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Originally published March 29, 2011 at 11:59 AM | Page modified March 30, 2011 at 1:56 PM

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Home prices continue to fall in major U.S. cities

In the Seattle metropolitan area, single-family home prices are back where they were in September 2004.

McClatchy Newspapers

WASHINGTON — U.S. home prices continue to fall, new data showed Tuesday, giving urgency to important changes taking shape this week aimed at fixing specific causes of the U.S. financial meltdown.

January home prices fell 1 percent from a month earlier and 3.1 percent from January 2010, as measured by the S&P/Case-Shiller index, a composite of sales prices in 20 major U.S. housing markets. National prices have slumped for six straight months, and home prices are down 31.8 percent from their 2006 peak.

Home values in Atlanta, Las Vegas, Detroit and Cleveland are now below January 2000 levels. A majority of the metro areas tracked by the index now have home prices at levels dating back to 2003, just as the housing boom began.

In the Seattle metropolitan area, which includes King, Snohomish and Pierce counties, prices are back where they were in September 2004, according to Case-Shiller. Prices fell 2.4 percent between December and January, the second-steepest drop among the 20 markets the index tracks. Compared with a year ago, Seattle-area home prices are down 6.7 percent.

The only market where prices rose was Washington, D.C., where homes prices gained 0.1 percent month over month.

"The bottom line is, we just have a boatload of loans sitting in foreclosure or close, and we have to work through those loans before we can find a bottom," said Mark Zandi, the chief economist for forecaster Moody's Analytics.

The dismal numbers reflect the deep damage done by a financial crisis that began with problems in mortgage finance. This week may prove a pivotal one for fixing some of what went wrong.

The Federal Deposit Insurance Corp. approved Tuesday a rule that would force Wall Street to retain an ownership share when issuing complex bundles of mortgages that poisoned the global financial system.

Lack of "skin in the game" allowed Wall Street firms to take millions of shoddy U.S. mortgages and profitably bundle them into complex bonds in a secondary market, where they were dumped on unsuspecting investors. The FDIC measure, backed by other regulators, is designed to restore investor trust in this secondary market, which is vital to mortgage lending.

Separately, the Federal Reserve imposes new rules Friday that will end the practice of allowing mortgage brokers to receive a bonus from lenders — a legalized kickback — when they get a borrower into a loan with a higher interest rate than the rate for which they qualified. During the housing boom, lenders rewarded brokers for getting borrowers into ill-suited and often predatory loans.

"I think the importance of what you're seeing as you group the pieces together is the remaking of the mortgage system after the crisis. ... It is very, very important," said Barry Zigas, the director of housing policy for the Consumer Federation of America.

Last year's broad overhaul of financial regulation also created a new Bureau of Consumer Financial Protection, which opens for business July 1, to better police mortgage lending.

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Congressional Republicans are trying to defund and defang the new bureau, and on Tuesday, they unveiled eight bills designed to put to death mortgage-finance titans Fannie Mae and Freddie Mac. The two have been in government hands since September 2008.

The measures don't provide a timetable but would progressively lower the limit of how many mortgage bonds the two could own over a five-year period, getting government almost completely out of mortgage finance.

"Today marks the start of a process," said Rep. Scott Garrett, R-N.J., the chairman of a subcommittee that deals with the agencies. "The culmination of our efforts will ... return our housing system to the private marketplace."

Fannie and Freddie buy loans from lenders and bundle them into bonds sold to investors, a process called securitization. Wall Street took much of their bonds during the housing boom, before weak lending standards brought down the entire system of mortgage finance. Today, Fannie and Freddie do about 90 percent of the pooling of new mortgages.

The Case-Shiller report measures home-price increases and decreases relative to prices in January 2000 and gives an updated three-month average for the metropolitan areas it looks at.

The pain is not uniform. It is worse in cities flooded by foreclosures and short sales. That includes Detroit and Cleveland, which are struggling with weak local economies. Miami, Phoenix, Las Vegas and Atlanta are reeling from overbuilding during the housing boom.

"Some people who want to buy don't have the time, desire or energy to fix up a foreclosure, so they don't buy them," said Ron Shuffield, president of Esslinger-Wooten-Maxwell Realtors in Miami, where foreclosures or short sales make up two-thirds of the homes sold.

San Diego was the only city besides Washington to show year-over-year gains in home prices, although prices there rose only a scant 0.1 percent.

Seattle Times business reporter Eric Pryne and The Associated Press contributed to this report.

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