That’s a bigger drop than the month-over-month declines the index experienced in November (0.3%), October (0.5%) and September (0.6%).

The index is a county-level measure of median sales price of single-family residences in five US Census Bureau regions, nine Census divisions and 360 counties. After five months of declines, the index is now 5.3% below its 2008 level. In 2008, the index declined 11.7% from its 2007 level. The index is now at a level last seen in mid-2004, IAS said.

“There’s something to be said for the fact that the decline has at least slowed,” said IAS president and CEO Dave McCarthy. “But I still think the risk of continued weakening in house prices nationally is considerable.”

McCarthy said the impending end of the homebuyer tax credit could come as a new wave of distressed properties enter the marketplace, possibly creating a pronounced “double dip” in home prices. In November, the tax credit was expanded to include certain existing homebuyers and extended into the spring.

“The potential for another wave of distressed property coming to market remains very high,” McCarthy said. “While the government’s mortgage modification program may have slowed the number of foreclosed properties coming to market, its near complete failure is likely to result in a whole new wave of distressed activity down the road.”

Some experts have predicted the tax credit could be extended if housing remains unstable this summer.

Regionally, the South experienced a 2.3% gain in prices in December, led by increases of more than 10% in Alabama and Georgia. The biggest decline was in the Midwest, where prices dropped 4.2%. Prices in the Midwest are now at late 2003 levels. The Northeast fell for the fourth month in a row, down 1.7% in December. Prices in the West also dropped 1%.

The complete IAS360 December report is available online.

Write to Austin Kilgore.

In a conference call with reporters, Connecticut Attorney General Richard Blumenthal said the current network of federal regulatory agencies did not have consumer interests in mind before the near collapse of the financial markets because the agencies primary focuses were not on consumer protection.

Blumenthal said the CFPA is a better alternative because the agency would focus exclusively on protecting consumers from predatory lending practices in mortgages, credit cards and other financial products.

“The difference is focus. The whole point of this proposed federal agency would be to focus on consumer financial protection,” Blumenthal said. “What we’ve had up to now is a number of agencies doing this as a secondary focus in their spare time. What we need is an agency where we will pick a director and top staff that will focus directly on consumer financial protection.”

Ohio Attorney General Richard Cordray, whose office has sued a number of mortgage servicers and the three major credit rating agencies, said the CFPA is needed to work in concert with state attorneys general efforts at consumer protection. A point of contention in the CFPA legislation is whether the CFPA’s regulatory power would supersede state regulations. Community banking advocates have argued such an arrangement would put small lenders at a competitive disadvantage. Cordray said the CFPA needs to operate in concert with state attorneys general.

“The federal agencies have been complacent, aiding and abetting lawbreakers by supporting preemption claims when states sued to stop unfair or deceptive practices,” he said. “Until we establish a Consumer Financial Protection Agency, we will continue to have a regulatory black hole when it comes to many of the deceptive practices and products.”

With the election of Sen. Scott Brown (R-Mass.), Democrats no longer have a filibuster-proof majority in the Senate. So far, no Republican senators have come out in favor of the CFPA. Iowa Attorney General Tom Miller said the CFPA shouldn’t be a partisan issue, but rather an issue of protecting individuals.

“This is a classic choice that the members of Congress and the Senate have to make. There are two sides here. There’s the public side, protecting the public, and then there are the big banks and protecting them in a way I don’t think they should be protected,” Miller said. Senators have to ask themselves whose side am I on? Am I on the side of the public or the big banks?”

Illinois Attorney General Lisa Madigan said state AGs have been at the forefront of protecting consumers by filing lawsuits against predatory lenders while federal regulators “did nothing to prevent the collapse” of the financial markets. Madigan said the Office of the Comptroller of the Currency (OCC), responsible for regulating large banks and thrifts, only took 11 enforcement actions against alleged predatory lenders 2005 and 2007, while attorneys general brought 8,000 actions against the same institutions during the same time.

“The need for a strong and independent Consumer Financial Protection Agency has never been more apparent,” she said. “Consumers are demanding it and they deserve a federal regulator that protects their interests instead of only protecting the banks.”

Write to Austin Kilgore.

And as the press continues to focus on subprime fall-out, strategic default and option ARM resets, experts warn that these “silent second” HELOCs may become a much louder problem, according to converging data from a consumer credit agency and securities research.

They say that investor claims on the underlying assets are potentially compromised by federally-subsidized modifications of first liens. In the short term, investors of RMBS may see reduced cash flow as the borrower’s second lien debt is piled onto the underwater property, further constricting household finance. Along a longer timeline, the risk of default rises as negative equity increases.

HELOCs were common in 2002 in cases where homeowners put 20% or 25% down, according to HousingWire sources. Homeowners often opened home lines of credit to access the equity in their homes – even as early as the closing table. Getting closer to 2007, less and less money was being put down on homes, though the rate of HELOC origination did not necessarily slow.

