Amid the flurry of banking bailout talks and stock market worries, the National Association of Realtors released a report Wednesday showing a decrease in existing home sales nationally last month.

The Associated found that sales of previously owned homes, including single-family, townhomes, condominiums and co-ops, dropped a seasonally adjusted 2.2 percent to an annual rate of 4.91 million units from a rate of 5.02 million in July. August figures are also down 10.7 percent from the same time last year.

The national median price for existing homes also fell last month to $203,100, a 9.5 percent slide from August 2007 when the median price was $224,400.

“The median home price reflects more transactions related to subprime loans,” said NAR chief economist Lawrence Yun. “Fewer than 10 percent of homeowners have subprime loans, but these mortgages are accounting for a disproportionately high share of sales in the current market. On the other hand, areas that have had sharp price cuts are seeing a turnaround in sales, which are rising very fast now in parts of California, Florida and Nevada.”

Yet home sales were still down in the West, falling 5.3 percent in August from July.“The highest concentration of foreclosures is in the West, which is weighing down the median price because many buyers are taking advantage of deeply discounted prices,” Yun said.

The Northeast saw a 6.6 percent decline in sales during the past month, while the Midwest and South experienced gains of 0.9 percent and 0.5 percent, respectively.

The main reason for sagging sales, according to NAR President Richard F. Gaylord, was the lack of mortgage financing. “The difficulty in obtaining a mortgage increased over past couple months, making it more challenging for creditworthy borrowers to find financing,” he said. “Our hope is that overly tight lending criteria can be loosened with reasonable standards and credit so that sales activity can catch up with demand. Interest rates have already declined, but there is a serious question as to whether a cash infusion by the U.S. Treasury into Wall Street would help consumers by improving mortgage funding.

“We urge Congress to restore access to sound mortgage credit so people have the ability to make and keep a long-term investment in the American dream of homeownership. Congress needs to take care of Main Street and not just bail out Wall Street.”

One bright spot in the NAR report was that inventory dropped by 7.0 percent during the same time to 4.26 million existing homes, representing some hope that the market is slowly balancing out.

Uncertainty among lenders and investors about the near future of the economy led to a rise in U.S. mortgage interest rates in the latest week, according to a recent survey from mortgage giant Freddie Mac.

During the week ended Sept. 25, 2008, the average rate on a 30-year fixed rate home loan climbed up to 6.09 percent, excluding points, from 5.78 percent the week before. One year ago, the average rate rested much higher still at 6.42 percent.

“Mortgage rates followed Treasury bond yields higher this week amid market uncertainty over the current state of the economy,” said Frank Nothaft, Freddie Mac vice president and chief economist. “Compared with last Thursday, 10-year Treasury yields are up about 0.3 percentage points, and 30-year fixed-rate loans moved up about the same amount. And while up, interest rates for 30-year FRMs are still more than 0.5 percentage points below this year’s peak of 6.63 percent set the week of July 24th.”

Nothaft also cited other market indicators as cause for the increasing rates. Because soft economic data is often reflected in national mortgage rates, he mentioned that home prices dropped 5.3 percent during the year ended in July according to the Federal Housing Finance Agency’s index. The National Association of Realtors similarly announced a 9.7 decrease in the August median sales price for existing single-family homes, a clear sign that the housing market has not yet hit bottom.

Rates on 15-year fixed rate mortgages also shot up in the past week, reaching 5.77 percent, excluding points, from 5.35 percent the previous week. One year earlier, the average rate was 6.09 percent.

The average rates on both five-year and one-year Treasury-indexed adjustable rate mortgages (ARMs) also increased, with five-year ARMs growing to 6.02 percent from 5.67 percent and one-year ARMs averaging 5.16 percent, up from 5.03 percent the a week earlier. Last year at the same time, the average rates for five-year ARMs and one-year ARMs were 6.15 percent and 5.60 percent, respectively.

In recent weeks, the federal government has announced plans to take over mortgage giants Freddie Mac and Fannie Mae, as well as lend money to insurance company AIG to stay afloat until it can sell off its major assets.

Analysts have been scrambling to come up with what this government bailout will mean for both Wall Street and taxpayers in the long run. In the short run, the hope is that the financial markets will have the cash they need to increase lending availability to consumers, especially in the mortgage industry as home prices continue to plummet and mortgage financing is harder than ever to acquire.

In subsequent announcements from the Bush administration, the plan to buy up millions of soured mortgage securities from Freddie and Fannie and to help near-bankrupt AIG will initially cost the federal government, and consequently the taxpayers, $700 billion, but there is no clear picture as to how much more could be required as time goes on.

