The U.S. government's massive share of the nation's mortgage market grew even larger during the first quarter. Government-related entities backed 96.5% of all home loans during the first quarter, up from 90% in 2009, according to Inside Mortgage Finance. The increase was driven by a jump in the share of loans backed by Fannie Mae and Freddie Mac, the government-owned housing-finance giants. By providing a steady source of liquidity to the mortgage market, the government has helped housing markets to stabilize. However, "Fannie and Freddie have to get smaller and less relevant in order to revamp them, and instead, every day they're getting bigger and bigger and bigger," said Paul Bossidy, chief executive of Clayton Holdings LLC, a mortgage analytics firm. The collapse of the mortgage market in 2007 steered more business to the Federal Housing Administration, which insures loans, and Fannie and Freddie, which were taken over by the government in 2008 as rising losses wiped out thin capital reserves. Congress also increased the limits on the size of loans that Fannie, Freddie and the FHA can guarantee, raising the ceiling to as high as $729,750 in high-cost housing markets such as New York and California. Over the past year, rates on those "conforming-jumbo" loans have improved, and more banks have stepped up their offerings, helping to boost the government's already hefty share of the mortgage market, said Guy Cecala, publisher of Inside Mortgage Finance. By the end of 2009, the share of jumbo loans that were sold or backed by government entities exceeded the non-government jumbo share of the market. Some big banks say they are beginning to increase their holdings of jumbo mortgages that are too large for government backing on their balance sheets. And last month, Redwood Trust Inc. said it planned to issue around $222 million in bonds backed by jumbo mortgage loans made by a unit of Citigroup Inc., the first such issue of private-label securities in nearly two years. Sanjiv Das, chief executive of Citigroup's mortgage-lending unit, said he expected the government's share of the mortgage market to change "substantially" over the next year. "A year from now, I wouldn't be surprised if that number is eight out of 10, as opposed to 9.5 out of 10," he said. Reducing the government loan limits, he said, would drop the government's share of the market even more. Meanwhile, Freddie Mac on Friday said that the number of mortgages that were 90 days or more past due fell to 4.13% in March from 4.2% in February, the first monthly decline in three years. But analysts aren't ready to declare victory yet. "We're certainly going to reach a point of stability this year, but it's going to be stabilizing at these very high levels," said Ted Jadlos, president of LPS Applied Analytics, a real-estate research firm. The backlog of delinquent loans in some stage of foreclosure will keep pressure on housing markets and could take two to four years to clear, he said.