Once house prices began to fall, the presence of second liens became a major issue to first lien holders. Not only were borrowers increasingly trapped in negative equity positions on first liens, but additional debt from second liens placed all the more financial pressure on performance. Additionally, some RMBS analysts say first lien holders also lacked clarity regarding which first lien assets are also secured by second liens. First lien RMBS investors were not automatically notified when second liens were made on the underlying property.

Amherst Securities Group back in March 2009 warned the administration’s Home Affordable Modification Program (HAMP) would be detrimental first lien holders in private-label RMBS.

Holders of second liens are not forced to participate in HAMP, and “acute” conflicts of interest arise between servicers and investors, especially when the servicer of the first lien also services the second lien. HAMP also “violates the time-honored” cash flow priority where second liens are written off before cash flow on the first lien suffers, Amherst said.

The plan for federal modifications “in combination with the servicer safe harbor [that protects servicers from legal backlash for complying with the Truth in Lending Act], leaves the current first lien holders with no protection,” said Laurie Goodman and Roger Ashworth from the Amherst team. “It is the equivalent of having the fox guard the hen house, with the fox in possession of the only set of keys.”

Goodman and Ashworth added: “And it potentially corrupts the integrity of the securitization market. In any structured security, the prioritization of claims is integral to valuation. Once the precedent is set to violate this hierarchy, by making the first liens holders incur losses without touching the second lien cash flows, the integrity is breached.”

Nearly a year later in January 2010, the Amherst MBS strategy group was still warning of the prevalence of second liens by product type (illustrated below) – which will become a much louder issue if federal modifications begin to focus on principal reduction.

“Lien priority dictates that the first mortgage cannot be written down until the second is extinguished,” Amherst said. “And second liens are not an inconsequential factor; they appear disproportionately on the books of the largest banks, so extinguishment would impact the capital position of these institutions.”

The Amherst team used the First American CoreLogic LoanPerformance Securities and and LoanPerformance TrueLTV databases to determine that more than 50% of first liens in private-label securitzations have second or higher liens behind them. The presence of this second lien raises the combined loan to value (CLTV) by more than 20 points and takes a “significant adverse impact” on the performance of first liens.

Amherst also found simultaneous second liens are more prevalent for 2006-2007 vintages, while subsequent seconds were more common within earlier vintages from 2002-2005. Default frequency is worse on simultaneous seconds than on subsequent seconds.

And as defaults rise overall in RMBS, borrowers’ use of revolving credit has also increased.

Consumer credit bureau Equifax adds that not only are CLTV ratios on current loans not widely understood, but the entire issue is under-reported in the press, in a report provided to HousingWire. In that report, 25% of borrowers with current Alt-A loans had closed-end seconds in July 2009, up from just 10% in July 2005. Equifax also indicated 23% of prime borrowers getting high use (80%) of revolving credit lines in July 2009, from 17% four years earlier. Similarly, 22% of Alt-A borrowers now have high use of revolving lines, compared with 10% in July 2005. 20% of subprime borrowers are now getting high use out of their revolving credit, compared with 10% in July 2005.

Write to Diana Golobay.

Additional reporting by Jacob Gaffney

The novel approach is being touted by Loan Value Group LLC, a firm selling their idea—and ready-made application—to mortgage investors nervous about the risk of strategic default, where borrowers walk away from their homes even though they can afford to pay their mortgages.  The firm says it’s signed up an undisclosed mortgage investor to test a pilot program with a few hundred borrowers.

That’s the reality the Federal Reserve is confronting as it starts to explain how it will undo the aggressive growth-supporting steps that were put in place when the economy was in its deep dive — and begins to be clearer about when that may happen.

But it is a fraught exercise. Federal Reserve leaders and private economists expect the jobless rate to remain high for years, despite a dip in the unemployment rate to 9.7 percent in January, and the Fed could make the situation worse if it moves too abruptly.

While only a dozen and a half REITs have reported results so far, their numbers don’t bode well for the rest of earnings season, points out Rich Moore, an analyst at RBC Capital Markets, and his colleagues.

Although they had spent more than five decades carving their names into the New York skyline, the families were outbid and sometimes outmaneuvered by the newer, flashier speculators and investors who swaggered down Manhattan streets buying one skyscraper after another at record-setting prices.

But now that some of the record-breakers are desperately trying to fend off lenders or teetering at the edge of bankruptcy, these families are looking like wise veterans.

Many of the macroeconomic assumptions about house prices – and the likely default rates on mortgages – have turned out to be so wrong that the resulting losses for banks and insurance companies turned a financial crisis into a global economic disaster which continues to be felt to this day.

“In light of the wide range of risks arising from securitisation activities, which can be compounded by rapid innovation in securitisation techniques and instruments, minimum capital requirements calculated under Pillar 1 are often insufficient,” RBI said.

Thain on Sunday was named chief executive of the CIT Group, the troubled financial company that emerged from bankruptcy in December under control of its primary creditors….

But times have changed, and Thain’s tastes – including for sumptuous interior decorating – have also changed. As he told Bloomberg:

At CIT, “I think I’ll keep my office exactly the way it is.”