Here is what Treasury Secretary Henry Paulson has had to say about the bailout proposal in the last few days:

Sept. 14: “Fannie Mae and Freddie Mac are so large and so interwoven in our financial system that a failure of either of them would cause great turmoil in our financial markets here at home and around the globe,” he  said in a Washington D.C. press conference.”A failure would affect the ability of Americans to get home loans, auto loans and other consumer credit and business finance.”

Sept. 18: “I am convinced that this bold approach will cost American families far less than the alternative — a continuing series of financial institution failures and frozen credit markets unable to fund economic expansion,” Paulson said before reporters at the Treasury Department in a prepared statement.

Sept. 21: “The biggest help we can give the American people is to stabilize our financial system right now and to prevent the system from clogging up, because if it does clog up, this is going to have an adverse effect on people’s abilities to get jobs, on their budgets, on their retirement savings, on lending for small businesses,” Paulson said on ABC’s “This Week” Sunday.

A recent study by the American Association of Retired People (AARP) revealed that the housing market’s foreclosure crisis has not left even older homeowners unscathed.

The study, conducted by the AARP’s Public Policy Institute found that roughly 684,000 homeowners age 50 or older were delinquent on their mortgage during the last half of 2007, with some 50,000 already in some stage of foreclosure.

 ”The public perception is that older Americans are financially secure in their homes,” said Susan Reinhard, director of the Public Policy Institute. “But the reality is that while many are in fact secure, hundreds of thousands of others are not and face unsettling uncertainty over their futures as homeowners.

“Older Americans depend on their homes both for shelter and as a retirement asset,” she added. “Losing a home jeopardizes long-term financial security, with limited time to recover.”

The over-50 crowd represented about 28 percent of all foreclosures and delinquencies nationwide, according to the study. And of all the age 50-plus people in the survey, 24 percent of them were behind on their home loan payments or in foreclosure. While the flip side indicates that the majority of seniors are still making their payments, there is still a significant portion of the population that are facing financial crisis with only a few years left before retirement.

One important, but unsurprising statistic of the study is that older homeowners with subprime mortgage loans (usually adjustable rate mortgages or ARMs) were 17 times more likely to be in foreclosure than their counterparts with prime or good credit loans.

As many Americans facing retirement lose their homes or have trouble keeping up with the payments, Reinhard suggested that the mortgage lending business needs to change. Referring to complex home loan contracts and aggressive loan officers and brokers, she said, “the mortgage environment is very complicated. We need more simplified mortgage contract language that people can understand.”

The AARP study included data from Experian credit reports from over 2.5 million people, including 1 million age 50 and older.

The U.S. housing market could be on its way to recovery within the next year, according to statements Monday from Treasury Secretary Henry Paulson, but he left the door open for future federal bailouts of key industry players if necessary.

“I believe that there is a reasonable chance that the biggest part of that housing correction can be behind us in a number of months. I’m not saying two or three months, but in months as opposed to years,” Paulson said in a Washington D.C. press conference.

“I think we’re going to have housing issues … and mortgage issues for years, but in terms of getting by the biggest part of this correction, if we can make this Fannie Mae-Freddie Mac effort work the way I would like to see it work, I think we’ll make real progress here,” he added in reference to the recent government takeover of the ailing mortgage giants.

Paulson called the housing correction the “root of the challenges”  for U.S. financial institutions and the economy as a whole, saying that until house prices stabilize and the mortgage market settles down, there will continue to be “turmoil in the financial markets.”

The government’s role, according to Paulson, in speeding up the correction is to make sure plenty of mortgage funding is available.  Several months before bailing out Freddie and Fannie, the federal government stepped in to keep a private sector company, Bear Stearns from going under.  Yet as major investment bank Lehman Brothers filed for bankruptcy Monday, the Feds maintained a hands-off policy, preferring instead to simply orchestrate a meeting of potential buyers to save the failed company.

When asked by reporters if the well of government bailout money had dried up for good, Paulson did not rule out the possibility of more intervention.  His stated that his primary concern was to “maintain the stability and orderliness of our financial system,” but added that “we do not take, and I don’t take, lightly ever putting the taxpayer on the line to support an institution.”

The Treasury Secretary urged consumers and investors to stay positive while “[we work] through a difficult period in our financial markets right now as we work off some of the past excesses,” and Paulson concluded that overall “the American people can remain confident in the soundness and the resilience of our financial system.”

Mortgage giant Freddie Mac reported Thursday that interest rates on 30-year fixed rate mortgages made their largest week-to-week decrease this week in almost 28 years , falling 0.42 percentage point.