In a latest salvo aimed at its property market, China is getting ready to launch a real estate investment tool that will give investors an alternative to bricks and mortar, and move to cool a market where prices have risen at the fastest pace in five years. China's Real Estate Investment Trusts (REITs) could be launched by the second half with the first offerings limited to domestic investors and traded on the interbank market -- unlike other typically listed REITs in markets such as Australia and Singapore. The launch of the pilot REITs comes as Beijing, determined to rein in frothy property prices, rolled out a slate of measures, warning banks against extending loans for property speculation, ordering local governments to act to control speculative buying and making it tougher for buyers to buy second homes. In the first quarter, commercial property transactions in China totaled $25 billion, making up 65 percent of Asia's total, property services firm DTZ said in a report. "The government is cautious about this and will only let institutional investors buy into REITs because, compared to the man in the street, they understand the product better and have better risk management," said Alan Chiang, an analyst at DTZ. "But when retail and foreign investors are allowed in, they will have another way of investing in property, which will help put a cap on physical property prices." Analysts say China's REIT market, when fully developed, will give developers an extra source of financing for more projects, boosting supply which should help temper overheated demand and redirect retail speculative buying from the physical market. "There aren't many investment tools in China, where the savings rate is high. Insurance firms and individual Chinese hope to have more investment choices," said Yu Kam-hung, senior managing director at CB Richard Ellis in greater China. "REITs have proven a huge investment market, based on experience in the United States and Australia." The first unlisted investment trusts, likely to be in Beijing, Shanghai or Tianjin, will pave the way for China to launch listed REITs, valued at more than $100 billion across Asia-Pacific, although the government first needs to settle thorny tax issues. "That's nevertheless a good start, but what the market is really looking forward to is the next step -- when we can have REITs listed on the stock exchange," J&J Asset Management Chairman Li Xiaodong said at an industry conference in Beijing. In the second half, Shanghai could be the first to roll out an unlisted REIT of state-backed government groups such as Waigaoqiao, Lujiazui, Jinqiao and Zhangjiang, which own office buildings and warehouses in free trade zones. REITs are likely to appeal to institutional investors, such as insurers and banks, to diversify their portfolios and take advantage of good returns from a relatively safe investment product. "We'll be quite keen to invest in (China) REITs, so long as yields are higher than government bonds. It's got to be around 5-6 percent before it interests us," said Zheng Weigang, head of investment at Shanghai Securities. "The way we see REITs is a longer term investment, comparable to bonds, rather than property stocks, which can be quite volatile," Zheng said. BETTER RETURNS REITs invest in mainly commercial property and pay rent collected from their properties to shareholders as dividend. REIT investment returns in Asia are usually in a 5-10 percent range, much higher than yields of government bonds. REITs in Japan and Singapore offer dividend yields that are 5 percentage points higher than 10-year government bonds. In Hong Kong, Champion REIT gave a dividend yield of 7.93 percent last year, much higher than blue-chip developer Cheung Kong's 2.7 percent. Relatively higher rental yields in China, due to lower commercial property prices compared with more developed markets in Asia, will also be a draw for investors. Rental yields from Grade-A offices in Shanghai and Beijing are 7-8 percent, higher than those in Hong Kong and Singapore's 3-5 percent, industry executives said. China's institutions have been keen to tap the fast-growing real estate market, especially insurers, which are banned from directly investing in real estate. Ping An Insurance, the world's second-largest life insurer by market value, is investing billions of dollars in property projects via its trust unit. For listed REITs, Beijing will need to decide whether to impose stamp duty and land appreciation taxes, analysts said. "If you pay too much tax, it doesn't make sense; your returns will be smaller. Who will want to be involved in a vehicle if they have to pay a lot of taxes?" said Nancy Sun Marsh, a tax partner at Deloitte Beijing. Global REITs were valued at $568 billion at end-2009, with the United States and Australia the top two markets, Ernst & Young said in March. Based on Reuters' calculations from data at CB Richard Ellis, the Asia REIT market, which includes Australia and Japan, totaled about $140 billion last year. Analysts said it was too early to gauge the size of the Chinese market, especially before the introduction of listed REITs, but all agree the potential is huge.

The regulator for Fannie Mae and Freddie Mac on Tuesday defended the way it has overseen the two mortgage finance agencies since the government took control of the firms a little more than a year ago, including the decision to allow multimillion-dollar pay packages for top executives. "As conservator, I believe it is critical to protect the taxpayer interests in the Enterprises by ensuring that each company has experienced, qualified people managing the day-to-day business operations in the midst of this uncertainty," Federal Housing Finance Agency Acting Director Edward DeMarco said in a letter to lawmakers. The government put the two firms into "conservatorship" in September 2008 and late last year, DeMarco approved pay packages that could allow the top executive at each firm to earn up to $6 million a year. As part of his effort to protect taxpayers, DeMarco said the two government-sponsored enterprises, would not be allowed to introduce new loan products in the mortgage market. "In view of the critical and substantial resource requirements of conserving assets and restoring financial health, combined with a recognition that the Enterprises operate today only with the support of taxpayers, I believe the Enterprises should concentrate on their existing core business, including minimizing credit losses," DeMarco wrote in the letter, released to media soon after it was sent. The letter was addressed to Senate Banking Committee Chairman Christopher Dodd and Senator Richard Shelby, who is the top Republican on Dodd's panel, as well as to House Financial Services Committee Chairman Barney Frank and that committee's top Repubican, Representative Spencer Bachus. TIME FOR "DIFFICULT" DECISIONS DeMarco also said private firms are likely to replace the Federal Reserve as buyers of new mortgage-backed securities issued by the two GSEs. On March 31, the Fed is due to end its program of buying $1.25 trillion of agency mortgage-backed securities. He said he does not expect Fannie Mae or Freddie Mac to be substantial buyers of mortgages, with the exception of buying delinquent mortgages out of mortgage-backed security pools. DeMarco emphasized that the conservatorship status should not be a long-term solution, and Congress and the administration need to make "difficult and important decisions" about the way that houses in the United States are financed. While they are under government control, DeMarco said, "FHFA does not intend for the Enterprises to undertake uneconomic or high-risk activities in support of" its core statutory purpose that includes their support of affordable housing. The letter comes one day after the Obama administration said it expected losses to mount at the two agencies even as it failed to lay out a vision for the future of the two agencies in its budget proposal. Analysts had been expecting some guidance on what the administration is planning to do with the two agencies. On Christmas Eve, the administration said it would allow the two agencies unlimited losses through 2012. So far, the firms have tapped about $111 billion from the Treasury Department's line of credit

