Legislation proposed to extend payroll tax cuts for two months could cause some Federal Housing Administration mortgage fees to rise, essentially leading to an increase in the cost of those mortgage loans for homeowners. The House is scheduled to vote on the legislation Monday night.

The legislation has been hotly contested as a means to extend payroll tax cuts for two months.

Under the proposed legislation, FHA annual mortgage insurance premiums to could rise by 10 basis points, according to the bill. Guarantee fees, or G fees for Fannie Mae and Freddie Mac loans would also rise.

Mortgage Bankers Association President and CEO David Stevens, speaking on behalf of the MBA, urged the House to vote down the payroll tax extension.

The idea that you should pass a ten year tax increase for two months of payroll tax relief is appalling. Fannie and Freddies guarantee fees are supposed to be used to help offset the risk inherent in providing mortgages, and any increases should be used for that purpose, he said. Siphoning off a portion of those fees into the general government coffers may be politically expedient, but it is far from sound policy.

House speaker John Boehner (R-Ohio) told NBCs Meet the Press that the two-month renewal would create additional uncertainty for workers and employers and that Congress should delay its holiday break to ensure that a one-year extension was passed.

Its pretty clear that I and our members oppose the Senate bill. Its only for two months, he said.

Written by Elizabeth Ecker

Dec. 21 (Bloomberg) — Canadian stocks rose for a second day, led by energy producers, after the US reported the biggest weekly drop in oil inventories since 2001.

Canadian Natural Resources Ltd., the countrys second- largest energy company by market value, gained 1.4 percent. Goldcorp Inc., the worlds second-biggest gold producer by market value, lost 1.7 percent as the metal retreated. BlackBerry maker Research In Motion Ltd. surged 9.8 percent after Reuters reported the company has declined takeover overtures” from companies including Amazon.com Inc.

The oil-inventory report it an indication that consumption is stronger than what everyone expected,” Tony Demarin, chief investment officer of BCV Asset Management in Winnipeg, Manitoba, said in a telephone interview. The firm oversees about C$300 million ($293 million). Why else would oil inventories go down? The economy is doing better than people are giving credit for,”

The Standard amp; Poors/TSX Composite Index advanced 36.65 points, or 0.3 percent, to 11,753.53.

The index has slipped 13 percent in 2011 after surging 50 percent in the previous two years as economists have cut global growth forecasts due in part to the European debt crisis. Energy and raw-materials companies, which make up 48 percent of Canadian stocks by market value according to data compiled by Bloomberg, have led the declines.

Inventory Plunge

The Samp;P/TSX Energy Index climbed as crude oil rose for a third day after the US reported almost five times the drop in inventories that analysts had forecast, according to the median estimate in a Bloomberg survey.

Canadian Natural increased 1.4 percent to C$36.75. Nexen Inc., an oil and gas producer with operations on five continents, rallied 4.6 percent to C$15.98. TransCanada Corp., the owner of the countrys biggest pipelines system, rose 1.4 percent to C$44.33.

Corridor Resources Inc., which explores for oil and gas in eastern Canada, sank 38 percent, the most in 11 years, to C$1.13 after saying it has been unable to find a joint-venture partner for its shale-gas prospect in New Brunswick.

The US Dollar Index climbed after the European Commission estimated that consumer confidence in the region fell to the lowest since August 2009 and Swiss Finance Minister Eveline Widmer-Schlumpf said the country is considering capital controls to weaken the franc.

Mining Shares

Raw-materials stocks in the Samp;P/TSX dropped. Goldcorp declined 1.7 percent to C$46.10. First Quantum Minerals Ltd., the countrys second-largest publicly traded copper producer, slipped 1.5 percent to C$18.81. San Gold Corp., which mines in Manitoba, slumped 7.7 percent to C$1.79 after soaring 41 percent yesterday on drilling results.

Banro Corp., which is developing gold projects in Africa, rallied 8.1 percent to C$3.60 after saying the Twangiza mine in the Democratic Republic of the Congo is on schedule for full production in the first quarter.

The Samp;P/TSX Telecommunications Services Index rose to the highest since January 2008 a day after a person familiar with the discussions said Globalive Communications Corp., the owner of Wind Mobile, is in talks to buy fellow carrier Mobilicity. Both companies are closely held.