On news of the Federal Government’s bailout of Freddie Mac and sister corporation Fannie Mae, the national average rate dropped to a five-month low of 5.93 percent, with an average 0.7 discount point, during the week ended Sept. 11 from 6.35 percent the previous week and from 6.31 percent on year earlier.

“Interest rates for 30-year fixed-rate mortgages are down almost 0.6 percentage points over the past 4 weeks, which will help to spur home purchases and loan refinancing in coming weeks,” said Frank Nothaft, Freddie Mac’s vice president and chief economist. “This means that the monthly principal and interest payment on a new $200,000 loan is over $76 lower than a month ago.”

Fifteen-year fixed rate home loans also experienced an interest rate decrease to 5.54 percent from 5.90 percent last week. One year ago, the average rate was 5.97 percent.  Rates on one-year adjustable rate mortgages (ARMs) rose in the latest week, however, to 5.21percent, from 5.15 percent. Last year at this time the average was 5.66 percent.

Another report released Thursday showed that America’s riskiest home buyers are largely being shut out of the mortgage market. The Federal Reserve’s Home Mortgage Disclosure Act report revealed that as mortgage delinquencies and failures rose in 2007, home loan financing for sub-prime or poor credit borrowers decreased dramatically.

“One consequence of deteriorating loan performance and widespread declines in home values was a sharp contraction in 2007 in the willingness of lenders and investors to offer loans to higher-risk borrowers or, in some cases to offer to certain loan products that entailed features associated with elevated credit risk,” the Federal Financial Institutions Examination Council said in the report.

Total mortgage applications last year fell to 21.4 million, down 22 percent from 2006, and loan originations slipped to 10.4 million in 2007, a decrease of 25 percent from the previous year.

The riskiest of loans were also by and large taken off the market. Undocumented income loans fell 69 percent from 2006, a sign that lenders had been badly burned by mass failure of these “liar loans.”

These trends have certainly continued into 2008, with analysts expecting little change in strict mortgage requirements and home loan credit availability through the end of next year.

The Federal government announced yesterday its bailout plan for troubled mortgage finance companies Freddie Mac and Fannie Mae, but neither the Treasury Secretary or market analysts know exactly how much this government buyout is going to cost taxpayers in the end.

“I have long said that the housing correction poses the biggest risk to our economy,” said Treasury Secretary Henry Paulson in prepared remarks Sunday. “It is a drag on our economic growth, and at the heart of the turmoil and stress for our financial markets and financial institutions. Our economy and our markets will not recover until the bulk of this housing correction is behind us. Fannie Mae and Freddie Mac are critical to turning the corner on housing.”

Paulson said that the new goal for the government, by running Fannie and Freddie, will be primarily to increase the availability of mortgage financing to the public. 

The two government-sponsored entities back a large percentage of U.S. home loans, and faced with combined losses of $14 billion over the last four quarters, they were likely to fail soon without government intervention. The result would have left millions of home buyers without mortgage financing, further depressing the ailing housing market.

The government predicted that the move would lower interest rates for borrowers with good credit and bolster the stock market with assurances of Freddie and Fannie stability.

Yet the long-term cost to the nation could be in the range of tens of billions of dollars, according to many analysts.

“No one likes to put taxpayers into situations like this,” Paulson said in a Monday interview with Bloomberg Television. “Government intervention is not something I came down here wanting to espouse, but it sure is better than the alternative.”

Asked about the total costs of the bailout by CNBC reporters, Paulson replied “We ultimately don’t know.” He said it will depend on “how long it will take for housing prices to stabilize and the housing market to come back.”

Still by taking over Freddie and Fannie, Paulson reassured Americans in his speech Sunday that the Treasury has “acted on the responsibilities we have to protect the stability of the financial markets, including the mortgage market, and to protect the taxpayer to the maximum extent possible.”

The U.S. may experience another shock wave of foreclosures as early as next year, sooner than expected, according to data released Tuesday from Fitch Ratings.

The company reported that almost $29 billion worth of option adjustable rate mortgages (ARMs) are poised to reset next year based on its analysis of a large group of loans originated in the last phases of the recent housing boom. 

Pay option ARMs differ from other ARMs in that borrowers are allowed to choose from four different payment options each month during the initial term. The option most exercised by borrowers is the lowest payment amount, which does not even cover the full amount of monthly interest due on the home loan.  After making only this minimum payment for several years, and with the aid of decreasing home values, many homeowners find themselves in upside-down mortgages, meaning they  owe more on the mortgage than their home is worth.

