California often has the reputation of being a trend setter, both socially and economically. And while the Golden State has certainly taken a greater hit to its real estate market than most states, the latest data from the housing market there is encouraging, suggesting that some hope for the nation’s summer home sales.

According to San Diego-based MDA DataQuick, the median price for California homes increased by a stellar 11 percent in February on a yearly basis to $249,000, up from $224,000. That represents the fourth straight month of year-over-year price increases. The median was also up just about 1 percent from January when it was $247,000.

California total home sales were up from January as well, rising 1 percent to 28,100, although they were down 4 percent from February 2009.

So what is the explanation for the rise in sales and prices? Most likely the first-time home buyer tax credit is creating a lack of lower priced homes, and more sales are taking place in the higher-end markets.

DataQuick President John Walsh was still somewhat pessimistic in his comments, saying that there is still limited mortgage funding for potential buyers and that job security fears are still inhibiting sales.

“The sales and price data remain choppy, with more ups and downs than we’d typically see,” Walsh said.

California’s foreclosure rate remains high and foreclosure sales made up 44.3 percent of all sales in February an increase from 43.8 percent in January, but far lower than the record high of 58.8 percent of February 2009.

While there are still concerns in the market, the latest information offers glimmers of hope for California’s budding spring sales and perhaps the warmer mortgage conditions will spread across the country soon.

Obama’s Home Affordable Modification Program is reporting good news this week. In February the $75 billion program, which began last year in an effort to help struggling homeowners remain in their homes, made some great gains. Homeowners facing foreclosure who received permanent monthly reductions in their mortgages jumped 45 percent. To date the program has permanently modified 168,708 home mortgages.

Critics say not so fast on the compliments. While February’s numbers might appear good, the reality is millions of homeowners are still not being helped. To date, only 15 percent of those who have applied for the loan modification program have been successful in obtaining a permanent loan modification. The program’s goal is to assist several million homeowners and so far not even a quarter of a million home owners have received permanent assistance.

The program has had bumps along the way as many homeowners who attempted to get their loan modified have already lost their home. Initially borrowers were able to get a temporary modification on their home loan after going through a phone interview. They then had a reduced monthly mortgage for a trial period of three months. During that time they needed to gather documentation and make payments to prove that they were indeed eligible for the loan modification. Upon approval the loan would be permanently modified. Most people who enter the program see a monthly payment reduction of about $500.

Lenders have been very slow at processing and permanently modifying loans after mortgage holders have entered into the three month trial period. They say it has been difficult to get documentation like pay stubs and tax return information that is required for program approval. Tom Goyda, a company spokesperson for Wells Fargo, defended their banks delays to permanent modification. He said the process is complex, “and at times, that can result in poor two-way communication and delay.

Lenders like Wells Fargo have had to turn down numerous applicants because they either made too much money or did not make enough. If lenders determine you can make payments at your current rate or that you don’t have the means to make the reduced payment, your loan modification will most likely be denied. Wells Fargo does say that they do re-look at applicants before forcing a foreclosure to see if they can be helped in any way.

An article on the BusinessWeek website today suggests that the economy is, in fact, ready for the Fed to pull out of its mortgage-backed securities bailout program at the end of the month. There’s been plenty of talk and also plenty of skepticism about whether the Federal Reserve will really stop buying MBS’s as planned. Here’s why BusinessWeek says they will:

• An economist at Barclays Capital in New York says that home sales should rise by 6 percent this year.
• Karl Case, the co-creator of the S&P/Case-Shiller Home Price Index says the market is likely at the bottom right now, poised to move up in the next few months.
• A financial economist from the Bank of Tokyo-Mitsubishi UFJ Ltd in New York predicts the Fed will start raising interest rates as early as June.
• A Morgan Stanley economist says the U.S. may add up to 300,000 jobs in March, the most in four years.
• The MBA (Mortgage Bankers Association) says that mortgage originations will jump to $745 billion in 2010, up from $740 billion last year. They should shoot up to $822 billion in 2011.
• The National Association of Realtors reported that the national median home price is down to $164,700, making home buying very affordable again.
• And last, but not least, the average interest rate on a 30-year mortgage last week was 4.95 percent, still in the historically low range.