A decline in competitors would benefit other industry companies, Phillip Huang, an analyst at UBS, said in a note to clients dated yesterday.

BCE, Telus

Rogers Communications Inc., the countrys biggest wireless carrier, gained 0.9 percent to C$38.60. BCE Inc., Canadas largest phone company, advanced 1.3 percent to C$41.26, the highest close since July 2007. Telus Corp., the countrys No. 3 wireless carrier, increased 1 percent to C$57, the highest since October 2007.

RIM jumped 9.8 percent to C$14.17 after closing at the lowest since December 2003 yesterday. Reuters cited unnamed people familiar with the situation in its report that Amazon is among companies that have approached the Waterloo, Ontario-based company about a potential takeover bid.

Microsoft Corp. and Nokia Oyj have considered making a joint bid for RIM, the Wall Street Journal said today, citing unnamed people familiar with the matter. Representatives of RIM, Amazon, Microsoft and Nokia declined to comment on the reports.

RIM shares tumbled 78 percent this year through yesterday as the company lost smartphone market share to Apple Inc. and phones using Google Inc.s Android operating system.

Open Text Corp., Canadas largest software company, slumped 5.4 percent to C$51.25 after Oracle Corp. reported second- quarter earnings below the average analyst estimate in a Bloomberg survey.

–With assistance from Hugo Miller in Toronto. Editors: Joanna Ossinger, Stephen Kleege

Tapping into those opportunities is the main objective of the new Vertical Capital Income Fund, which will invest exclusively in individual residential mortgages.

One of the real attractions of this investment is it doesnt correlate closely with equity and most bond markets, said Bayard Closser, manager of the fund and president of Vertical Capital Markets Group.

The one-of-a-kind fund, which currently is funded with seed capital and does not yet have a ticker symbol, gives retail investors access to a strategy that Mr. Closser is already offering to accredited investors through private-placement vehicles.

The fund, which could eventually hold thousands of individual mortgages, will start buying its first mortgages next month, he said.

We are looking to purchase discounted mortgages, sometimes as cheap as 60 cents on the dollar, he said.

Prior to the financial crisis, Vertical Capital was operating as a mortgage-origination firm, but as the mortgage market dried up, Mr. Closser saw an opportunity in the secondary market to trade mortgages directly with banks looking to add or reduce their mortgage exposure and capital requirements.

While the bulk of the residential mortgage market already is wrapped up into residential-mortgage-backed securities, Mr. Closser is concentrating on those mortgages that have not been syndicated in the RMBS space.

There is an estimated $3 trillion in nonpackaged individual mortgages held by banks, many of which looking to offload some risk.

With this strategy we are providing some liquidity for financial institutions, Mr. Closser said, explaining that the market presents investment opportunities.

In the process of purchasing loans, Vertical Group researches both the property and the borrower, the same way as it would have if it were originating the loan. Vertical Group is also servicing the loans and has the ability to modify individual loans if necessary.

We are buying the actual mortgages, and there are risks associated with strategic defaults [when borrowers abandon a home] and foreclosures, Mr. Closser said. Through this structure, the fund will own the underlying collateral in the event of a loan default.

He also pointed out that, despite all the fear and gloom surrounding the housing market, 87% of borrowers pay their mortgages like clockwork, whether theyre currently underwater on their loan or not.

The fund is structured as a continuously offered closed-end fund, which makes it a kind of hybrid between a closed-end and open-end mutual fund.

From an investors perspective, the structure equates to reduced liquidity.

The fund looks and acts like an open-end fund, but liquidity is limited to a quarterly tender offer, Mr. Closser said.

The limited liquidity is a result of the unique nature of the underlying assets. Buying and selling an individual mortgage can take up to 45 days because they dont trade on exchanges like stocks.

The ultimate appeal, however, is a new entry point to the real estate sector for smaller investors.

According to a study by BlackRock Investments LLC, between 2001 and 2010 the Barclays Capital US MBS Index, the Vertical funds benchmark, had a -0.18 correlation to the SP 500.

WASHINGTON (Reuters) – The regulator for Fannie Mae and Freddie Mac is actively considering a proposal that would allow for a reduction in the outstanding mortgage debt of homeowners in Chapter 13 bankruptcy, Financial Times reported on Tuesday.

