More bad news on the struggling housing market today, as the Mortgage Bankers Association announced that last week mortgage applications dropped to an eight year low. This is another sign that people are not ready to jump back into the housing market just yet.

As we all know, home prices have been falling steadily over the past year, and we are all waiting to see the point where buyers decide that the price is right to jump back into the market. So far, that is just not happening. According to today's report, mortgage volume was 44% lower last week than the same period last year.

Refinancing applications were down 23.5% last week, and more importantly, mortgage applications to purchase new homes fell 10.9% from the previous week. The last time weekly volume was this low was all the way back in December 2000.

During last night's presidential debate (which he lost badly) Republican John McCain vowed that if elected he would order the U.S. Treasury Department to purchase "bad mortgages" to help people avoid foreclosure. It's an idea that deserves consideration.

According to Bloomberg News, the McCain campaign estimates that it would cost $300 billion, some of which would be diverted from the $700 billion rescue of Wall Street. The Arizona senator did not provide specifics during the debate. Democrat Barack Obama proposed a similar idea during a press conference last month, according to Bloomberg. These proposals raise many questions.

First of all, can the government afford to purchase both mortgages and mortgage-backed securities? How will the government determine who gets help? Many people bought homes they could not afford because of criminally lax lending standards at some banks. Others were hoodwinked by unscrupulous mortgage brokers into taking adjustable-rate mortgages when they qualified for cheaper fixed-rate 30-year loans. These individuals are the most deserving of the government's help. Officials should try and help other distressed mortgagers provided that they can afford their properties. Otherwise, they should be given assistance to find affordable housing.

Mortgage applications decreased last week, as an increase borrowing costs discouraged both purchase and mortgage refinancing activity, the Mortgage Bankers Association announced Wednesday.

The Mortgage Bankers Association's composite index of applications declined 14.2% on a seasonally-adjusted basis to 637.6 from last week's 734.4.

The Refinance Index decreased 20.2% to 2,286.3 from 2,866.0 the previous week and the seasonally adjusted Purchase Index decreased 6.4% to 357.3 from 381.6 one week earlier.

Rates rise

Meanwhile, the average rate for a 30-year fixed loan rose to 6.04% from 5.74% the prior week. The average rate for a 15-year fixed mortgage increased to 5.60% from 5.27%.

The Washington Post reports that the Mortgage Bankers Association (MBA) is getting what it feels is a raw deal on a mortgage for its Washington headquarters. Boo hoo! The MBA is buying a building there for $100 million, but is paying a higher interest rate on its mortgage as its income declines and the leasing market is slow leaving it with no tenants for the building.

This couldn't have happened to a nicer association. After all, the MBA encouraged people to take out subprime mortgages -- many of which went bad. Despite the Fed's rate cuts from 5.25% to 2.25% mortgage interest rates are up thanks to bankers' fear of lending. And the resulting economic slowdown is making it harder for the MBA to find tenants for its building.

Let's survey the damage to the MBA. First, its membership has declined 17% in the last year and it predicts a 10% to 15% decline in revenue as a result. Bankers are making the MBA put up about 10% more of a down payment than it had planned and the lack of tenants has moved its lender to increase the financing costs slightly. Perhaps there's justice in the universe. If not, at least MBA's predicament is giving it a taste of its own medicine.

Peter Cohan is President of Peter S. Cohan & Associates. He also teaches management at Babson College and edits The Cohan Letter.

After months and months of dreary news from the worlds of housing and real estate, here's a bit of a pick-me-up: applications for mortgages rose 32.2% during the week of January 4, which was shortened by the New Year's holiday. This was a welcome change, as demand had been heading lower for the three previous weeks.

The Mortgage Bankers Association said in its weekly findings that its overall application index rose to 706 from 533.9 the previous week. Holiday-season volatility could be partially responsible for this jump -- in the week surrounding New Year's Day 2007, the application index was 16.6% higher.

Refinance volume spiked 53.9% during the week, while purchase activity was up 14.7%. Refinance applications accounted for 57.7% of total applications, up from 50.9% the previous week. (With all the speculation surrounding future rate cuts, wouldn't homeowners want to wait and see what happens at the next Federal Open Market Committee meeting in two-plus weeks?)

In its weekly report on the state of mortgage-application demand in the U.S., the Mortgage Bankers Association (MBA) said its purchase index dropped 8.5% to 360.8, while refinancing activity slid 15.4% lower to 1,620.9. The purchase index hasn't been this low since the week of October 10, 2003.

The group's index of overall mortgage-application activity declined for the third straight week, losing 11.6% to 533.9, hitting the lowest point since July 2006. These numbers were in the red even though borrowing costs have moved lower. Fixed 30-year mortgage rates averaged 6.05% in the latest reporting period, down 5 basis points to hit their lowest point since late November.

