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.

Goldman Sachs has managed pull in profits as revenues jump. So far, the earnings season for financial companies has been somewhat mixed, with some companies reporting profits (like JP Morgan Chase and Morgan Stanley), while others, like Citi, post losses.

But with Goldman in the profit category, it seems as though things are probably looking better overall for the big banks that seemed on the verge of collapse toward the end of 2008. MarketWatch reports on the Goldman Sachs response to their profits:

“Despite significant economic headwinds, we are seeing signs of growth and remain focused on supporting that growth by helping companies raise capital and manage their risks, by providing liquidity to markets and investing for our clients,” Chief Executive Lloyd Blankfein said in a press release.

Some of the biggest helps to Goldman include underwriting fees it earned, as well as the fact that there were pay cuts. Compensation and benefits were cut in response to public outrage, and Goldman appears to have reaped some benefits.

When it comes to getting a mortgage, you want to make sure that you are getting a good deal, and that you are choosing a mortgage lender that can help you through the process. This can also be helpful when you are looking to refinance. As you choose a mortgage lender, it is a good idea to shop around a bit first. Chris Bibey, at the Bankruptcy & Foreclosures blog, offers three tips that can help you as you choose a mortgage lender:

1. Consider reputation: Look for a mortgage lender with a good reputation. You can usually find information on banks and brokers. Get references from friends and relatives.

2. Look for a low mortgage interest rate: This is probably the most important aspect of your home mortgage loan. Shop around for a mortgage lender offering a low rate. You can also look for other helpful amenities like reduced closing costs. You should also consider a mortgage lender that is knowledgeable about different programs.

3. Don’t be too hasty: Even though you may want to move through quickly, make sure you take some time to carefully review your mortgage financing options, and choose the mortgage lender you are most comfortable with.

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.

Citi got $45 billion from TARP, and now Citi is ready to pay it back. In order to help raise the funds, Citi plan to raise $20 billion by selling new equity. The idea is that by repaying TARP, Citi can get out from underneath the thumb of the “pay czar”.

The news that Bank of America received approval to repay its TARP money sent Citi (and Wells Fargo) into repay mode as well. However, officials have to give banks the go ahead in order to repay the money that they received. Banks know that if they don’t follow BofA’s lead, they could be at a disadvantage, since Bank of America would be able to lure top talent to the organization with large bonuses.

It will be interesting to see how things go, and how many banks line up to repay their money. This is good news for the Obama Administration and tax payers, since it means that the deficit won’t be as large as projected.

It’s been a tough year for the housing market. But it’s not all been bad. With FHA loan rules likely to tighten, there are concerns amongst some that the the ability to get new loans going will continue to be difficult. However, there are some silver linings. Mortgage News Daily offers 10 reasons that the housing market should cheer up. Here are my five favorite reasons from the list:

1. Stock market rally: Overall confidence should help matters immensely, and the stock market should be a big part of that.

2. Extended tax credit: The first time homebuyer tax credit was extended into next year, and expanded to include those who are “trading up”.

3. TARP repayment: Bank of America repaid TARP, and the latest news is that most of the TARP funds are going to be repaid.

4. CRE is resilient: Commercial loans still have a lower delinquency rate than residential loans, and that is helping matters for the overall real estate market.

5. Not all the home builders are bankrupt: Mortgage News Daily points out that even though many home builders are struggling, it’s a veritable miracle that they all aren’t bankrupt.

Over the next several days, Bank of America plans to repay its TARP money. Many financial institutions received preferential terms with TARP back at the height of the financial crisis. Now that things are starting to look better, though, many banks want to repay the TARP money. This is not terribly surprising, since the TARP help came with plenty of conditions.

One of those conditions was that banks had to submit to compensation restrictions. As a result, many institutions are chafing under the increased regulatory scrutiny. In order to move beyond the “pay czar“, Bank of America is willing to pay back the TARP funds and move on. One of the biggest factors in this decision, speculate some, is the fact that Ken Lewis is retiring at the end of this year, and they will need an attractive compensation package to lure a new CEO to the top position.

In the end, it is a valuable lesson: If you want more financial freedom, you should consider paying off your debt — as quickly as possible.

One of the issues surrounding foreclosure prevention programs offered by the government is the fact that these programs are voluntary for mortgage lenders. Which means many mortgage lenders just aren’t participating — or they’re making things difficult. As a result, the Obama Administration is increasing the pressure on mortgage lenders.

The Administration plans to require loan servicers to report on how they plan to reach a decision on loan modification applications they receive. Communication with borrowers will also be scrutinized. Failure to comply could mean sanctions and/or penalties. Also, the Obama Administration is working to provide more information to borrowers so that they better understand the loan modification process, especially as it relates to permanent modifications. CNN Money reports on complaints from borrowers:

A growing number of borrowers are complaining that they are stuck in trial modifications. Some 650,000 homeowners are currently in this preliminary phase, but only a small fraction have received permanent assistance. …

Borrowers that qualify for long-term modifications can keep making the lower payments for five years. At that point, the interest rate will be set at the rate at the time of the adjustment, currently about 5%.

Loan servicers, however, say they are having trouble getting the necessary documents from borrowers, while homeowners maintain that their financial institutions are repeatedly losing the paperwork.

You can see where things are getting out of hand. But will pressure from the president help streamline the process?

Mortgage applications are on the rise again. It is quite likely that the fact that Congress extended the first time home buyer tax credit probably contributed in part to the change. However, refinancing has also gone up quite a bit. The Atlanta Business Chronicle reports on the latest mortgage applications data:

The Mortgage Bankers Association’s Market Composite Index, a measure of mortgage loan application volume, increased 3.2 percent on a seasonally adjusted basis from a week earlier.

The Refinance Index increased 11.3 percent from the previous week.

The refinance share of mortgage activity increased to 71.5 percent of total applications from 66.1 percent the previous week, the highest share since May.

Clearly, right now, even with the tax credit, refinancing is the bigger focus. No wonder JPMorgan Chase is getting ready to hire 1,200 new mortgage loan officers.