What’s striking about recent mortgage news is how much of it is dominated by stories about investigations and indictments related to mortgage scams. Federal authorities have announced a nationwide crackdown, and local authorities have been active in many communities as well.

There were other, less dramatic stories on the mortgage front:

• Mortgage application activity stalled as mortgage rates rose
• The Hope Now Alliance, a mortgage industry group, announced plans to help streamline work-out plans for troubled borrowers
• A long-awaited mortgage bill became bogged down in the Senate due to controversy stemming from favorable mortgage rates received by two Senators

These other stories are worth reviewing, but ultimatly they are best put in context by the crackdown on mortgage scams.

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A possible Senate compromise on a mortgage relief bill took most of the mortgage headlines this week, but potential borrowers would do well to keep their eyes on the inflation front, where a new surge in oil prices threatened to drive interest rates higher.

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In a mixed week of news, perhaps the most important outcome is that mortgage rates remained at attractive levels:

• Fed Chairman Ben Bernanke conceded there was a possibility that the economy was in recession
• A provision to give bankruptcy judges more latitude to ease mortgage terms appeared headed for defeat
• Housing sales posted a rare rise, even as prices continued to fall
• 30-year mortgage rates remained little changed for the second week in a row

As much as the above might seem a mix of good news and bad news, overall it translates to a decent environment for home and mortgage shoppers.

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California legislators are in the process of approving a bill that would provide state tax relief for eligible homeowners who’ve had debt forgiven by mortgage lenders through relief provisions including mortgage modifications and short sales. This is another step toward cleaning up the mortgage mess; If homeowners facing the loss of their homes can also expect to lose their shirts paying taxes, what’s their incentive for staying in their homes and cooperating with lenders?  No one wants more people to walk away from homes they can’t sell, or mortgages they can’t pay.

The bill, which has been unanimously passed by California’s state Senate, is now in the hands of the state Assembly. It’s important to note that tax relief would be available only to owner-occupants.

Well-intentioned community agencies are hitting a brick wall as they try to re-work subprime and other mortgages threatened by foreclosure. Mortgage counseling programs are not getting much cooperation from mortgage lenders. Oops, make that mortgage holders. Gone are the days when you could buy a home and your local bank held the mortgage. Nowadays, mortgage loans are promptly packaged and sold to obscure entities that often have legal agreements preventing mortgage servicers from changing the terms of mortgages sold into the secondary market.

Is Wall Street the only street that matters when it comes to owning a home? Does the entire US economy have to tank before the broken mortgage industry is fixed?

One of the challenges faced by the average home owner or potential buyer is deciphering how to react to big-picture news about the mortgage market. Often, the right move runs counter to the news cycle.

Over the past week, that news cycle continued to focus on negative stories. For example:

• Mortgage foreclosures were reported to be up sharply in February over the prior year’s levels
• Treasury Secretary Henry Paulson outlined proposals to tighten regulation on mortgage lenders
• Meanwhile, one result of mounting economic concerns is that mortgage rates remain near the 6% level, which is low by a few different measures

In other words, the macro-economic view of housing and mortgages continues to be bleak. It may be counter-intuitive, but this could well be an environment which calls for action, on the part of home owners and potential buyers alike.

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Recent news that New York’s Attorney General is working with Fannie Mae and Freddie Mac toward an agreement requiring independent appraisals for mortgage loans purchased by Fannie and Freddie underlines the importantce of understanding how appraisals impact mortgage applications.

Mortgage lenders employ licensed appraisers to establish home values for mortgage approval. A home appraisal typically costs about $400. Paying for several appraisals can limit your ability to make simultaneous mortgage applications. The good news is that independent appraisals can reduce the practice of inflating home values for the purpose of approving mortgage loans.

Mortgage applications dropped for the 3rd consecutive week according to the Mortgage Bankers Association’s weekly survey of applications. Mortgage applications dropped by 19.2% during the week ending February 22. Refinance applications declined by 30%, which appears to highlight the difficulties homeowners are experiencing due to falling home prices and tighter mortgage lending standards.

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This week’s news was dominated by the surprise move of the Federal Reserve to dramatically lower interest rates, but there were other news items of interest to the mortgage markets as well:

• Treasury Secretary Henry Paulson spoke out in support of a plan to freeze interest rates on some adjustable-rate mortgages
• The Mortgage Bankers Association released data on extraordinary efforts by lenders to help borrowers with their mortgages
• Meanwhile, mortgage rates declined to levels not seen in two-and-a-half years

As much as the above were widely described as symptoms of economic weakness, a more forward-looking view would describe them as stepping stones toward recovery, for the economy in general and the housing market in particular.

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