The MBA's smoothed-out four-week averages for its trio of indices also pulled lower. The overall market index lost 9%, the purchase index was down 5.9%, and the refinancing index was 11.8% lower on four-week moving average basis.

Headlines scream today that mortgage applications hit their highest level in two years, but are they really up, or are people just putting in more applications hoping one of them will succeed in finding new money? Credit is tight and there is a lot less money going around now that many investors have left the mortgage market. Even Countrywide (NYSE: CFC) admits that 80% of the new mortgage loans it approves must meet Fannie Mae (NYSE: FNM) or Freddie Mac (NYSE: FRE) standards. Fannie Mae and Freddie Mac both say they are in trouble and their available funds are tight as well.

So to get a mortgage today, you either have to have an excellent credit rating, or good timing -- applying at just the right time when the lender involved has some money available from one of the few private investors still in the mortgage marketplace. If you don't have a prime credit rating, then you have to count on your lender finding mortgage money from private sources. Freddie Mac and Fannie Mae are not touching subprime loans right now and are tightening their approval requirements for prime loans.

The Mortgage Bankers Association reports that its index of mortgage applications rose by a seasonally adjusted 2.5% to 811.8 for the week ending Dec. 7, with demand for both new purchases and refinances. Hopefully, that means people with ARMs resetting are finding a new mortgage rather than allowing their home to go to foreclosure after the interest rate resets. Also, hopefully that means more people are out there buying up the glut of homes at bargain basement prices, so we can clear up the excess and start seeing stabilization in the housing market.

The U.S. mortgage market entered uncharted territory this quarter when the Mortgage Bankers Association (MBA) reported that the number of homes starting foreclosures in the third quarter of this year topped all previous records [subscription required] since MBA first started tracking the numbers in 1972, according to the Wall Street Journal this morning. The Journal also reported that the fraction of homeowners behind in their payments rose to its highest level in 21 years.

Foreclosures rose for all types of mortgage loans, including prime loans. The MBA said the largest uptick was for ARMs including homeowners considered to be in the "prime" loan category. The four hardest hit states in the prime lending category were Florida, Ohio, Michigan and California. All four states have seen the biggest price drops in home prices since the real estate bubble burst.

Subprime ARMs still account for the lion's share of new foreclosures -- 43% of new foreclosures in the third quarter. But, prime ARMs facing foreclosures jumped and accounted for 18% of new foreclosures.

Anyone who still believes the mortgage mess will be contained to subprime borrowers is not reading the writing on the wall. As housing prices fall, gas prices rise, health costs soar and salaries stagnate, everyone is being squeezed financially. Anyone facing an interest rate adjustment on their mortgage will probably find it harder and harder to make ends meet and pay their mortgage -- especially after that mortgage payment resets higher. It's financially difficult for both prime and subprime borrowers, many of whom expected to refinance before an interest rate reset but can't now that their home is worth less.

Lita Epstein has written more than 20 books including "The 250 Questions You Should Ask to Avoid Foreclosure."

The Mortgage Bankers Association says that mortgage originations will hit an eight-year low next year, and that could cost 30,000 people in the industry their jobs.

"We have not yet seen fully the impact of the credit shock to the U.S. and world economies, and the severity of that impact will depend on how long it takes for the markets to return to normal functioning," Doug Duncan an economist for the MBA told Reuters. The group expects mortgage originations to decline 18 percent to $1.89 trillion next year.

And thus begins another unholy cycle. A national industry falls apart and that leads to big job losses. Those job losses harm the economy and further damage the housing market. It is the classic stuff of the beginning of a recession. People without jobs can neither make mortgage payments nor can they buy new homes.

Much of this states the obvious, but it does make a strong case for the Fed and Treasury to take another look at giving incentives to mortgage lenders to fix variable rate mortgages and be more lenient on repayments. If Secretary Paulson and his friends want to help large money center banks to raise a super-fund to buy big mortgage pools and save banks from huge write-offs, they may want to help the little guy who just wants to pay his mortgage or buy a house. Even Citi's Chuck Prince needs a place to live.

Douglas A. McIntyre is a partner at 24/7 Wall St.

More bad news for the struggling real estate market again today. According to the Mortgage Bankers Association, the number of mortgage holders entering the foreclosure process rose to an all time high during the April to June quarter.

The percentage of loans going into foreclosure jumped to a record 0.65 percent during the quarter. And this marks the third straight quarter in a row where foreclosures have climbed to record levels.

The scary part is that the troubles do not seem to be nearing an end. In addition to the rise in foreclosure proceedings, the quarter also saw a sizable 0.75% jump in the number of loans that moved into delinquency. Total loans entering delinquency rose to 5.12% of all home loans. That is a pretty scary figure. While it is true that not all delinquent loans will progress to the point of foreclosure, it sets the stage for more troubles ahead.