The plan under review by the Federal Housing Finance Agency would call for the mortgage financing companies to allow bankrupt homeowners who owe more on their housing debt than their homes are worth to pay zero per cent interest for five years, the report said.

Participation in the debt reduction program would be subject to approval by bankruptcy judges, the FT said.

Details of the proposal were laid out in a letter to Congress dated Monday, the newspaper reported.

Fannie Mae and Freddie Mac, combined with the Federal Housing Administration support, about 90 percent of all US mortgages.

An FHFA spokeswoman confirmed the proposal to assist underwater homeowners was under discussion, but declined to provide additional details, the FT said.

But the White House said the proposal was not under consideration.

While we continue to talk to the FHFA and other market participants about ways to help borrowers and support the housing market, the administration is not at this time considering this particular idea, White House spokeswoman Amy Brundage told FT.

Spokesmen for the White House and FHFA were not immediately available for comment on the FT report late on Tuesday.

(Reporting By JoAnne Allen; Editing by Muralikumar Anantharaman)

Dec. 21 (Bloomberg) — US stocks rose for a second day as higher oil prices lifted energy shares and Bank of America Corp. paced a rebound in lenders, helping the equity market recover from an early slump. Treasuries slid after lower-than-average demand at an auction.

The Standard amp; Poors 500 Index rose 0.2 percent to 1,243.72 at 4 pm in New York and the Dow Jones Industrial Average climbed 4.16 points to 12,107.74. Ten-year Treasury yields added five basis points to 1.97 percent. Oil surged on a bigger-than-forecast drop in US supplies. The euro lost 0.3 percent to $1.3044 and Italian and Spanish 10-year bond yields climbed at least 18 basis points as stronger-than-forecast demand for European Central Bank loans fueled concern the regions lenders were struggling to meet funding needs.

The Samp;P 500 recovered from an early 1 percent loss triggered by lower-than-forecast results at Oracle Corp., which tumbled the most in more than nine years. Bank of America climbed after agreeing to a $335 million settlement of a US probe into lending practices at its Countrywide Financial Corp. mortgage unit. Investors also turned their attention to jobless claims data tomorrow after last weeks report showed the fewest applications for unemployment benefits since May 2008.

It seems to be timed with the Bank of America, Countrywide settlement, said Timothy Ghriskey, who oversees $2 billion as chief investment officer of Solaris Group LLC in Bedford Hills, New York, referring to the stock markets rebound. It certainly takes away one bit of uncertainty in the news, he said. It seems to us that the settlement with Justice was not excessive at all.

Bank of America Gains

Bank of America advanced 1.2 percent, erasing an earlier 1.4 percent drop. Countrywide discriminated from 2004 to 2008, before Bank of America acquired the lender, by charging higher fees and interest rates to more than 200,000 black and Hispanic borrowers and steered minority borrowers into subprime mortgages, the DOJ said. Bank of America has committed about $40 billion for mortgage refunds, lawsuits and foreclosures since 2007, with most tied to alleged defects in the loans that affected investors.

The KBW Bank Index of 24 lenders advanced 1 percent, adding to yesterdays 4.1 percent rally.

Exxon Mobil Corp. and Chevron Corp. climbed more than 1.3 percent to pace an advance in 34 of 42 energy companies in the Samp;P 500. Oil rose 1.5 percent to $98.67 a barrel. Supplies fell 10.6 million barrels to 323.6 million last week, the US Energy Department said. Inventories were forecast to decline 2.13 million barrels, according to the median of 12 analyst estimates in a Bloomberg News survey. Supplies typically fall in December as refiners seek to avoid end-of-year tax liabilities.

Technology Shares

Technology companies, which account for 19 percent of the Samp;P 500 and are the largest group, sank 2 percent to lead declines among 10 industries.

Oracle dropped 12 percent, the most since 2002, after the second-largest software makers results were hurt by slower demand for databases, applications and computer servers.

Research In Motion Ltd. advanced 10 percent after the Wall Street Journal said that Microsoft Corp. and Nokia Oyj considered a joint bid for the maker of the BlackBerry smart phone, while Reuters reported that Amazon.com Inc. also considered buying the company.

