Senator John Isakson (R-GA) introduced S. 1230 The Home Buyer Tax Credit Act of 2009, which would increase the $8,000 tax credit for eligible home buyers to $15,000 and release the first-time buyer restrictions stipulated in the current legislation. The bill, introduced in mid-June, is co-sponsored by 15 Senators and was referred to the Committee on Finance.

Significant movement on the bill is unlikely to occur before the current legislation expires on December 1, 2009, likely in an attempt to discourage current home buyers from hedging their purchase decisions. However, the new credit would expand the benefit to individuals and couples who currently own homes, potentially boosting new and luxury home sales by drawing more move-up buyers into the market.

The bill's key stipulations include:

• Individuals/Couples must occupy the home as a principal residence for at least 24 months.
• The tax credit can be equally divided and used over two years.
• The credit can be divided between unmarried individuals who are jointly purchasing a home in an amount not to exceed $15,000.
• Married individuals filing separately can claim $7,500 per person.

For more information on this legislation, please visit http://www.govtrack.us/congress/bill.xpd?bill=s111-1230 .

Citigroup announced today that it would lower some mortgage payments to unemployed homeowners as part of its Unemployment Assist Program. Those that quality could see their payments reduced to $500 per month for three months. Criteria to quality include:

• Homeowner must be unemployed.
• Homeowner is 60 days or more past due on their mortgage or in foreclosure and can pay the reduced amount.
• Customer must have a first loan that is serviced by CitiMortgage Inc.
• The customer holds a conforming loan.
• The home is a primary residence.
• Homeowner meets all insurer and guarantor requirements.

After three months, if the homeowner is still without a job, Citigroup will evaluate each situation on a case-by-base basis to determine the best payment option. Those that find work will go back to paying their original mortgage amount. Sounds like a real incentive to find a job.

As one of the largest recipients of Federal bailout money, it's clear that Citi is being forced into this program by the Feds. For better or worse, expect to see more of these homeowner bailout programs as more government money flows into partially nationalized, large commercial banks like Citi and Bank of America.

Freddie Mac's weekly survey says that the rate on a 30 year fixed rate loan has fallen below 5% for the first time ever. According to the survey the national average rate on the 30-year loan fell to 4.96% in the week ending Jan. 15, down from 5.01% a week ago. Freddie Mac began tracking rates in 1971. A year ago the loan averaged 5.69%. According to the survey, to get the rate you'll have to pay at least 1 point.

The 15 year rate, a popular term for refinancing actually rose from 4.62% to 4.65%.

These rates are low but may be difficult for many people to get. Consumers face several obstacles:

First, a shopper has to find a bank that is offering rates this low. A quick perusal of rates on the Web showed very few banks offering rates below 5%.

Then, consumers have to qualify for the loan. These low rates are only available to non-jumbo loans and only to those with the highest credit ratings.

If a homeowner is thinking of refinancing, they'll have to have positive equity in their home, something that many don't have.

The bottom line: The Fed is taking unprecedented steps to lower rates and it is working. You may have a difficult time getting the lowest rate, but who can complain with a 5% rate. And as the economy continues to weaken and the Fed looks for more remedies, expect rates to come down further.

Joshua Rosner, a managing director in New York at investment-research firm Graham Fisher says that housing isn't the core problem with the economy. Instead, it's the shutdown of the debt securitization markets, which has in turn shut down lending.

Bloomberg paraphrases him as saying:

"The main issue is the packaging of debt into securities, which is creating a credit crunch by leaving lending dependent on capital-constrained banks, according to Rosner, who in early 2007 predicted mortgage bonds would spark a global financial crisis. Issuance of U.S. asset-backed securities fell 81 percent to $159.8 billion in 2008, plummeting in the fourth quarter as credit-card, automobile-debt and student-loan securities sales evaporated for the first time, according to Deutsche Bank AG."

This is the chicken and egg. What caused the securitization market to shut down? The rise in mortgage foreclosures. The end of the securitization market raised interest rates and prevented many from getting affordable mortgages, further eroding home values. Eroding home values destroyed bank balance sheets, further restraining lending.

For a very good overview of this whole process, check out the article Planet Finance Crashes to Earth.

It seems to revive the economy a myriad of strategies will have to be pursued that help the consumer and the financial system at the same time.

Mortgage rates reached record lows this week because of cuts in the Fed Fund rate and the drop in Treasury rates. Still, rates have not dropped as much as would be expected.

