The housing market continues to struggle as home prices fall and mortgage applications drop. The Market Composite Index, which measures the volume of mortgage applications each week, dropped this past week. One of the biggest reasons is the fact that the refinancing portion of the index dropped.

Apparently, even though mortgage rates are low, people are reluctant to refinance their homes. This is causing mortgage applications to drop. Perhaps some are waiting to see if mortgage interest rates will drop back below 5%, since mortgage rates rose last week. Another issue is that home values have not been rising, and do get the 80% loan to value ration that many mortgage lenders are asking for is difficult.

Those with mortgages serviced by Fannie Mae or Freddie Mac, though, can take advantage of a refinance program from the government that allows a 125% LTV.

Ever since the financial crisis, Fannie Mae and Freddie Mac have been wards of the federal government, under direct control. This happened when the companies appeared to be on the verge of collapse, and ready to take down a large portion of the mortgage market. With the two GSEs accounting for about 70% of loan originations due to FHA loans, a collapse would have been devastating. Fannie and Freddie are the biggest mortgage lenders in the country, between originations and servicing.

But Barney Frank doesn’t want Fannie Me and Freddie Mac to go back to the way they were before. National Mortgage News Online reports on his opposition:

Chairman Frank said he plans to hold hearings on restructuring the U.S. housing finance system and he has no desire to see Fannie and Freddie return to the former “hybrid” status as a private companies with a public mission.

It is unclear about what might happen going forward, but if Fannie and Freddie are no longer GSEs, they would end up either being completely private, or they would be turned into government home financing programs.

The last of the housing market data is being tallied from 2009, and it looks like things have ended on something of a weak note. Housing starts dropped 4% in December. Multi-family housing starts gained, but that small victory was completely overwhelmed by the fact that single-family housing starts were down so much.

In my mind, it appears that the news illustrates continued stress on families. Demand for multi-family units indicates that there are plenty of families in financial trouble, and even suffering through foreclosure, looking for less expensive housing. Single-family housing starts are above the bottom seen in 2009, but they are far from showing strength. Improvement in this area is likely to be slow, depending on a change in the employment situation.

Until families can afford single housing units gain, housing starts are likely to continue to struggle.

Even as we hear about a recovering economy, the fact of the matter is that there are some places that have higher rates of foreclosure than others. Here is a chart on foreclosure distribution from 2005 to 2009 found at The Mortgage Reports.

You can see the large spike after the financial crisis toward the end of 2008. And it does appear that foreclosures are declining right now. As long as we see something of an improvement in terms of employment and the overall economy, there should be continued declines in the rate of foreclosure.

When we are ready to buy a car, open a credit card, or jump into the big world of making a home purchase, one of the first things that happens is a lender checks our credit score.  Have you paid your bills on time?  Do you have any major dings on your credit like a judgement or unpaid child support?  Is there a foreclosure in your 10-year history or a short-sale in the last five or seven years?

Like regular consumers, builders also have a credit history.   Their credit history is just as important as ours as people again start thinking about buying new construction homes.  Why?  Consider what it would be like to have a contract on a house and then you wait for construction to be completed so you can close prior to the June 30th deadline to get the $8000 first-time home buyer or the $6500 existing homeowner tax credit.  Suddenly, everything stops because the builder’s assets have been frozen because of a credit problem.

There are ways to ensure that you won’t be caught in someone else’s misfortune, according to Ken Kruse, president of Payne Family Homes.  He offers tips on how to be sure your builder is financially sound as you consider a new construction home,

Check third-party resources, such as the Better Business Bureau, which may have a rating on the builder, and Dun & Bradstreet, which may have information on a builder’s credit history. And there’s no harm in asking if the builder has a forward-looking view by investing in more land and more floor plans.

Ask lots of questions of your real estate agent, the workers at the houses (but don’t interfere with their work), and even the other people who live in the neighborhood.  As the economy improves, the sound of hammering, saws, and drilling should return … make sure they don’t suddenly stop on YOUR house by being sure your builder is financially stable in advance.