The Samp;P 500 is down about 1.1 percent in 2011, having rallied as much as 8.4 percent and lost as much as 13 percent on a year-to-date basis during the year. Financial shares have lost 20 percent this year to lead declines.

The Samp;P GSCI Index of raw materials advanced 1 percent, as energy products and cocoa led gains in 15 of 24 commodities. The Dollar Index, which tracks the US currency against those of six trading partners, rose 0.1 percent after dropping as much as 0.8 percent earlier.

European Concerns

The Stoxx Europe 600 Index dropped 0.5 percent, erasing a gain of as much as 1.4 percent, as technology shares led losses, with SAP AG tumbling 6.1 percent and Cap Gemini SA losing 4.9 percent. Banks lost 0.7 percent as a group, with BNP Paribas down 3 percent and Banco Santander SA falling 1.4 percent.

The ECB awarded 489 billion euros ($645 billion) in loans to the regions banks in the latest attempt to tame the debt crisis, compared with a median forecast for 293 billion euros in a Bloomberg survey of economists.

Disorderly Deleveraging

What the ECB is doing is just trying to prevent a disorderly deleveraging of European bank assets, Barry Knapp, the New York-based head of US equity strategy at Barclays Plc, said in a telephone interview. By no means it solves the financing problem for Italy or Spain or for the banks.

The MSCI Emerging Markets Index climbed 1.6 percent. Taiwans Taiex Index rallied 4.6 percent, the most since May 2009, after the government said it would allow a state-run fund to buy stocks. South Koreas Kospi Index advanced 3.1 percent and the won strengthened 0.6 percent against the dollar, erasing losses earlier in the week sparked by the death of North Korean leader Kim Jong-Il.

Chinas Shanghai Composite Index retreated 1.1 percent, its third consecutive decline and extending its year-to-date decline to 22 percent, as a gauge of funding availability in the financial system rose, signaling banks were hoarding cash.

–With assistance from Daniel Tilles, Claudia Carpenter, Andrew Rummer, Jason Webb and Michael Shanahan in London and Alexander Kwiatkowski in Singapore. Editors: Michael P. Regan, Jeff Sutherland

To contact the reporters on this story: Rita Nazareth in Sao Paulo at rnazareth@bloomberg.net; Ksenia Galouchko in New York at kgalouchko1@bloomberg.net

To contact the editor responsible for this story: Michael P. Regan at mregan12@bloomberg.net

In a recent speech, New York Mayor Michael Bloomberg advanced the following solution to the problems of public education. It reveals, once more, how far from getting it public officials are in understanding what education is all about. According to the mayor:

Education is very much, Ive always thought, just like the real estate business: there are three things that matter: location, location, location is the old joke. Well in education, it is: quality of teacher, quality of teacher, quality of teacher. And I would — if I had the ability, which nobody does really, to just design a system and say, ex cathedra, this is what were going to do, you would cut the number of teachers in half, but you would double the compensation of them, and you would weed out all the bad ones and just have good teachers. And double the class size with a better teacher is a good deal for the students.

If he followed the analogy that education is just like the real estate business, then the mayor should consider just how successful the industry has been in the past few years: creating false wealth and then sticking the consumer with unmanageable debt. But Bloombergs error in using a fraudulent system of creating wealth as comparable to teaching goes much further. He assumes that the quality of a teacher is quantifiable, just as he assumes that standardized test scores are a measure of quality. But let us follow his line of reasoning further: Cut the number of teachers in half…[and] you would weed out all the bad ones and just have good teachers. This is truly the logic of the marketplace and the assumption that the good teachers and bad teachers are easily recognizable in the same way as a car dealer can measure the good from the bad salesmen by the number of units sold. Mr. mayor: children are not units.
There are a few effective ways to attract potentially good teachers into the profession — and many teachers are potentially good when starting out but there is no way of knowing how good they really are until theyve been teaching for about five years, which is the average length of service before they leave. What attracts good teachers into the profession is as true for me — a 45-plus-year veteran of college-level teaching — as it is for a newly graduated grade-school teacher.

1. A degree of classroom autonomy. Even young teachers who welcome guidance dont want to be micro-managed. Bloomberg is a micro-manager of the first order.

