According to the Wall Street Journal, the Obama administration is redefining who can qualify for government assisted refinance programs. Apparently the original guidelines were not broad enough to help those most struggling with their loans.

After all, the first rules limited homeowners to having a 105 percent loan to value ration on their homes, yet according to Moody’s Economy.com, almost 30 percent of homeowners are underwater in their mortgages and many by much more than 5 percent. The new limit has been raised to 125 percent.

The revised rules come after only 20,000 borrowers received help under the program from March to June. The administration claimed it would be able to save up to 5 million homes from foreclosure at the outset of the initiative, a figure that was never likely to be achieved with the initial restrictions.

Meanwhile, interest rates are dropping and so are applications for mortgage loans. Freddie Mac announced Thursday that the average rate on a 30-year fixed rate loan fell to 5.32 percent, excluding fees, from 5.42 percent the previous week. Freddie had no explanation for the drop in rates this week, but they were likely due to falling yields on Treasury notes as investors worry that excessive government debt may result in inflation.

And mortgage application volume plummeted 18.9 percent in the latest week, according to the Mortgage Bankers Association on Wednesday. Home purchase applications fell by 4.5 percent, but refinance requests plunged down by 30 percent, as mortgage interest rates have risen in recent weeks, much higher than their record lows from the spring.

Not a particularly good week in the mortgage markets, but good things could be just around the corner, right?

According to the latest S&P Case-Shiller index released Tuesday, national U.S. home prices fell by historic margins again in October, an indication of a weak economy and a continued foreclosure crisis.

“The bear market continues; home prices are back to their March 2004 levels,” says David Blitzer, Chairman of the Index Committee at Standard & Poor’s. He added, “As of October 2008, the 20-City Composite is down 23.4%. In October, we also saw three new markets enter the ‘double-digit’ club.”

Those markets included Atlanta, Seattle, and Portland, each with a yearly price decline rate of about 10 percent.

“While not yet experiencing as severe a contraction as in the Sunbelt, it seems the Pacific Northwest and Mid-Atlantic South is not immune to the overall demise in the housing market,” Blitzer added.

Cities that had already been experiencing price declines saw deeper plunges with prices dropping more than 30 percent during the past year in the Las Vegas, Phoenix, and San Francisco markets. Other severely impacted markets were Miami with a 29 percent yearly price decrease, Los Angeles with 28 percent, and San Diego with  27 percent.

“October was really the first month to feel the full brunt of the credit crunch,” he said. “Up until the Lehman Brothers [bankruptcy filing on September 15], everyone felt relatively optimistic.”

Massive amounts of foreclosures and short sales were also contributing factors in the most recent numbers, as almost 85,000 homes were repossessed in foreclosure proceedings during October.

Demand for homes is also continuing to drop as the National Association of Realtors reported an 8.6 percent decrease in existing home sales in November.

One potential bright spot on the horizon is historically low mortgage interest rates. During the week of December 31, 2008, the average rate on a 30-year fixed rate loan fell to an unprecedented 5.10 percent, excluding fees. Lower rates could make it much easier for many Americans buy new homes or get into the housing market for the first time, creating a larger appetite for housing and causing prices to stabilize again in many areas.

Rates on all U.S. mortgages dropped in the latest week, with the 30-year fixed rate mortgage posting an all-time record low, according to mortgage company Freddie Mac Thursday.

“Interest rates for 30-year fixed-rate mortgage rates fell for the seventh consecutive week, moving these rates to the lowest since the survey began in April 1971,” said Frank Nothaft, Freddie Mac vice president and chief economist.

The average rate on the 30-year fixed rate loan plummeted more than a ¼ of a point to 5.19 percent, excluding fees, during the week ended December 18, down from 5.47 percent the previous week. One year ago, the average rate was 6.14 percent.

Rates on 15-year fixed rate mortgages also fell to a record low of 4.92 percent from 5.20 percent the preceding week. The 15-year mortgage rate has not averaged so low since the week of April 1, 2004. Last year at this time, the average was 5.79 percent.

One-year Treasury-indexed adjustable rate mortgages (ARMs) carried an average rate of 4.94 percent, down from 5.09 percent the week before. One year earlier, the average commitment rate was 5.51 percent.

Freddie Mac attributed the dramatic decreases to a historic move Tuesday by the Federal Reserve. “The decline was supported by the Federal Reserve announcement on December 16th, when it cut the federal funds target to a record low and stated it stood ready to expand its purchases of mortgage-related assets as conditions warrant,” Nothaft said.

The Fed promised to “employ all available tools” to get the economy back on a path of sustainable growth, suggesting that in the meantime “weak economic conditions are likely to warrant exceptionally low levels of the federal funds rate for some time,” the Fed said in a statement. The result would likely mean consistently low mortgage interest rates as well.