Labor market issues continue to plague the economy, slowing recovery and prompting a host of issues. One of the concerns is that the continued high unemployment rate could lead to an increase in foreclosures down the road. This is because as people continue to lose their jobs (or fail to find jobs), they are less able to make their housing payments. And this could result in foreclosure.

Real Estate Pro Articles makes a very interesting point about the rather vicious cycle we’re seeing with regard to unemployment and the economy:

A greater amount of consumer and business confidence is an essential factor in any economic recovery; financial recovery hinges on it. We need more than just incentive programs to prop up businesses and consumer spending; we need an increase in confidence in the economy across the board. Only when the public’s confidence is raised will consumers feel comfortable in investing their money in real estate as well as the rest of the economy; unfortunately, the economy will need to look like it is faring better before more consumers show a higher level of confidence in it.

Until the economy improves, employers will be reluctant to hire. However, the economy can’t improve until employers hire more people, boosting their ability to spend and make mortgage payments. It’s rather circular. But it’s the way things are right now. So it will be interesting to see how things proceed from here.

After taking a bit of a break for the holidays, it appears that mortgage applications are on the rise again. As one might expect, refinancing is in the lead again. But home purchase applications have risen as well, reports MarketWatch:

Refinancing applications jumped 21.8% in the week ended Jan. 8 compared with the week before, which was shortened for the New Year’s holiday. Applications for mortgages to purchase homes rose a seasonally adjusted 0.8% on a week-to-week basis.

With the home buyer tax credit extended and expanded, it is no surprise that people are starting to consider buying homes again. Of course, some of these mortgage applications will be rejected, without good credit scores, but the increase in applications is heartening for the housing market.

And, of course, it makes sense that refinancing applications are on the rise. With mortgage rates still hovering near historical lows, it is natural that home owners want to take advantage. When you refinance to a lower interest rate, it is possible to save thousands of dollars on your home loan.

Many people choose not to make financial New Year’s resolutions, fearing that they won’t keep them. I say go for it. Those who make resolutions are more likely to accomplish the changes they desire than those who don’t resolve on anything. Last year, I made a resolution to refinance the house. I didn’t get around to it. But 2010 is the year. Mainly because I’m afraid that interest rates will rise and I’ll have missed the boat.

In order to reach my goal, though, I’ve got to do a couple of other things:

* Make sure that my credit score is up to snuff. So I’ll check it soon and then see if I need to have errors removed from my report, and do something else to get a little boost.

* Have the house appraised. An appraisal will be needed to asses my current loan to value ratio. I haven’t been in the house very long, so I don’t have a lot of equity, but I know I’m not upside down.

* Look at my options. Interest rates are low enough that I can refinance to a 20 year loan and pay only a little more than I am paying now per month. So that might be a possibility rather than refinancing to a 30 year loan.

I’ll also have to actually go into the credit union and talk to someone about it. And while I’m at it, I’ll probably ask about a Health Savings Account, since that’s another one of my financial New Year’s resolutions.

Even though there are hopes of economic recovery, things are moving slowly, even on the housing market front. With prime mortgage borrowers slipping into delinquency, and mortgage lenders still being tight with their qualification requirements, it is little surprise that the housing market isn’t moving much.

As a result, home prices remain flat. The latest Case-Shiller home price index shows that October saw flat home prices, and that October did not keep pace with the rest of the year. However, that may have been due to the fact that the fate of the home buyer tax credit was in doubt. Now that the credit has been extended and expanded, there are hopes that the housing market will pick up pace — and that home values (and prices) will increase.

The buyer’s market may soon be coming to an end.

This week, mortgage applications have dropped. The Mortgage Bankers Association is reporting that applicants are holding off a bit. This is not especially surprising, with the holiday approaching. Indeed, the MBA is taking next week off, and not planning to release data on mortgage applications.

As is usually the case, most mortgage applications were related to refinance. Nearly 76% of mortgage applications were from those wishing to refinance. This is not surprising, since rates are near historic lows, and many homeowners are interested in refinancing to a lower rate in order to save money.

It will be interesting to see how things go starting in the new year, and whether the expanded and extended home buyer tax credit will contribute to a pick up in new mortgage applications.