2. A need for helpful and positive guidance in teaching practices. Bloombergs echelon of new breed school administrators is wedded to the concept of micro-managing. Guidance is often presented in the form of threats to raise test scores or else.

3. The opportunity to use an enriched, multi-faceted curriculum to enable the teacher to reach, inspire and motivate young learners to want to learn. Bloombergs emphasis on standardized testing and test prep rob not only the students of the desire to learn, but the teachers with the opportunity to teach.

4. A positive attitude and appreciation of the difficult job that teachers have often in environments in which young learners have little motivation to want to learn. The rhetoric of politicians hurled at teachers and teaching has vilified them as lazy and irresponsible and has convinced a significant portion of the public that if only teachers were good, their children would learn. This is said without their showing the slightest awareness of the connection between good teachers and good students: good students make it possible to be a good teacher; the most important factor is the students zip codes.

5. Some sense of job security considering the social and economic conditions in the neighborhood in which the school is located. Poor location, location, location, Mr. mayor, makes it very difficult if not impossible for teachers to get students to read and calculate on grade, especially since the standardized tests are not primarily related to good teaching outcomes but test taking.

Although I wouldnt consider Bloomberg in the forefront of teacher-bashing, his apparent obliviousness to any substantial information that shows him that standardized testing does nothing positive for challenged learners reveals that he has no more concept of education than a motorist who believes that putting gas in the tank will get a car to run that doesnt have an engine.

Quality teachers are not easy to develop if they leave teaching after five years; quality teachers are not easy to keep in the education system if they are being fired or relocated when their school has failed because it didnt have the right zip code; potential quality teachers will not be attracted to a profession, no matter what the compensation, if they realize that they are being asked to waste their time and those of their students on a useless and harmful regimen of testing which robs all of them of any of the inherent motivations for learning: the joy of it.

If Mayor Bloomberg were really serious about getting quality teachers into the classroom, he would abolish standardized tests, limit charter schools, give more material support to struggling public schools, and, by the way, raise the minimum wage in the city of New York to $20/hour so that children in poor neighborhoods might have a chance to actually want to learn rather than worry about where they are going to sleep at night and when they will be getting another decent meal. You cant have quality teachers without a quality economic and social system. If Bloomberg were to focus on those problems, many of the quality teachers he hopes for will suddenly appear.

SAN FRANCISCO – Investors fled technology companies catering to businesses and government agencies after a discouraging quarterly report from Oracle Corp. pointed to a possible sales slowdown that could drag down the industry next year.

The stocks of Oracle and an assortment of other business software makers were discarded in Wednesdays trading. Wall Street administered the beating in reaction to Oracles lackluster performance during the three months ending in November.

The results, announced Tuesday after the stock market closed, fell well below the projections of industry analysts and Oracles own management. The shortfall stoked fears that big spenders on software and other technology are pulling back as the uncertainties raised by Europes debt crisis threatens to topple a fragile global economy.

Oracle absorbed the brunt of the punishment. Its shares plunged by 12 percent, their steepest decline in nearly a decade. The jarring downturn lopped about $18 billion off of Oracles market value and trimmed about $4 billion from the fortune of its CEO, Larry Ellison, who owns a 22 percent stake in the company. Oracle shares had plunged $3.51 to $25.67 during Wednesdays late afternoon trading. It marked the biggest single-day drop in Oracles stock price since March 2002 when the shares plummeted 14.5 percent, according to data compiled by FactSet.

The list of other business software makers caught up in the downdraft during late afternoon trading included: VMware Inc., whose share fell $9.69, or 11 percent, to $75.63; Citrix Systems Inc., down $5.66, or nearly 9 percent, to $57.72; SAP AG, down $3.92, or 7 percent, to $51.81; F5 Networks Inc., down $8.30, or more than 7 percent, to $101.09; Teradata Corp., down $3.01, or 6 percent, to $47.48; Cognizant Technology Solutions Corp., down $4.64, or 7 percent, to $62.99; Salesforce.com Inc., down $6.22, or 6 percent, to $98.10; and Red Hat Inc., down $2.01, or nearly 5 percent, to $39.94.

More diversified technology companies that, like Oracle, sell hardware as well as software also got clipped. For instance, IBM Corp. shares shed $6.79, or nearly 4 percent, to $180.45 in late afternoon trading.