"Interest rates for 30-year fixed-rate mortgage rates fell for the seventh consecutive week, moving these rates to the lowest since the survey began in April 1971," said Frank Nothaft, Freddie Mac chief economist. "The decline was supported by the Federal Reserve announcement on Dec. 16, when it cut the federal funds target to a record low and stated it stood ready to expand its purchases of mortgage-related assets as conditions warrant."

Rates on 30 year mortgages fell below 5.47% APY. Last year, the 30 year rate averaged 6.14% APY. The 15-year fixed-rate mortgage averaged 4.92% with an average down from last week when it averaged 5.20%. That's the lowest it's been since April 1, 2004, during the historic wave of refinancing that helped create the housing bubble in the first place.

Despite these low rates, they should be even lower based on Treasuries and the Fed Funds rate. Bloomberg reports that:

"While the average rate on a fixed 30-year mortgage fell to 5.18 percent last week from 6.47 percent in October, according to Mortgage Bankers Association data, the historical relationship between home loans and mortgage bonds shows rates should be at least half a percentage point lower. Though the U.S. is paying nothing to borrow in some cases, homebuyers are paying about $730 more a year than they would otherwise on a $200,000 mortgage."

Like with savings rates and cd rates, banks are not lowering mortgage rates to correspond with their typical benchmarks. Part of this is fear and risk aversion on the part of depistors and lending instutions. Part of it is that historical comparisons are not valid. The guts of Wall Street and banks have been destroyed over the last six months and the system no longer functions like it used to. The death of securitization means that banks needs to their loans on their balance sheets, making them extra cautious of the rates they provide and who they lend to. It also means they need more funds, deposit funds to support their balance sheets. All of this is pushing rates higher than they would have otherwise been.

It's also a reason why the Fed has stepped into the role of securitizer. Its has been purchasing assets from the banks for some time and now is signaling that it will begin to purchase mortgage assets. That should help to lower rates further.

The real estate industry that created the national bubble is still alive and well in New York City. But, the reality is that the crash is on now. It is in full swing.

The New York real estate brokers who will tell you that the market is holding up. The folks aren't brilliant (if they were, they wouldn't be selling something other than real estate). Don't listen to them. Even their own figures now show a collapsing market.

According to Corcoran, the number of apartments that went into contract or had accepted offers in October 2008 (577) plunged by 20% compared with September and by 62% compared with October 2007 (1,588). At the same time, the number of Manhattan listings rose to the highest level in years, rising 20% since August alone and 33% year over year, according to Prudential Douglas Elliman.

Now, both of these firms (the two largest in Manhattan) will make the argument that sales prices remained stable. That argument doesn't mean anything, especially as they are looking at sales prices from apartments that closed, not that went into contract. Most of the apartments that closed in October would have gone into contract much earlier in the year, and these figures can be highly skewed by a handful of big closing at new top-of-the-line buildings or conversions in midtown.

The reality is that when supply rises and demand drops, prices either fall or the market fails to clear. We saw that in the CDO and SIV markets recently where the market went away. Demand went to zero.

Now, demand in real estate isn't going to go to zero, but we are already in a period where those who need to sell are looking at much lower prices from the little demand that is there. And, those who don't need to sell will hold on for years if they can, or months and sell into still lower prices if they cannot.

Hong Kong is New York's best comparable. Its real estate market is also completely driven by financial markets, but unlike New York, there is a real estate industry that plays to hide the truth. It is more transparent. And, it is widely known that the HK market is already off 30% since July.

With the stock market off more than 50%, virtually every commodity market down 50%, the cheap dollar gone, layoffs in New York increasing day by day, and the investment banking bonuses gone (as is the leverage that made those bonus larger than life and more valuable in real estate purchase terms), real estate is going to fall at 50% from its highs, probably further. The idea that New York could not be hit will prove wrong. This City will fall further and faster than the rest of the country.

States and local governments are asking for a piece of the $700 billion Troubled Asset Relief Program funds as revenue drops. Bloomberg reports that:

" Philadelphia, Atlanta and Phoenix are asking the U.S. Treasury Department for part of the $700 billion financial rescue package to help them finance construction projects and pay bills. They seek $50 billion on behalf of cities nationally to spend on infrastructure and loans lasting for as long as a year to aid cash flow."

The revenue stress felt by states and local governments doesn't come as a surprise. Since real estate underpins much of the local government tax base, falling home values will result in falling revenue. Sprinkle in higher borrowing costs, lower sales and consumption taxes and you have a recipe for government distress.

If you invest in Municipal bonds, be sure that you understand the financial condition of the municpality issuing the bond or the project that is being financed. As we've seen over the past six months, no entity is immune to failure.