This all sounds like good news! There is still some mixed data out there though. For instance, existing home sales were down in January and home builder confidence fell in the latest survey. There are still a million or more loans on the brink of foreclosure. Still, it is nice to finally start hearing some upbeat news about the housing market. What all this information tells me is that with low rates set to increase and home prices remaining low, right now is a great time to buy a home!

The number of foreclosures fell slightly in February to about 308,000, a two percent decrease from January, according to information from RealtyTrac released Thursday. That’s roughly one out of every 418 U.S. homes. RealtyTrac says two things were responsible for the slowing in February. The first is the government’s Home Affordable Modification Program (HAMP) that is helping some home buyers temporarily and permanently lower their payments or interest rates. The other factor was the record-breaking winter storms that took place along the east coast. The snow shut down many government offices and courthouses for several days.

So a two percent decline does not necessarily mean that foreclosures are on the downward slope for good. Total foreclosures are still up six percent over February 2009.

“The six percent year-over-year increase we saw in February was the smallest annual increase we’ve seen since January 2006, when we began calculating year-over-year increases, but it still marked the 50th consecutive month of year-over-year increases in foreclosure activity,” said James J. Saccacio, chief executive officer of RealtyTrac.

It also marks the 12th consecutive month with more than 300,000 foreclosure filings. And some are hinting that government programs like HAMP may just be delaying the ultimate number of foreclosures left to come.

“This leveling of the foreclosure trend is not necessarily evidence that fewer homeowners are in distress and at risk for foreclosure, but rather that foreclosure prevention programs, legislation and other processing delays are in effect capping monthly foreclosure activity — albeit at a historically high level that will likely continue for an extended period,” Saccacio said.

Unemployment is still high at 9.7 percent and not expected to move too much throughout the rest of the year. Lost jobs are one of the top reasons why homeowners go into foreclosure, so a bleak unemployment picture could certainly lead to more defaults. Compounding the problem is the issue of so many borrowers being underwater on their mortgages. Basically one in four homeowners owe more than their homes are worth, a situation that often leads to borrowers walking away from their mortgages.

Rick Sharga, also of RealtyTrac, predicts that foreclosures will start to make annual decreases by the end of 2011. “We are banking on economic recovery, which means job creation and people will be able to afford their homes.”

The new buzz program of the near future may be ‘emergency mortgage assistance,’ or loans from the state government to cover mortgage payments and fees while homeowners are down on their luck. This could be a very useful program for the many struggling borrowers who just a need a little help for a short period of time.

It’s been going on in Pennsylvania since 1983, and now several states are seeking to copy its success. The PA program provides for loans up to $60,000 for a maximum of three years to mortgage borrowers who are unable to make their payments due to job loss or some other legitimate financial hardship.

This program has helped as many as 43,000 homeowners since its beginning, for loans worth a total $450 million. The Pennsylvania Housing Finance Agency has an 80 percent success rate.

If you happen to live in Nevada, California, Florida, Delaware, North Carolina or Massachusetts, a similar program may be available to you soon. In conjunction with the latest Obama administration housing initiative of $1.5 billion for the states hit hardest by foreclosures, several states have been talking with the Pennsylvania Agency to learn how to set up their own emergency mortgage assistance programs.

If the other states stick closely to the PA model, only borrowers who have a reasonable chance of resuming their payments within 3-6 years will be selected, meaning those who should be able to find a new job, recover from a disability-causing injury, etc. And the requirements are also very strict in terms of how the borrowers have managed their resources to that point. Those with a lot of credit card debt are not likely to be considered. The loans are typically repaid at low interest rates over a 10-year period.

