About 8.31 million properties had negative equity at the end of 2008, up 9 percent from 7.63 million at the end of September, according to the study, released today by First American CoreLogic. The percentage of “underwater” borrowers rose to 20 percent from 18 percent.

Another 2.16 million properties could go underwater if home prices fall another 5 percent, the study shows.

First American said the value of residential properties fell to $19.1 trillion at year-end from $21.5 trillion a year earlier, with half the decline in California. Forty-three U.S. states and Washington, D.C., were included in the study.

While states such as California, Florida and Nevada were particularly stressed, the study showed worrying signs of deterioration in relatively healthy parts of the nation.

Arizona, California, Florida, Georgia, Michigan, Nevada and Ohio remained the most stressed states, with 62 percent of underwater borrowers and just 41 percent of mortgages.

Other areas, though, also face more stress. Connecticut, for example, saw a 25 percent increase in homes with negative equity, while Washington, D.C., had a 44 percent increase.

Roughly 68 percent of U.S. adults own their own homes, and about two-thirds of these have mortgages. Many economists expect the nation’s unemployment rate to rise above 9 percent before the recession ends, up from January’s 7.6 percent.

California had 1.9 million borrowers with negative equity at year-end, more than any other state, followed by Florida’s 1.28 million. About three in 10 borrowers in both states were underwater.

By other measures, Nevada was the most stressed, with 55 percent of owners having negative equity and borrowers on average owing 97 percent of what their homes are worth. About 28 percent owe more than 125 percent of their homes’ value.

Michigan had 40 percent of its homeowners underwater, while Arizona had 32 percent.

New York fared best, with just 4.7 percent of borrowers with negative equity and an average 48 percent loan-to-value ratio, though this could change as employment and bonuses slide in the financial services industry.

According to the S&P/Case-Shiller Home Price Indices, prices of U.S. single-family homes slumped 18.5 percent in December from a year earlier, the biggest drop in the 21-year history of the data.

Many lenders are taking steps to keep borrowers out of foreclosure. The Obama administration has backed legislation that could broaden powers of bankruptcy judges to modify mortgages for troubled borrowers. Among major lenders, only Citigroup Inc has supported such a plan.

The TALF is designed to catalyze the securitization markets by providing financing to investors to support their purchases of certain AAA-rated asset-backed securities (ABS). These markets have historically been a critical component of lending in our financial system, but they have been virtually shuttered since the worsening of the financial crisis in October. By reopening these markets, the TALF will assist lenders in meeting the borrowing needs of consumers and small businesses, helping to stimulate the broader economy.

Under today’s announcement, the Federal Reserve Bank of New York will lend up to $200 billion to eligible owners of certain AAA-rated ABS backed by newly and recently originated auto loans, credit card loans, student loans, and SBA-guaranteed small business loans. Issuers and investors in the private sector are expected to begin arranging and marketing new securitizations of recently generated loans, and subscriptions for funding in March will be accepted on March 17, 2009. On March 25, 2009, those new securitizations will be funded by the program, creating new lending capacity for additional future loans.

The program will hold monthly fundings through December 2009 or longer if the Federal Reserve Board chooses to extend the facility.

Today the Board also released revised terms and conditions for the facility and a revised set of frequently asked questions. The revisions include a reduction in the interest rates and collateral haircuts for loans secured by asset-backed securities guaranteed by the Small Business Administration or backed by government-guaranteed student loans. The modifications are warranted by the minimal credit risk on these assets owing to the government guarantees, and, by making the terms of the TALF loans more attractive, they should encourage greater flows of credit to small businesses and students.

On February 10, 2009, the Board and Treasury announced an expansion of TALF to include new asset categories that could generate up to $1 trillion in new lending. Teams from the Treasury Department and Federal Reserve are analyzing the appropriate terms and conditions for accepting commercial mortgage-backed securities (CMBS) and are evaluating a number of other types of AAA-rated newly issued ABS for possible acceptance under the expanded program. The expanded program will remain focused on securities that will have the greatest macroeconomic impact and can most efficiently be added to the TALF at a low and manageable risk to the government.

The Federal Reserve and Treasury currently anticipate that ABS backed by rental, commercial, and government vehicle fleet leases, and ABS backed by small ticket equipment, heavy equipment, and agricultural equipment loans and leases will be eligible for the April funding of the TALF. Other types of securities under consideration include private-label residential mortgage-backed securities, collateralized loan and debt obligations, and other ABS not included in the initial rollout such as ABS backed by non-auto floorplan loans and ABS backed by mortgage-servicer advances. As is the case for the current categories of newly originated loans, the TALF will combine public financing with private capital to encourage the private securitization of loans in the asset classes eligible in the expanded program.

