U.S. mortgage rates dropped for a second consecutive week, remaining below 5.0 percent, a key level that may boost home loan demand, a closely watched mortgage survey showed on Thursday.

The lowest mortgage rates in decades and high affordability helped the hard-hit housing market find some footing last year after a three-year slump. Attractive rates bode well for the housing market, which remains highly vulnerable to setbacks and heavily reliant on government intervention.

Interest rates on U.S. 30-year fixed-rate mortgages, the most widely used loan, averaged 4.93 percent for the week ended Feb. 18, down from the previous week's 4.97 percent, according to a survey released by Freddie Mac, the second-largest U.S. mortgage finance company.

That is below the year-ago level of 5.04 percent, but above the record low of 4.71 percent in early December. Freddie Mac started the survey in 1971.

"Mortgage rates eased for the second week, while economic data releases suggest that the housing market may be in a slow state of recovery," Freddie Mac vice president and chief economist, said in a statement.

Mortgage rates are linked to yields on Treasuries and yields on mortgage-backed securities.

CNN and Daily Finance, however, seem to be disagreeing with each other as to how much value may still be lost in some homes. CNN seems certain homes will not lose more than another five percent in value, basing their insight on what renters are paying. Daily Finance claims as much as forty percent, based on average income.

Declines in house prices mixed with increases in foreclosures are not showing a hugely negative knock-on impact for the nation’s overall economic recovery, according to a weekly report by FTN Financial, a portfolio manager and analytics provider for the investment and banking industry.

The announcement comes as recent housing data speaks otherwise and appears to fail to fulfill hopes of a broad recovery.

FTN reached its conclusion based on an examination of local sales tax data, which shows that even in the absence of available housing-backed capital, such as the once-popular home equity lines of credit, consumers are still buying in a way that can’t be measured against the backdrop of local foreclosures and price declines.

“Local housing prices and poor credit by themselves do not solely determine participation in the recovery so far,” said Jim Vogel, a financial analyst at FTN and author of the weekly report. “While housing contributed to the downturn, it is not an absolute roadblock to recovery.”

Vogel notes that economic growth in the past three business cycles was led by confidence in consumer spending, and supported by gains from refinanced first mortgages and new second lien home equity loans. But the extent of the decline in the housing and mortgage markets from 2007-2009 calls into question the speed and sustainability of the current recovery.

For the report, FTN analyzed state sales tax receipts in the second half of 2009 in particularly hard-hit metropolitan areas, and compared the data with more stable housing economies. FTN concluded that spending recovery patterns are not necessarily worse in regions with the worst housing markets.

The housing market in Florida, for example may have high foreclosures and mixed with dropping home prices, but when it comes whether or not this impacts the spending habits of the state’s inhabitants, there appears to be a “zero correlation,” the reports states.

“[S]ales tax receipts were uncorrelated in 2H 2009 with housing misery,” Vogel said. “That has led to a tentative conclusion that continued home price declines and foreclosures are not fatal to the overall economic recovery.”

FTN also concluded the economy grew in the second half of the year despite tight mortgage lending standards. The growth was largely driven by federal stimulus, although consumer spending contributed as well.

The new policies, are designed to bring more revenue into the agency, while at the same time keeping loans available.

Under the changes, homebuyers will:

• Pay an upfront mortgage insurance premium of 2.25 percent of the total loan amount, up from the current level of 1.75 percent. A borrower taking out a $200,000 mortgage would pay a $4,500 fee, for example, rather than the current fee of $3,500. Borrowers will still be able to wrap these fees into the total amount borrowed. FHA officials also plan to ask Congress to increase the maximum annual premium that FHA can charge.
• Need a credit score of at least 580 to qualify. Many FHA lenders already require a higher score, but there had been no standard requirement across the program. Borrowers with a score lower than 580 will need a down payment of at least 10 percent.

The changes come as borrowers with loans backed by the agency have increasingly been falling into default. More than 18 percent of FHA borrowers are at least one payment behind or in foreclosure, compared with 14 percent for all loans, according to the Mortgage Bankers Association.

The FHA is also cracking down on those they think may be involved in less than honest lending practices.

The HFA Initiative is a key element to the Obama Administration’s Homeowner Affordability and Stability Plan, which attempts to expand resources for low-to-middle income borrowers to purchase or rent homes. The Treasury does not expect the Initiative to come at a cost to taxpayers, according to the announcement.

In October, the Treasury announced two parts of the initiative, the New Issue Bond Program (NIBP) to support new lending by the HFAs, and the Temporary Credit and Liquidity Program (TCLP) to deliver relief to the agencies’ financial strains.

Through more than 90 participating HFA’s, the Treasury attempts to provide affordable financing to “hundreds of thousands” of borrowers to purchase, rehabilitate or refinance a home. The HFA’s will also provide multifamily loans to keep rents affordable for borrowers.

“Supporting the work of state and local HFAs is critical to the Administration’s broader initiative to stabilize the housing market, which is helping to keep mortgage rates low and mortgage finance flowing for American households across the country,” said Treasury secretary Tim Geithner.