While this type of plan will not save the majority of distressed homeowners from foreclosure, it could certainly give a break to the very deserving - those who have worked hard and simply fallen into bad luck or on hard times.

Everybody seems to be talking about what’s going to happen to mortgage interest rates soon. The government has invested trillions of dollars into the housing market over the past two years to make sure that there is still some lending and home buying going on. Now, the Fed says it will wrap up its purchases of $1.25 trillion worth of mortgage-backed securities by the end of March.

This has put some analysts in a tizzy worrying that interest rates will shoot up starting in April as private investors will demand higher profits on these riskier loans than the government did. Some think that rates on long-term mortgages could rise to 6 percent by the end of the year.  That certainly seems like a reasonable conclusion, but I’m not that worried that rates will rise.

That’s because I don’t think the government is done saving the housing market. The Federal Reserve and the Obama administration have both made it perfectly clear they are committed to keeping the housing market from crashing again. The Fed will keep rates as low as possible for the time being and has even promised to step back in with more MBS purchases should things really go south after it pulls out of the market in March. The President and his team have been working constantly to make sure banks are still lending and that foreclosures are being avoided. If home sales and prices start to tank and foreclosures skyrocket, it is a sure bet that the government will step in to artificially stabilize the market again.

As the National Association of Realtor’s chief economist recently said, “Housing is just so important for broader economic recovery. To pull the plug now would be a huge wasted effort over the past year, to start at page one again.”

I’m sure starting over at ‘page one’ is the last thing Obama or the Fed wants to do. So while there really isn’t anywhere for rates to go but up, chances are they won’t go up by much for a while.

Mortgage delinquency rates fell in the last quarter of 2009, according to the latest info from the Mortgage Bankers Association, with just 3.6 percent of all homeowners falling 30 days behind on their loans, a decrease from 3.8 percent in the third quarter. That is the first quarterly decline of that market segment since 2004.

“We normally see a large spike in short-term mortgage delinquencies at the end of the year due to heating bills, Christmas expenditures and other seasonal factors,” said MBA chief economist Jay Brinkmann. “…If the normal seasonal patterns hold for the first quarter, we should see an even steeper drop in the end of March data.”

“We are likely seeing the beginning of the end of the unprecedented wave of mortgage delinquencies and foreclosures that started with the subprime defaults in early 2007,” Brinkmann added. He also said that the drop in initial delinquencies “gives us growing confidence that the size of the problem now is about as bad as it will get.”

Yet the overall numbers of delinquencies and foreclosures are still high. In the last quarter 9.47 percent of all borrowers were at least 30 days or more behind on their payments, which is down slightly from the third quarter but still very near the record high. In the bigger picture, there were 7.9 million mortgages, or 15 percent of all homeowners, that were either late on payments or somewhere in the foreclosure process. That’s not exactly a rosy scenario.

And there are now 2.6 million borrowers who have missed at least 3 payments, which is double the number from last year.

“That is the number that is going to produce foreclosures,” said Guy Cecala, publisher of Inside Mortgage Finance according to the Washington Post. ”It is continuing to go up, and what it really means is that 2010 is going to be a bad year, perhaps worse than 2009 in the number of foreclosures.”

So the new numbers are not conclusive about the direction of the housing market, but we certainly welcome any sign of positive movement!

We may be at a crossroads in the way our financial system works. A recent article in the New York Times by Roger Lowenstein openly advocates that underwater homeowners walk away from their mortgages even if they can afford their payments. Why? Because apparently no one should be held to their promises these days.

Lowenstein does have a point: banks and other big financial players are not held to the same moral standards as homeowners are. He says:

“Morgan Stanley recently decided to stop making payments on five San Francisco office buildings. A Morgan Stanley fund purchased the buildings at the height of the boom, and their value has plunged. Nobody has said Morgan Stanley is immoral — perhaps because no one assumed it was moral to begin with.”