* Q4 2009 property lending up by 1.3 bln stg ($2.07 bln) * Borrowers shy away from taking on new debt Year-on-year UK bank lending to property rose just 1.3 billion pounds in fourth-quarter 2009, the smallest annual growth since March 1997, as owners resisted the temptation to accrue fresh debts, data showed on Tuesday. Citing Bank of England figures, consultant Jones Lang LaSalle (JLL.N) said the final-quarter lending slump reflected slower progress at some banks to tackle their problem loans, but also a reluctance on the part of some investors to gear up higher than necessary. "Equity remains plentiful for the right opportunities and many vendors who are repaying debt are not re-leveraging in the short term leading to an overall reduction in debt levels," said Jeremy Handley, a director in Jones Lang LaSalle's valuation advisory team. Total real estate lending in sterling, including lending by building societies, dropped by 2 billion pounds to 242 billion last quarter, against 2 billion pounds of growth over the final quarter in 2008.

In a win for the banking industry, the U.S. House of Representatives voted on Friday to reject a measure that would have allowed bankruptcy judges to change the terms of mortgages for distressed homeowners. Known as "mortgage cramdown," the measure was defeated in a 188-241 decision as a proposed amendment to a broader financial reform bill expected to win House passage later on Friday. The House had approved a mortgage "cramdown" measure in March over the objections of Republicans and bank lobbyists, but it died in the Senate. Under present law, bankruptcy courts may reduce many forms of debt for struggling borrowers -- including for a boat, car, vacation home or family farm -- but not a primary residence. Cramdown would help stem the home foreclosure wave continuing across the United States, its advocates said. But opponents said it would raise costs for everyone and divert capital from the mortgage debt market.

The lowest mortgage rates in decades and high affordability have helped the hard-hit housing market find some footing this year after a three-year slump. Interest rates on U.S. 30-year fixed-rate mortgages, the most widely used loan, averaged 4.71 percent for the week ending December 3, down from the previous week's 4.78 percent, according to a survey by Freddie Mac, is a mortgage finance company chartered by Congress that buys mortgages from lenders and packages them into securities to sell to investors or to hold in its own portfolio. Both companies were put into government conservatorship in September 2008.

Washington, DC – The Federal Housing Finance Agency (FHFA) today announced that the maximum conforming loan limits for mortgages originated in 2010 will remain unchanged from the maximum levels for 2009 originations. In setting 2010 HERA limits for high-cost areas, FHFA has decided to not permit declines relative to the prior HERA limits. While HERA did not explicitly prohibit declines in high-cost area loan limits, that approach is consistent with the statutory procedure for responding to changes in prices on a national basis. Subject to this policy, the 2010 HERA limits reflect the higher of the high-cost area limits initially announced for 2009, and the limits directly calculated under the HERA formula.