The sell-off had analysts debating whether Oracles letdown had more to do with internal problems within the company or a clampdown on technology budgets by major technology customers heading into the new year.

Although Oracles sales team may have executed poorly during the quarter, Nomura Securities analyst Rick Sherlund was troubled by apparent delays during the quarter. Oracle executives said the decision makers who typically can sign technology contracts held off because they needed to get approvals from higher up in the chain of command — in some cases from the CEO. In a Wednesday research note, Sherlund said that kind of caution typically signals companies are getting worried about the economy.

We have reduced estimates rather sharply to reflect a greater macro slowdown than we had previously thought likely, recognizing that extrapolating from one single quarter as a data point may prove to be an overreaction, Sherlund wrote.

In a Tuesday conference call, Oracle executives predicted many of the deals that got delayed in the last quarter will get done in the next few months. The company, based in Redwood Shores, Calif., declined further comment Wednesday.

JMP Securities Patrick Walravens was more sanguine in his Wednesday research note. In anticipation of a quick rebound, he maintained his $36 price target for Oracles stock. The shares havent traded that high since May.

Although he branded Oracles quarterly results as worrisome, Forrester Research analyst Andrew Bartels believes the company was hurt most by the misfortune of having its quarter close in November. The month was marked by high anxiety in the eurozone about possible government defaults and disheartening government reports about the state of the US economy.

So, business executives were understandably cautious about the business outlook, Bartels wrote in a Wednesday blog post.

But more encouraging signs about the US economys recovery and debt relief in Europe may have spurred more technology spending in the final weeks of the year, Bartels. He thinks that means companies whose quarters end in December and January — a group that includes IBM, SAP, VMware, Citrix and Salesforce.com — may fare much better than Oracle.

Forrester Research expects US spending on information technology to increase by about 6.6 percent next year, in the same range as last years.

A stronger dollar also is squeezing Oracle and other technology companies with significant sales overseas. The currency shift is translating into less revenue from markets such as Europe, making for unfavorable comparisons to last year.

Rising property values have been an article of faith in the housing market for a generation of Australians who borrowed big as real estate prices marched ever upward.

• Know more? Contact czappone@fairfax.com.au

Now, though, some buyers are finding that their homes are worth less than the size of mortgages taken out to acquire the proverbial roof over their heads.

While the percentage of home owners with so-called negative equity remains tiny – about one in fifty of the 3 million households with mortgages – the number may well swell in 2012 if home prices extend their declines as some analysts expect.

The emergence of a sector of the housing market under water on their mortgages may hurt an already fragile real estate market. Any forced sales would obviously dent individual household wealth but further drops in home prices would deter investors from buying residential properties.

Ben Phillips, principal research fellow at the National Centre for Social and Economic Modelling, helped prepare the analysis which pointed to 60,000 households nationwide with negative equity.

The prospect of negative returns will certainly detract from sentiment through 2012, said NATSEMs Mr Phillips.

Gloomy outlook

To be sure, Australian households have fared better than most countries in coping with living costs even with housing affordability hovering near historic lows.

For instance, the most recent assessment of late payments on residential mortgages by ratings agency Fitch showed the tally actually fell to 1.42 per cent of loans in September, down from 1.77 per cent in March.

The twin interest rate cuts to end 2011 will also make it easier for mortgage holders to keep up with repayments – with markets predicting as many as five more 25 basis-point cuts to come by next June likely to help even more.

Still, the prospect of stagnant or falling house prices may see the number of families with negative equity in their home continue to rise. National city home prices retreated 4 per cent in the year to October after peaking at the end of 2010, according to RP Data figures.

The final weekend auctions for 2011 indicated the interest rate cuts hadnt reversed that slide, with Sydneys clearance rate and median price, for instance, both ending the season at lows for 2011.

To add context, a fall of 4 per cent or more in prices would eclipse the 2.6 per cent drop in 2008 – when the global financial crisis neared its nadir.

Commentators such as University of Western Sydney Professor Steve Keen see home price falls of at least 5 per cent nationwide next year, as households rush to pare debt they so eagerly acquired in the past two decades.

Even mainstream commentators, such as Westpac economists, predict home prices to be flat or lower in 2012, with worries about the European crisis and a greater reluctance by households to take on debt even as borrowing costs contract nullifying the impact of the RBA cuts.