Companies can default on their promises without much social fallout, yet individual homeowners are considered “irresponsible.” I think both cases are examples of irresponsibility, and in an ideal world all entities would take their financial commitments seriously, but in the real world I do agree it is sheer hypocrisy to call homeowners immoral while expecting companies to default at the first sign of profit loss.

Besides, as Lowenstein writes:

“Mortgage holders do sign a promissory note, which is a promise to pay. But the contract explicitly details the penalty for nonpayment — surrender of the property. The borrower isn’t escaping the consequences; he is suffering them.”

So disregarding any moral issues, the article encourages borrowers whose homes are worth far less than their mortgages to foreclose en masse because it might “get the system unstuck. If lenders feared an avalanche of strategic defaults, they would have an incentive to renegotiate loan terms. In theory, this could produce a wave of loan modifications — the very goal the Treasury has been pursuing to end the crisis.”

I can see how that would probably be true, but if millions more people go into foreclosure, wouldn’t that continue to drive down home prices and push even more homeowners underwater creating a continuing cycle of foreclosure? And how would that affect interest rates? Scared lenders always charge more. There is a reason that a system works best when people keep their promises.

The number of seriously delinquent mortgages in the U.S. rose by 20 percent in the third quarter of 2009 from the previous quarter, a seriously troubling figure for the housing market.

According to the Office of Comptroller of the Currency and the Office of Thrift Supervision, which surveyed about two-thirds of the nation’s mortgages, 3.6 percent of all prime home loans, those with the best credit, were classified as seriously delinquent.  That means those loans are 60 days or more past due, and while 3.6 percent may not seem like a big deal, the fact that it represents a 20 percent jump over a period of three months is very significant. It is a reflection of the far-reaching effects of the country’s 10 percent unemployment rate. Even a portion of the timeliest borrowers are unable to keep up with their loans when they lose their jobs.

And what about the government program to combat these rising delinquencies that often lead to foreclosures? Obama’s Home Affordable Modification Program that asks mortgage servicers to work with borrowers to lower their interest rates or monthly payments is not having much success. While 274,000 loans were modified on a trial basis in the third quarter, only 1 percent of those have been converted to permanent modifications, meaning 99 percent of them are likely to fall behind or into foreclosure again in the near future.

Lenders say the problem is that many of these borrowers seem like they have the needed qualifications at the beginning, but then don’t actually meet the program requirements.

Still, whatever the reason, the facts are that delinquent loans are continuing to pile up and a whole new flood of foreclosures definitely seems likely for 2010.

Three of the largest mortgage holders in the country have declared moratoriums on evictions during the holiday season. Government-controlled companies Fannie Mae and Freddie Mac announced that borrowers that are facing foreclosure and have not been able to modify their loans will not be evicted between December 19, 2009 and January 3, 2010. Neither will tenants living in foreclosing properties have to move out during this time frame.  Yet even while evictions are put on hold, foreclosure processing will continue.

Private mortgage financier Citigroup will stop all evictions and foreclosures for a full thirty days, from December 18, 2009 to January 17, 2009 for about 4,000 of its distressed clientele.

Here’s what the company big wigs have to say:

Fannie Mae President and CEO Michael J. Williams:

“We’re taking this step in support of struggling families who have unfortunately found themselves facing foreclosure. No family should have to face the prospect of being evicted during the holiday season.”

Freddie Mac CEO Ed Haldeman:

“If the property is occupied, our attorneys will halt the eviction during this holiday moratorium. In these extraordinary times, we want to provide a greater measure of certainty to these families during the holidays.”

Citigroup President Sanjiv Das:

“We hope that with this suspension we can make the holidays a little less stressful for our customers who are going through a very difficult time. And we will continue to look for meaningful ways to assist our customers experiencing hardship.”

So good news for some, but as York Van Nixon III writes on examiner.com, “Others facing foreclosure should immediately contact their mortgage company or loan servicer to find out if they are also granting a moratorium for the holidays…Despite the charitable spirit most people have around Christmas, there are many bankers who do not fear the ghost of Jacob Marley.”