Susan Dewey, president of the National Council of State Housing Agencies (NCSHA) and executive director of the Virginia Housing Development Authority said that the bond proceeds from the recently completed transactions, coupled with the $7.7bn in retail housing bonds issued by the state HFAs allows the agencies to finance more than 200,000 homes.

So I still don't know what to think. I know a lot of you are watching the purchases due to the tax credit and wondering what will happen when July 1st rolls around. Now with this initiative, will it help or artificially promote purchasing only to fall flat once it's over? What do you think? Feel free to comment on this, ask questions or even weigh in with opinions on any of our blog posts.

The volume of November home sales in Las Vegas trailed off 5.5% from October, but spiked 44% from the start of 2009, according a report from MDA DataQuick.

The San Diego-based information provider said the home sale surge comes from the usual factors: price declines, low mortgage rates and the federal tax credit for homebuyers.

Foreclosure resales continued to dominate the Vegas housing market but also continue to gradually decline, according to MDA DataQuick. In November, 64.2% of homes and condos in Las Vegas were foreclosure resales, down from 66.8% in October and 68.1% below levels seen in November 2008. In April 2009, foreclosure sales peaked, taking up 73.7% of the region’s sales activity, but that percentage has declined every month since — perhaps as lenders and servicers have held up foreclosure activity.

The 4,787 new and resale homes and condos was the highest number of sales for a Vegas November since 2006, when 5,803 homes sold. November marked the 15th consecutive month that sales increased from one year earlier.

The region’s median sales price continued to fall on a year-over-year basis — marking 31 consecutive months of declining prices — and by November, it stood 56.8% below its $312,000 peak, recorded in November 2006. This November, the median price paid for all new and resale houses reached $134,900, up 3.8% from October but down sharply 29% from $190,000 last year.

What exactly is all this government involvement doing? According to an article in NuWireInvestor the government involvement is slowly making things even worse.

The so-called recovery in housing has been boosted by artificial government actions. The Fed has kept interest rates at historically low levels at between 0%-0.25%. Fannie Mae and Freddie Mac have been bailed-out at levels that are setting new records to keep them in business and provide a base for mortgage financing in the U.S. The government is offering first time home buyers an $8,000 tax credit and those who haven't bought a home in five years $6,500. And lastly the Fed is buying up billions of dollars of mortgage securities.

At no other time has the government been so involved in real estate like it is in the current crisis, and there's more to come from the White House in February before the president offers the annual State of the Union Address.

But before any real stabilization will develop many of the artificial protections for the market have to come off. The tax credit will expire April 30th. The Treasury will have to stop buying securities that back-up mortgages. The Fed will eventually have to raise interest rates. The hint of higher rates by the Fed will cause bankers to increase home lending rates before the Fed ever makes an announcement. That's how it works in money markets.

Sooner or later the government will be forced to deal with whether it will nationalize Fannie Mae and Freddie Mac. There are already eager suitors waiting in line, but any take over these days would come at a massive cost to tax payers, who own the majority of the stake in both government sponsored entities by the sheer volume of money that it's taking to keep them operating.

The climb out of the mortgage mess is expected to take at least four or five years before the government acts to make a decision on Fannie and Freddie.

The government's housing rescue package has been orchestrated by federal policy makers with little public transparency. As part of the program bankers have been given financial incentives to modify mortgages, but the plan has been deemed a failure. Still, bankers are provided with incentives to work out a short sale or have homeowners sign a deed in lieu of foreclosure.

The foreclosure epidemic has led to the worst economy since the Great Depression, despite economic improvements in some business sectors. In order for the housing market to stabilize the huge number of unemployed will have to go back to work in order to qualify to become homeowners. At its very core the nation is under-going a huge shift in the government paradigm controlling the mortgage market.

The shift is painful for millions of Americans, who are unemployed, under-employed or losing their homes. As usual the government has done very little for the majority of those suffering through the crisis. But the shift to new standards will slowly transform the culture of investing both in real estate and other investments to a new understanding of the nation's future.

The tax credit provides up to $8,000 to first-time homebuyers but is set to expire at the end of November.

Senators agreed to extend the existing tax credit for first-time homebuyers while offering a reduced credit of up to $6,500 to repeat buyers who have owned their current homes for at least five years, said Regan Lachapelle, a spokeswoman for Senate Majority Leader Harry Reid, D-Nev.

The tax credits would be available to homebuyers who sign sales agreements by the end of April. They would have until the end of June to close on their new homes, said a congressional aide, who spoke on condition of anonymity because he was not authorized to publicly discuss the deal.

Senators were still negotiating the expansion of a separate tax credit that lets money-losing businesses get refunds for taxes paid in previous years, providing them with an immediate source of cash.

Senators in both political parties were hoping to add both tax provisions to a bill that would give people running out of unemployment insurance benefits up to 20 more weeks of federal aid. The Senate could vote on the overall bill as early as Thursday, but lawmakers were still haggling over several unrelated amendments Wednesday evening.

Popular bills like the one to extend unemployment benefits often attract amendments that would have a difficult time passing on their own.

Republicans were demanding that they be given a chance to offer amendments to restrict federal aid to the beleaguered community activist group ACORN and on requiring that people receiving unemployment insurance be processed through E-Verify, an Internet-based system that employers use to check on the immigration status of new hires.

Majority Democrats have refused to add the amendments.