Increased TALF lending and other actions to stabilize the financial system have the potential to greatly expand the Federal Reserve’s balance sheet. In order for the Federal Reserve to conduct monetary policy over time in a way consistent with maximum sustainable employment and price stability, it must be able to manage its balance sheet, and in particular, to control the amount of reserves that the Federal Reserve provides to the banking system. The amount of reserves is the key determinant of the interest rate that the Federal Reserve uses to pursue its monetary policy objectives. Treasury and the Federal Reserve will seek legislation to give the Federal Reserve the additional tools it will need to enable it to manage the level of reserves while providing the funding necessary for the TALF and for other key credit-easing programs.

The Commerce Department reported consumer spending rose 0.6 percent in January

Personal incomes rose 0.4 percent in January, partly reflecting the cost-of-living adjustments provided to millions of Social Security recipients. Still, that was better than the 0.2 percent decline economists expected.

The personal savings rate surged to 5 percent, the highest level since 1995 as consumers continued to sock away more of their incomes amid the deepening recession

Eligible borrowers are also limited to those with a loan-to-value ratio of 80 percent to 105 percent on their first mortgage.

Here are the percentages of mortgage holders in some hard-hit areas who meet the eligibility criteria to refinance under the plan, according to Zillow.com:

Miami-Fort Lauderdale: 17 percent
New York and North Jersey: 16 percent
San Diego: 12 percent
Los Angeles: 9 percent
San Francisco: 8 percent
San Jose-Santa Clara: 7 percent

The median sales price of new houses sold in January 2009 was $201,100; the average sales price was $234,600. The seasonally adjusted estimate of new houses for sale at the end of January was 342,000. This represents a supply of 13.3 months at the current sales rate.

Existing-home sales – including single-family, townhomes, condominiums and co-ops – fell 5.3 percent to a seasonally adjusted annual rate1 of 4.49 million units in January from a level of 4.74 million units in December, and are 8.6 percent lower the 4.91 million-unit pace in January 2008.

NAR estimates the impact of the stimulus package and lower interest rates on the housing market to be about 900,000 additional home sales in 2009 compared to conditions before the stimulus package. Inventory is expected to fall below an 8-month supply by the year end, which would be consistent with home price stabilization.

Total housing inventory at the end of January fell 2.7 percent to 3.60 million existing homes available for sale, which represents a 9.6-month supply at the current sales pace. Because sales were down, the January supply is up from a 9.4-month supply in December.According to Freddie Mac, the national average commitment rate for a 30-year, conventional, fixed-rate mortgage fell to a record low at 5.05 percent in January from 5.29 percent in December; the rate was 5.76 percent in January 2008.

A high prevalence of distressed home sales, and of those in lower price ranges, has skewed the median price to be markedly lower than under normal market conditions. The national median existing-home price3 for all housing types was $170,300 in January, down 14.8 percent from a year earlier when the median was $199,800; the median is where half of the homes sold for more and half sold for less.

Single-family home sales fell 4.7 percent to a seasonally adjusted annual rate of 4.05 million in January from a pace of 4.25 million in December, and are 7.1 percent less than a 4.36 million-unit level in January 2008. The median existing single-family home price was $169,900 in January, which is 13.8 percent below a year ago.

Existing condominium and co-op sales dropped 10.2 percent to a seasonally adjusted annual rate of 440,000 units in January from 490,000 units in December, and are 20.3 percent lower than the 552,000-unit level a year ago. The median existing condo price4 was $174,400 in January, down 20.6 percent from January 2008.

Regionally, existing-home sales in the Northeast dropped 14.7 percent to an annual pace of 640,000 in January, and are 23.8 percent lower than January 2008. The median price in the Northeast was $228,200, down 14.7 percent from a year ago.

Existing-home sales in the Midwest fell 5.7 percent in January to a level of 1.00 million and are 16.7 percent below a year ago. The median price in the Midwest was $138,100, which is 6.8 percent lower than January 2008.

In the South, existing-home sales declined 5.7 percent to an annual pace of 1.64 million in January, and are 15.9 percent below January 2008. The median price in the South was $152,100, down 7.4 percent from a year earlier.

Existing-home sales in the West were unchanged at an annual rate of 1.20 million in January and are 29.0 percent stronger than a year ago. The median price in the West was $220,000, which is 25.5 percent below January 2008.