Today, the Obama administration announced two new programs to help a small segment of the U.S. housing industry get back on its feet, all with the promise that the taxpayer will not have to foot the bill.

HFAs Getting Help:
State and local housing finance agencies, also known as HFAs. They originate home loans for first-time homebuyers and lower-income buyers. They also provide refinance loans for rental properties. According to National Council of State Housing Agencies President Susan Dewey, the HFAs create between 100,000 and 200,000 new mortgages every year (this represents about 1 percent of the total mortgage market). They are also known for making very safe long-term loans with very low default rates. “Performance of HFA loans has materially outperformed most other loan types, especially when controlling for borrower profile,” according to a Treasury Department fact sheet. They create tax-exempt bonds based on their mortgage securities to pay for their operations.

Why HFAs Need Help:
Dewey says the HFAs have only issued $4 billion in bonds this year. In 2008 they issued $10 billion and in 2007 the total was $16 billion.

“With the market upheaval, we’ve been unable to sell new mortgage bonds for a year,” Bob Kucab, the executive director of the North Carolina Housing Finance Agency, said in a statement accompanying the release. “Despite all the ingenuity we can muster, we’re now helping only about a quarter as many first-time buyers as normal.”

The Obama/Treasury Plan:
1. The Treasury Department will buy HFA-backed securities issued by government controlled finance giants Freddie Mac and Fannie Mae.
2. Freddie and Fannie will provide the HFAs with a credit program to refinance the debt from their existing bonds at better rates and terms.

The hope is that these measures will provide the HFAs will the money needed to fund more new mortgages.

The Cost:
The HFAs will pay fees to participate in the new programs, which will supposedly cover the costs, but some reports have said that the initiative could cost taxpayers as much as $35 billion.

Treasury Assistant Secretary for Financial Institutions Michael Barr said there are some risks involved, but he didn’t expect taxpayers to take any losses for these programs.

“The expected cost to the government is zero,” Barr said of both programs. It seems unlikely, but perhaps…

A recent study from the Boston College Center for Retirement Research shows that today more Americans than ever are carrying a mortgage into their retirement years. The research found that among those in the age 60 to 69 age group, 41 percent were still making mortgage payments. Interestingly, one out of two of those retired mortgage borrowers has enough in investments and savings to pay off the mortgage in full right now.

So why would they hold on to those monthly payments? The study suggests that many believe it is better to keep the home loan and the associated tax benefits in order to keep their wealth more liquid. While there are many people who obviously feel this is the smarter path, the research study concluded that investing in retirement years without having paid off the mortgage is essentially investing with borrowed money. I think that makes sense; if there was a financial emergency, the liquid funds and investments would be used up and there would be no money left to pay the mortgage. The home could be foreclosed on and the retirees could find themselves homeless.

For me it would truly be about peace of mind. I know that financially savvy individuals can use tax credits to their advantage as they deftly maneuver the stocks and bonds scene, but there is plenty of emotional relief that comes from having something as big as a house paid off in full. I am sure you can still make your money work really well for you even if you first pay off your mortgage and then go crazy with investing.

The study doesn’t really address the 20 percent of retired 60 to 69-year-olds that do not currently have the money to pay off their home loans. That is obviously a much more precarious situation. Social security is not usually enough to cover a mortgage payment in addition to living expenses. Will the next big foreclosure wave come in the next decade as seventy-somethings run out of money?

A Wall Street Journal article today explored the shortcomings of the current Administration’s foreclosure prevention problem. One of the most frustrating issues was the revelation that many federally approved housing counselors are encouraging struggling homeowners not yet behind in their payments to let their mortgage slide for several months before reapplying for government loan modification help.

The Journal quoted one Alisha Gorder of Connecticut who contacted a housing counselor and was told, “Stop paying on the mortgage since you don’t have the resources to cover all your expenses,” and basically check back for help when she was actually delinquent on her mortgage.

“To be told I should do something to put my family in this risky position doesn’t make sense,” Gorder said. “I had a lot of faith in the system. For me, it’s really shocking and jarring to see that the system doesn’t work.”

The problem seems to stem from lender and counselor confusion about the actual rules of the Obama plan announced in February. The requirements allow for not only those behind on their payments to qualify for mortgage modifications but also those who are simply “at-risk” of falling behind. And apparently many lenders do not feel there has been adequate communication from government officials about the plan’s details and how it should be administered.

To date only about 200,000 homeowners have had their home loans modified under the government’s plan, when originally the Obama team promised as many as 3 million borrowers could benefit.

As a result representatives from 25 major mortgage servicing companies have been asked to meet in the Capitol tomorrow to talk with the Administration about the direction of the program and how the aims can move forward at a faster rate.

Perhaps they will also discuss the recent data that shows that many of these modifications are not working anyway, with a large percentage falling back into delinquency within 6 months. Probably not though. That’s a whole other can of worms.

Freddie Mac reported today that the average rate on a 30-year fixed rate mortgage loan fell to 5.14 percent, excluding points during this last week, down from 5.20 percent the week before. This is the third consecutive weekly rate drop and is certainly good news for mortgage applicants and lenders alike.

