On Monday, I wrote about last week’s figures from the Mortgage Bankers Association. It looked, I said, as if current record rates were boosting loan applications, which were 37.3 percent up on the same week last year.

However, I went on to say that more than three-quarters of all applications had come from those seeking to refinance existing mortgages, and that that might not be such good news.

I haven’t changed my mind. In an ideal world—or even just in a healthy market—there would be a whole lot more people wanting new mortgages, and many fewer wanting to re-engineer their existing ones.

But we already know that the market is not healthy. In fact, it is just the opposite. And, like any invalid, it has to take baby steps before it starts thinking of running anywhere.

Refinancing is just such a baby step. People have to rediscover their confidence before they start trading up or entering the real estate market. And that means an extended period of stability along with much lower repossession, and hardship rates.

We’re getting there. But it’s going to take a while.

In the meantime, I hope you have a very happy holiday.

Freddie Mac unveiled yet more good mortgage news for borrowers on Friday in its weekly survey of average rates. The figure for a 30-year loan was 5.19 percent, which the Wall Street Journal says is the lowest since records began in 1971, 37 years ago. New 15-year mortgages were averaging 4.92 percent.

The Journal also pointed out that mortgages generally closely track long-term government notes, and that these are also continuing to decline. This means that there’s every reason to expect mortgage rates to continue their downward trend.

All of this positivity is translating into a much larger volume of mortgage applications. The Mortgage Bankers Association reports that these are up 37.3 percent up on the same week last year. However, refinancing represents 76.9 percent of all activity, which may not be quite such good news.

More on that soon.

It was enough to make any mortgage observer recall the old joke about the light at the end of the tunnel turning out to be a train. A steady drip of positive news lately was overshadowed by the news that lender GMAC Financial Services was closing 200 retail offices and laying off 5,000 employees. The move was designed to scale back the firm’s mortgage lending presence in reaction to losses in that sector.

Still, while this story grabbed the headlines, home buyers and mortgage shoppers should not lose sight of some of the more positive news:

• Mortgage rates have settled into a gentle, downward trend
• Lower oil prices are taking some of the heat off of inflation, and thus interest rates
• Mortgage application volume showed signs of life

While the GMAC story was a reminder of why economic recoveries can take so long to develop, the underlying fundamentals suggest that conditions may be getting better for the housing market.

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The past week saw more symptoms that the mortgage crisis is likely to drag on: 

• Stocks in mortgage financers Fannie Mae and Freddie Mac took a tumble, as investors questioned their long-term viability
• The problems of Fannie Mae and Freddie Mac are already evident to mortgage borrowers in the form of higher fees, tougher approval standards, and higher interest rates
• Mortgage experts warned that the impact of so-called “liar loans” has yet to fully play out
• Not surprisingly, with these and other woes, mortgage application volume continued to slip

For prospective homebuyers, these symptoms of long-term consequences of the mortgage crisis signal that waiting for the storm to blow over may not be the best strategy.

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Mortgage news this week painted a picture of a variety of ways people are attempting to cope with the mortgage slump:

• While the housing bill continues to meander its way through Congress, it apparently was not an urgent enough issue to get done before Congress adjourned for its Fourth of July recess
• Hope Now, a mortgage industry alliance, reported that it helped 170,000 homeowners avoid foreclosure in the month of May
• Further evidence that falling behind on a mortgage need not be permanent was seen in the fact that more that 40,000 borrowers who had been behind on their mortgages caught up in May
• The week ending June 27 offered a small sign of broader resiliency in the mortgage market, as mortgage application volume recovered slightly from the year-to-date low set during the prior week

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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 sharp jump in mortgage rates was the week’s most significant development.

• 30-year mortgage rates rose to 6.32%, largely in response to growing inflation fears
• Federal Reserve officials may also respond to the inflation threat, as they’ve begun to hint at possible hikes in the Fed rate later this year
• The grim news on the interest rate front overshadowed what otherwise would have been a bright spot, a bounce back in mortgage application activity

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Reducing capital requirements on lending giants Freddie Mac and Fannie Mae from 30% to 20% could provide an additional $200 billion to the ailing mortgage industry. These funds can be used for refinancing sub-prime loans and for making mortgage loans according to Freddie and Fannie’s recently increased loan limits.

On the surface, this is great news, as anything that boosts the depressed housing market could be good for the US economy. On the other hand, let’s proceed carefully and avoid taking on excessive risk. Responsible approval of mortgage applications is essential to cleaning up the meltdown mess and stabilizing the housing market

Fannie Mae and Freddie Mac have raised their loan limits, a move designed to make mortgage funds available and to ease the loan approval process for borrowers living in areas where housing prices are very high.

The new lending limits vary according to region, but typically allow for more borrowing power in areas where housing prices far exceed Fannie and Freddie’s previous loan limit of $417,000.  As an example, borrowers in Honolulu, HI may now qualify to borrow as much s $793,750 under the new loan limits.

This is great news, as it evens the playing field for borrowers and mortgage lenders in areas with astronomical home values. The ability to qualify for conforming mortgages can  ease the mortgage applicaton process and help borrowers save on financing costs associated with non-conforming jumbo loans.

Being bombarded by the constant (and mostly negative) news on the mortgage industry, many of us are viewing home purchase as a topic not for discussion; however, that approach may not be right for everyone.

The housing market has changed throughout the nation and some areas have been significantly more impacted than others. These fluctuations, on the other hand, have opened up potential opportunities to some buyers who are able to take advantage of the lower housing prices, decreased demand, and their fairly good credit score.

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