Lenders only allow borrowers to build up a certain amount of negative amortization on their home loans before they reset the interest rate and require higher payments.  And as most option ARM borrowers have only been making the minimum payment since their loans began,  their  mortgage interest rates will reset sooner than they otherwise would have.

Fitch Ratings has estimated that most of those with these option ARMs will see an increase of $1,053 in monthly mortgage bills, a figure that is likely to be too high for many to keep up with, resulting in mass foreclosures across the U.S. once again.

“The combined impact of payment shock, negative amortization, declining home prices and restricted availability of mortgage credit may leave many option ARMs’ borrowers unwilling to continue paying their mortgage,” said Group Managing Director and U.S. RMBS group head Huxley Somerville in a statement.

According to the credit rating firm, the foreclosure wave is likely to last well into the beginning of the next decade, as there are an additional $67 billion in pay option ARMs  due to reset  in 2010.

As its name suggests, the payment on a bi-monthly mortgage has to be made twice each month. However, there are some implications for the total cost of the mortgage, beyond the dates when payments are due. Read on to learn more about what a bi-monthly mortgage payment is, its pros and cons, and what long-term impact it has upon the borrower…

The bi-monthly option shouldn’t be confused with a “bi-weekly” payment plan, which works differently and has a more significant effect. This is because there are twenty-six two week periods in a year (52 weeks / 2 = 26), whereas only twenty-four half month periods exist. People sometimes use the words interchangeably by mistake, which can add to the confusion about this difference.

An advantage of choosing a bi-monthly payment is that, according to Loan.com, the interest cost is slightly reduced and the total length of the mortgage is decreased by about thirty to sixty days. However, the same web site points out that a bi-weekly loan has a much greater impact; it can cut a 30-year term by seven years. Predictably, this produces a more serious savings in interest as well.

A bi-monthly mortgage payment is less convenient for people with unsteady incomes, who may earn more during one-half of the month than the other half. It will also incur a larger cost for postage and checks, while increasing the chance of mistakes or late fees. Just the additional postage during a 30-year term would cost at least $150, so it is best to use an electronic payment system if possible.

The prefix “bi” has two meanings; it can also refer to a mortgage where the payment only has to be made every other month of the year. However, such loans are hard to find. A mortgage of this type would benefit someone who earns substantially more or less income from one month to the next. The payment period of a mortgage (every two weeks, twice per month, or every other month) should be clearly specified.

Bi-monthly mortgage payments have a couple minor advantages, but these are largely offset by its drawbacks - especially if it involves more fees or causes the borrower to make late payments. On the other hand, bi-weekly mortgages offer significant benefits, but they require the borrower to afford two additional payments each year.

Sales of both new and existing U.S. homes rose in July, giving market leaders hope that the “bottom” of the housing slump may have finally passed.

New single-family home sales increased by 2.4 percent in July, according to the Commerce Department, to a seasonally adjusted annual rate of 515,000, while inventory of new homes on the market shrank to 416,000 units.

“We are cautiously optimistic that home sales are approaching a bottom,” said NAHB Chief Economist David Seiders, “and that the newly enacted first-time home buyer tax credit (which went into effect as part of the housing stimulus bill on July 30) will help stimulate sales and provide crucial support for a market turnaround.”

New home sales increased by 39 percent in the Northeast and by 9.9 percent in the West, but decreased by 8.2 percent in the Midwest and 2.5 percent in the South.

Meanwhile, existing homes, which include single-family, townhomes, condominiums and co-ops, jumped up by 3.1 percent to a seasonally adjusted annual rate of 5.00 million units, the highest level in five months, according to the National Association of Realtors.

Regionally, existing home sales rose in the West by 9.7 percent, 5.9 percent in the Northeast, 0.9 percent in the Midwest, and fell in the South by 0.5 percent.

And recent federal legislation should also help existing home sales continue upward, said NAR President Richard F. Gaylord. “We hope the new tools in the hands of home buyers from the recently enacted housing stimulus package will spark a sustained sales uptrend in the months ahead,” he said.

The stimulus package enabled the Federal Housing Administration (FHA) to back larger loans, up $428,750, a 37 percent increase from its former cap, enabling mortgage borrowers to obtain lower risk home loans in pricier real estate areas like Florida and California. FHA loans are safer investments for lenders because mortgage borrowers receive home loan insurance through the federal government.

With greater accessibility of FHA money, Gaylord advised, “Buyers who’ve been on the sidelines should take a closer look at what’s available to them now in terms of financing and incentives.”