But the flip side is that rates are down because the economy is not moving very quickly. Freddie Mac chief economist and vice president Frank Nothaft said:

“The latest economic reports were influenced by recent energy-cost movements. Although higher gasoline prices fueled a 0.7 percent monthly jump in the consumer price index for June, the index was down 1.4 percent from June 2008 and represented the largest 12-month drop since January 1950.”

What’s more, a new report from the RealtyTrac, a foreclosure data tracking company, says that foreclosures are continuing to jump higher. There were 1.53 million homes in the foreclosure process in the first half of this year, a 9 percent increase from the previous six months and a 15 percent hike from the same time last year.

Said James J. Saccacio, chief executive officer of RealtyTrac:

“Foreclosure activity continues to increase to record levels. Unemployment related foreclosures account for much of this increased activity, and the high number of borrowers who find themselves owing more on their mortgages than their homes are now worth represent a potentially significant future risk.”

So if you have a job and you want a new mortgage loan, now is your time…if you can qualify for funding. But at least rates are down!

Which direction can we expect long-term mortgage interest rates to move this week, the week of July 13? It’s almost impossible to predict, but here are the important reports coming out that will be the major determiners of any shift in rates:

Tuesday

• June Retail Sales – released by the Commerce Department, retail sales are expected to rise by less than one percent this week. Anything stronger than that may mean higher interest rates.
• June Producer Price Index – released by the Labor Department, this figure is predicted to make a very minimal increase, which would hold rates steady this week.
• Quarterly Earnings Report – released by Goldman Sachs, this is the first of several major companies’ reports on their earnings for the second quarter of this year. If the report shows the company to be healthy and thriving, mortgage rates may increase. Otherwise they may stay relatively the same. This goes for the rest of the company reports due this week. Thomson Reuters  is  predicting that S&P 500 companies are likely to see earnings fall by an average of 36 percent, a circumstance that would certainly keep rates from rising.

Wednesday

• June Consumer Price Index – released by the Labor Department, the prices for June likely increased by less than half a percentage point, meaning rates would be probably remain unchanged.
• Federal Open Market Committee Meeting Minutes– released by the Federal Reserve, these are the reasons behind the latest Fed rate decision and help give an idea of how the economy is doing according to the Fed. The Fed often tries to cloak its true outlook on the markets to avoid causing big swings in home loan rates and other financial determinants.

Thursday

• Weekly Jobless Claims – released by the Labor Department, this week’s total jobless claims are expected to rise by 10,000, but that is not large enough to cause a stir in interest rates.
• JPMorgan chase Quarterly Earnings Report

Friday

• Bank of America Quarterly Earnings Report
• Citigroup Quarterly Earnings Report

Very few major improvements in the overall economy are expected this week, but you never know what surprises the markets may have up their sleeves.

Is now the right time to jump into the housing market? There are certainly some great perks to buying in a down market. But the question always remains: Could I score a better deal by waiting just a few more months?  Right now the answer is ‘possibly’ according to a recent report from the Mortgage Bankers Association.

The MBA reported Monday that it had revised its prediction for total yearly mortgage loan volume downward this month thanks to rising interest rates and Treasury yields. The group now expects mortgage originations in 2009 to amount to $2.03 trillion, more than $700 billion lower than the March forecast.

Mortgage interest rates have jumped up in recent weeks, but with the 30-year fixed rate loan at 5.38 percent last week, according to Freddie Mac, they are still relatively low, historically speaking. So now may be the best time to buy before rates move any higher.

Yet, the MBA also predicted that home prices will continue to fall this year, until they are at least 10 percent lower than the median prices in 2008. So waiting another couple months might mean higher loan rates but lower sales prices. But also on any buyer’s side is the MBA’s forecast that both new and existing home sales will decrease, with existing homes slated to drop by 1.2 percent from last year and new home sales to plunge 27 percent. When sales are down, sellers are always more desperate and willing to negotiate in order to close the deal.

And of course, whether you can even buy now, depends largely on your credit score these days. If your credit isn’t up to snuff, you may want to wait several months anyway to try to improve it and increase your chances of getting approved.

Lowering monthly mortgage payments for struggling homeowners, without reducing the principal balance, will not significantly reduce the number of defaults, according to a new study from Fitch Ratings as reported in the Wall Street Journal.

In fact, Fitch predicts that up to 75 percent of all modified loans will go back into default within 12 months. Diane Pendley, managing director for Finch, concluded that underwater home loans are to blame.

“Loan modifications hold clear value for many homeowners provided the modified payments are sustainable, but more often than not reducing the home payments to an affordable level may not be enough to rescue borrowers who are overextended on other credit and expenses,” she said. “With continued home value declines in many  markets, there is  growing evidence that some homeowners are voluntarily walking away from their homes even if they can financially afford to stay.”

The government has been vigorously encouraging mortgage lenders both verbally and monetarily to modify loan payments and interest rates for their customers on the brink of default and foreclosure. The Fitch study found that 7 percent of prime residential mortgage-backed securities were modified, 18 percent of which were subprime or poor credit loans.

So are falling home prices really to blame for re-defaults? While Fitch maintains that mortgage loans worth  more than the current home value are too financially depressing for homeowners to deal with, there may be more to the story.