Relaxed rules

One reason for the growth in negative equity households is that relaxed banking rules in recent times have allowed many borrowers to take mortgages near or in excess of the value of the home being purchased. Others also took out extra debt to fund renovations or other improvements to their property.

Macquarie senior economist Brian Redican said negative equity has been a rare feature of the Australian property market until recently.

High loan to valuation ratio have been quite uncommon until the last 10-15 years, Mr Redican said, citing the standard LVR measure used to assess homeowners exposure to debt.

The negative equity estimates here are derived from the share of borrower households with an LVR of 100 per cent or more, compared with this years home price falls, in an analysis of Australian Bureau of Statistics and RP Data by the NATSEM.

LVRs have swelled in the past two decades as lending rules were relaxed, permitting banks to extend a higher percentage of the value of the home. Buyers, armed with more funds, then bid up home prices to levels that international observers, such as The Economist, say are among the highest in the world.

In Queensland, 19,700 households are estimated to be in negative equity, or 3.2 per cent of the states mortgage holders.

While in Western Australia, the total amounts to about 4.5 per cent, or 16,000. New South Wales had the smallest share of mortgages under water, at 1 per cent, or 9000, slightly better than Victorias rate which was 1.2 per cent or 9100, although the latters household debt levels are drawn from 2010 data.

In South Australia 2.1 per cent of households, or 5000, were in negative equity. Tasmania had 1.5 per cent of households, or 1100, according to the analysis.

Europe cloud

Negative equity, of course, remains only a paper problem for borrowers – or their banks – unless the mortgage holder is forced to sell.

Such forced sales, are unlikely to happen unless theres a big upsurge in the jobless rate, currently at about 5.3 per cent, analysts say.

Last week, the Fairfax-owned Australian Financial Review reported that one of the primary bank regulators, the Australian Prudential Regulation Authority, has ordered major banks to stress test their books for scenarios in which home prices drop 30 per cent and unemployment rises to 12 per cent.

Barring a major collapse in Europe and or a sharp slowdown in China, though, that jobless rate may not head much higher, particularly if wider confidence in the economy at home and abroad holds up.

Melbourne-based Wakelin Property Advisory director Monique Sasson Wakelin said the sliver of households in negative equity would likely have little effect on the overall market next year.

Its going to be more of an influence on those people who are sitting on negative equity, she said. It will make them sit on their hands.

The RP Data price falls in the first 10 months of 2011 were led by Brisbane, where home values dived 7.5 per cent and Melbourne where they have slumped 5.8 per cent.

This reality will continue to suppress buyer interest through 2012 and continue to drive the for sale stock, NATSEMs Mr Phillips said, adding the numbers dont suggest the Australian mortgage market is on a precipice.

Rather, there are some markets, such as WA and Queensland, that are more susceptible than others and that should economic conditions deteriorate badly these would be the markets that will feel the strongest pain, he said.

(NECN) – Certified financial planner Jennifer Lane has tips on how to decide if a reverse mortgage is the right option for you.

Lane explains what a reverse mortgage is, who is eligible for one, how much money you can get for it, what to watch out for if you take one out, and other options beside reverse mortgages.

Lane says you can get more information on reverse mortgages from www.AARP.org, www.HUD.gov, from the National Council on Aging at (800) 510-0301 and from an HECM counselor at (800) 569-4287.

Just in time for another budget-related showdown this week, the nonpartisan Congressional Budget Office has provided a user-friendly chart with highlights of federal borrowing, spending and debt.

The one-pager has just enough details to keep policy wonks pleased but not so much that eyes glaze over. It can be found here.

Congress is about to enter a busy week on the budget front as it prepares to pass a spending bill to keep the government running for the rest of the 2012 fiscal year and tries to find compromise over President Obamas proposal to extend a payroll tax holiday for 160 million American workers.

One part of the chart sure to capture attention: that bright yellow bar that shows public-held US debt at 67% of the nations gross domestic product for 2011, the highest level in the past 40 years.

Debt has been at record levels for a combination of reasons federal spending to prop up the economy during the recession, lower tax revenues because of the economic downturn. But such nuances often become lost in the heat of partisan battles such as those ahead.