It is finally official. The homebuyers' tax credit has been extended to April 30, 2010. President Barack Obama approved the extension as part of a $24 billion economic stimulus bill signed Friday. The bill also includes an extension of unemployment benefits to the longtime jobless and tax credits for some businesses. The housing tax credit portion of the bill extends the $8,000 tax credit for home buyers who are purchasing their first home from the current November 30 deadline and expands the program to offer a credit of $6,500 to other homeowners who have lived in their current home for at least five years and are seeking to relocate. Another modification to the original legislation raises the income limits for program participation from $75,000 for a single purchaser to $125,000 and from $125,000 to $225,000 for a couple. There are also credits available on a diminishing basis above those income limits. The bill was passed by the Senate on Wednesday evening and by the House on Thursday. Both bodies acted in a bipartisan manner which has seldom been seen this year. The Senate passage was unanimous; the House voted 403 to 12 for the bill. Housing interests as well as the Obama administration had lobbied heavily for the extension. In a statement released after the house passage of the legislation. Mortgage Bankers Association Chairman Robert E. Story. Jr., said "at a time when we are finally starting to see some signs of life in the housing and mortgage market, extending and expanding the homebuyer tax credit is a critical step to keeping the momentum. This has been one of MBA's top single family legislative priorities, and we are very glad to see the policymakers on both sides of the aisle see the importance of this measure. "The existing credit for first-time homebuyers has helped move a segment of potential homebuyers off the sidelines and into their first homes. BY expanding it to qualified existing homeowners, we can help stimulate even more home purchases for qualified buyers. I also want to applaud measures in the bill that will help eliminate fraudulent use of the tax credit." Mortgage News Daily Managing Editor Adam Quinones said, "It is likely that the prior tax credit's Nov. 30 expiration has already stolen a portion of housing demand from 2010. On a border scale, the extend to which the tax credit extension adds new demand is a function of buyer's perception of home prices, liquidity in the secondary mortgage market, and the health of the labor market. Overall, while the home buyer tax credit extension is a net positive for the industry, there are still several structural inefficiencies that must be addressed before housing can gain recovery momentum". In signing the bill President Obama stressed that the measure is revenue neutral and will not increase the deficit.

* Q3 net profit drops to 1.811 bln reais * Assets rise 14.9 pct from yr earlier to 485.69 bln reais * Loan portfolio grows 10.2 pct on corporate credit (Adds breakdown of lending, defaults, Bradesco comments) SAO PAULO, Nov 4 (Reuters) - Bradesco (BBDC4.SA)(BBD.N), Brazil's second-largest private-sector bank, posted a larger than expected fall in third-quarter profit as provisions for bad debt grew. Net income fell to 1.811 billion reais ($1.04 billion) from 1.91 billion reais a year earlier, the bank said in a securities filing. Bradesco was expected to post a profit of 1.869 billion reais, according to the average estimate of eight analysts in a Reuters survey. Bradesco said return on equity, a gauge of profitability, averaged 21.8 percent in the third quarter, down from 25.4 percent a year earlier and 23.7 percent in the second quarter. Bradesco's nine-month profit rose slightly to 5.831 billion reais from 5.819 billion reais in the same period a year earlier. The bank said its credit portfolio rose 10.2 percent from a year earlier to 215.54 billion reais at the end of September, led by an increase in loans to large businesses. Corporate credit grew 11.3 percent from a year earlier to 140.1 billion reais because of a 20.4 percent surge in working capital loans and a 71 percent increase in lending for real estate and business planning, Bradesco said. Consumer loans rose 8.2 percent year-on-year in the third quarter to 75.53 billion reais, led by a 24 percent gain in leasing and a 13.2 percent increase in credit card use. Provisions for bad debt surged to 14.95 billion reais from 9.14 billion reais in the third quarter of 2008 because of rising defaults. Default rates, measured by loans in arrears for 90 days or more as a percentage of total debt, jumped to 5 percent from 3.4 percent a year earlier and up from 4.6 percent in the second quarter. The bank said it expected default rates to fall in the coming months because of a recovery in Brazil's economy, the largest in Latin America. "In the consumer segment, we noticed a reduction in delinquencies in the last month of the quarter as a result of better expectations for employment and wages, while for corporate clients we noted a decline in the growth rates of delinquencies because of the gradual recovery in (economic) activity," Bradesco said in the filing. Bradesco finished the quarter with 485.69 billion reais in total assets, up from 482.48 billion reais in the second quarter and compared with 422.66 billion reais a year earlier. ($1=1.746 reais)