I like what Douglas McIntyre had to say about it on dailyfinance.com :

The more likely reason that the programs do not work is the rise in unemployment and the increase in the business practice of turning full-time workers into part-time workers, sharply cutting many people’s incomes. Even with monthly home payments cut, mortgage holders can’t pay with money that they don’t have.

If the mortgage modification programs are going to work, two things have to happen, both of them unlikely. Unemployment would have to bottom soon and mortgage principals would have to be lowered as part of the loan modification process. Neither of those is likely to change soon.

Home builder confidence is up for the second straight month and those in the building industry are more than willing to say that indicates the bottoming out of the ailing housing market.

“The bottom line is there are good signs on the horizon,” said Jerry Howard, president and chief executive of the National Association of Home Builders. “It’s fair to say we could be closing in on the bottom, but we have a long road ahead of us.”

NAHB Chief Economist David Crowe seemed even more upbeat.

“The fact that the May [index] continued to tick up from April’s five-point increase provides confirming evidence that the improved confidence level was no fluke. This continued increase indicates that home builders feel we’re at or near the bottom of the market and that positive signs lie ahead for builders and potential home buyers, provided that builder access to production credit significantly improves.”

The NAHB/Wells Fargo housing market index increased by two points to 16 in May. This measure of builder confidence in the market is still near record lows and any score below 50 indicates negative sentiment about the market. So there are slightly fewer builders who feel badly about the state of things now than there were last month.

What’s interesting to me is how slight differences in these types of reports make such a big difference in the mood of the broader markets. National and global stock markets rose today after the NAHB announcement.

So if all the mortgage and housing markets are so hinged on public sentiment it seems like we should all just talk a little more rosily about our home loan and financial situations, right? Or was inflated optimism and over confidence what got us into the current mortgage mess in the first place? Hmm…

After the Federal Reserve committed to buy up even more toxic mortgages at its bi-monthly meeting, interest rates on long-term U.S. mortgages dipped back down under the 5 percent mark again, according to mortgage giant Freddie Mac Thursday.

“Following the March 18th Federal Reserve monetary policy statement, which announced further spending initiatives on financial assets, long-term bond yields plummeted,” said Frank Nothaft, Freddie Mac vice president and chief economist. “Yields on 10-year Treasury bonds fell by about a half percentage point after the announcement, marking the largest one-day decline since October 20, 1987.”

The average rate on a 30-year fixed rate loan dropped to 4.98 percent, excluding fees, during the week ended March 19, 2009, down from 5.03 percent the previous week. The current rate is just slightly above the all-time low from the week of January 15, 2009 when it hit 4.96 percent. One year ago, the average rate was 5.87 percent.

“Long-term mortgages followed bond yields lower for the second week as reports of slower industrial production suggested that business spending might ease this year,” Nothaft also pointed out. “Output at factories declined for the fourth consecutive month by 1.4 percent in February driven by declines in computers and machinery and experienced the largest 12-month drop since June 1975. In addition, factory capacity utilization slumped to 70.9 percent, matching the lowest rate since records began in January 1967.

Rates on the 15-year fixed rate mortgage loan fell to 4.61 percent, from 4.64 one week earlier. According to Freddie Mac records, the current rate is an almost six year low. Last year at this time, the average rate was 5.27 percent.

Interest rates on one-year adjustable rate mortgages however, increased in the latest week, growing to 4.91 percent from 4.80 percent. During the same week of 2008, the average rate was 5.15 percent.

For the third straight week, long-term U.S. mortgage interest rates continued to climb, spurred by higher bond yields and reports of a slowing economy, according to mortgage company Freddie Mac Thursday.

The average rate on a 30-year fixed rate home loan grew to 5.15 percent, excluding fees, during the week ended March 5, 2009, up from 5.07 percent the previous week. The current rate is still very low by historical standards though. One year ago, the average rate was almost an entire percentage point higher at 6.03 percent.

“Mortgage rates followed bond yields higher this week following reports of record continuing jobless claims and a downward revision in economic growth in the fourth quarter of 2008,” said Frank Nothaft, Freddie Mac vice president and chief economist. “Real Gross Domestic Product was revised from a 3.8 percent decline to a 6.2 percent drop in the fourth quarter mostly led by a 4.3 percent fall in consumer spending, which was the largest decrease since the second quarter of 1980.”

“The housing market continues to slow as well,” Nothaft added. “New home sales fell 10.2 percent in January to the slowest pace since records began in January 1963 while pending existing home sales slowed by 7.7 percent, the weakest since the series began in January 2001. More recently the Federal Reserve noted in its March 4th regional economic report that residential real estate markets remained in the doldrums in most areas, with only scattered, very tentative signs of stabilization.”

Rates on other common mortgage loans also rose in the latest week, with the average interest rate on a 15-year fixed rate loan increasing to 4.72 percent, up from 4.68 percent one week earlier. Last year at this time, the average rate was 5.47 percent.

On-year adjustable rate mortgages (ARMs) rose to 4.86 percent from 4.81 percent. During the same week of March 2008, the average rate was 4.94 percent.