle in Southern California real estate since he got in the business in the late 1960s. During one he said he didn’t collect a commission check for four years. He had these words of encouragement for those in the audience. “Every single downdraft I’ve been in, we’ve come back better than the previous one.”

If you are trying to sell a house, this chart might make it hard for you to sleep tonight. It shows what you're up against. The figures come from a Nov. 1-8 nationwide survey of real estate agents conducted by Campbell Communications and sponsored by the publication Inside Mortgage Finance. More than 2,500 agents participated.

As you can see, 29% of all sales in September and October were REO--real estate owned. That means the previous owners lost the houses in foreclosure and the current owners--usually banks--were unloading them. Another 12% were short sales. That means the current owners were selling them for less than the money owed on the mortgage(s).

In other words, about 4 in 10 sales were by people who were highly motivated to get rid of the properties even if they couldn't get very high prices. That helps explain why ordinary sellers are having such a hard time finding buyers. The chart calls them "non-distressed," but a lot of them are feeling quite distressed anyway, thank you.

The survey also found that total sales fell 19% from September to October as economic and financial conditions worsened. It's bad out there.

Bill Conerly at Seeking Alpha has a good post today about how to deal with the excess housing supply. In a nutshell, he says helping people move from renting to owning isn't the right solution because it will just exacerbate the oversupply of rental units. The only solution, in his view, is population growth. That takes time.

The $189 billion California Public Employees’ Retirement System, the largest and most closely watched pension fund in the country, has revealed a huge hit to its real estate portfolio. Its housing related assets are down 35% to $6.1 billion as of June 30. Until recently, the big fund was still reporting double-digit increases in its real estate investments. According to a report that will be presented to the fund’s investment committee on Nov. 17, CalPERS’ overall real estate portfolio is down 11.2% for the fiscal year that ended in June.

The fund seems to have made some very basic investment mistakes, including over concentration in its once red-hot home market of California. Among its biggest disappointments is a nearly $1 billion investment in a partnership involving homebuilder Lennar, forestry giant Weyerhaeuser and private equity firms Cerberus and MacFarlane Partners. That partnership, called Land Source, is now in bankruptcy. A report prepared for the fund by independent consultant Le Pastrier Development Consulting found that high-levels of leverage contributed to the volatility of the fund’s housing investments.

CalPERS, known for agitating for corporate governance changes at big companies it invests in, is adjusting its own policies in the wake of the real estate debacle. The fund is busily restructuring its partnerships to reduce debt. In the future, real estate investments will have to pass muster with an internal review committee, an independent fiduciary and a board consultant. CalPERS is still looking for a new chief investment officer. The fund’s previous top manager, Russell Read, bailed out last spring.

You might be surprised to learn that the California foreclosure rate actually decreased by 18% in October compared to September, according to RealtyTrac’s new report. But the news isn’t necessarily good.

The state’s filings have dropped for two straight months because of a new law that requires lenders to make a number of attempts to contact homeowners and then wait 30 days before issuing default notices. This has slowed down the number of foreclosures and will likely just delay the inevitable.

Despite the drop in the California rate, foreclosures nationwide increased 5% from the previous month and 25% from Oct. 2007, RealtyTrac said.

And the worst is likely on the way. Rick Sharga, RealtyTrac's vice president of marketing, told me today that he expects a sharp increase in coming months as the economy worsens and more and more people lose jobs.

"Another wave right now is about to come, driven by the economic downturn," Sharga said.

The flurry of announcements by the government and major banks that they are engaging in a massive campaign to modify mortgages that are in or are hurtling toward default and foreclosure will certainly give rise to predictions that the housing market has been stabilized and disaster averted. If only it were so.

Make no mistake, policymakers and banking executives had to launch this concerted campaign to try to stop the wave after wave of foreclosures that seems to feed on itself. As lenders foreclose on one delinquent borrower, and then sell the home at what is invariably a steep discount, that just pushes a number of nearby homeowners so far underwater that they just move out and mail their keys in, which just sets the cycle in motion again.

But anyone hoping that this synchronized effort to modify millions mortgages that are in trouble is likely to be disappointed. Because behind the splashy headlines, there are limits to what the government and banks can hope to achieve. And trying to slow the free-fall in housing markets is akin to the government trying to put its finger in the dike.

The fact is that despite the double-digit declines in housing values in most cities, housing remains significantly overvalued in many markets by all of the traditional benchmarks: One key ratio – the median cost of a new home vs. median income – suggests that home prices nationwide still need to drop another 15% to 20% on average, as you can see in this chart compiled by money manager Barry Ritholtz. And the equilibrium price is far more than that in bubble markets like southern California and Florida. According to this "fair value" calculator, one suburban neighborhood outside Washington, D.C. that I checked (Alexandria, Va., where I lived in the mid-1990s) is now 47% overvalued. Ditto for a few communities in Los Angeles that I surveyed.

There was a great story in the Los Angeles Times yesterday about the reporter's struggles to buy a home in foreclosure. I was particularly fascinated by what appears to be some creepy dealings by the listing agent on one of the properties who never even showed the reporter's offer to the bank.

I've been poking around on my own, looking to buy bank-owned property in a Los Angeles neighborhood called Canoga Park. It's a frustrating experience no doubt. I had a close encounter with a wild dog sleeping underneath one house I visited. Fortunately he didn't bite. I've seen homes where flippers left unfinished bathrooms. I saw several houses with paint splashes on the walls, put there by owners who never even had a chance to finish painting.

Another home had perhaps fifty business cards from various real estate agents, scattered across the kitchen counter like coins in a wishing well. One Realtor told me he doesn't even bother going to visit houses anymore. "There are 6,000 houses for sale in the San Fernando Valley," he said. "I'd never have time to see them all."

The last house I went to look at was listed as bank-owned in the Multiple Listing Service and had pictures attached of a nice, empty home. When I got there the home was occupied and the hastily scribbled sign outside said "for sale by owner." A half-hour drive for nothing.

I'm not normally one to toot my own horn, but in this case...toot, toot, toot.

My colleages and I were named the world's most powerful property people by Global edge, an online strategy consulting firm based in the U.K.

Global edge says its ranking methodology involved tallying the Google searches for terms such as "real estate blog." Darn, if we didn't beat out Yahoo, MSN, and CNN's real estate sites.

Thanks Global edge. Thanks Hot Property readers! We think you are the truly powerfull people.

ZipRealty, the national real estate brokerage that gives rebates to buyers and commission discounts to sellers, will begin posting customer satisfaction ratings for its agents on its Web site starting Sunday.

The company has been surveying customers since it launched nine years ago and it will add all of those ratings to the Web site, ZipRealty Vice President Leslie Tyler told me today. But it will only post customer-satisfaction scores for agents who have been rated by at least three customers.

It’s important to note that none of these surveys are anonymous. The agent gets the results and knows precisely what the buyer thought (This might dissuade some folks from being truly honest. ZipRealty says its overall customer approval rating is 95%.