Mortgage rates edged lower this week, as the prevailing drift of housing news could be seen as good or bad, depending on the perspective.

• Home prices in the first quarter of 2008 were reported to have fallen by 7.7% from the same period a year ago
• Foreclosures for the month of April were reported to be up 65% from one year earlier
• Inflation for April came in at a relatively mild 0.2% 

In other words, more bad news for homeowners — at least some of them — but good news for potential home buyers.

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The past week was chock full of news affecting the mortgage and housing markets:

• Foreclosure notices were reported to have increased by 112% over the past year
• Housing prices nationally were reported to have declined by 12.7% over the past year
• Economic growth for the first quarter of 2008 remained positive, if anemic
• The Federal Reserve cut interest rates for the seventh time in as many months

In short, a clouded economic picture continues to make this a buyer’s market for financially sound house hunters.

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Bankruptcy judges are uncovering some rather, well, icky practices in the mortgage servicing industry. Excessive fees, lack of notice before starting foreclosure proceedings, and incorrect application of payments are just some of the goings-on at some mortgage giants, according to the International Tribune. In one case a bank charged an elderly woman $465.36 in late fees and charges for missing a single $554.11 mortgage payment! In another, the lender asked a bankruptcy court to allow it to foreclose on a couple in bankruptcy because there was no equity in the home.  When that is the case lenders are allowed to foreclose in order to minimize their costs.  However, in this case the borrowers had $120,000 in equity and they were given no notice of the foreclosure by the bank! The judge in the case found there was an abuse of process and ordered the lender to pay the homeowners’ legal fees. The bottom line is this: if bankruptcy judges are finding lenders to be unethical when dealing with borrowers in bankruptcy, might the loan servicers also be conning the rest of us? Borrowers should make it a priority to look their statements over, check for unexpected fees, and make sure that their impounded taxes and insurance are calculated correctly.

Mortgage news overall continued to spell opportunity for potential home buyers, but there are also signs that favorable mortgage rates might not last:

• 30-year mortgage rates posted a fifth consecutive reading between 5.85% and 5.88%
• Mortgage foreclosure rates continued to rise
• Southern California home prices reached a four-year low
• Signs are spreading that inflation is taking hold

The combination of low mortgage rates and falling home prices is great for today’s home buyers, but the inflation signals are a reminder that these conditions may not last. 

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An April 13^th article from the San Francisco Chronicle stated that it will be more costly than ever to walk away from a mortgage just because the investment didn’t pan out. New guidelines bar lenders from making Fannie Mae loans to applicants who went through foreclosure within 5 years unless they can prove extenuating circumstances. And even after 5 years the borrowers will have to come up with at least 10 percent down and have gotten their credit scores back up to at least 680. Rival mortgage clearing house Freddie Mac indicated that it is going after walk-away borrowers in court to collect deficiencies (the difference between what a borrower owes and what the lender gets in a foreclosure sale). Fannie and Freddie’s actions should be far-reaching — 76% of all new mortgages are bought by the giants and must therefore meet their guidelines. These actions should be welcomed by taxpayers and homeowners alike — very few neighborhoods haven’t felt the blight of a foreclosure and the resulting hit to the adjacent property values, and making those truly responsible face their consequences should lighten the burden for everyone else.