Banks could face another mortgage crisis, according to Barron's, if they are forced to buy back subprime, Alt-A and options adjusted home mortgage securities they've sold prior to the financial crisis, mostly as mortgage-backed securities. Already some buyers, like Fannie Mae (FNMA) and Freddie Mac (FMCC), have enjoyed some success returning defective mortgages. And this could be just the beginning.

The banks, of course, are fighting vigorously to fend off these demands. As usual, the courts will have to settle the matter. The focus of the debate seems to be founded on the issue of representations and warranties that may or may not have been violated.

There are no surprises among the 11 banks mentioned. It is the conspicuous absence of names you might expect to find that is.

Last spring, many believed that not only was the housing collapse over but that a robust rebound was underway. Investors were crowding into foreclosed house sales and bidding up prices in California, often the bellwether state for new trends. The tax credit of up to $8,000 for new homebuyers that expired in April spurred buyers and promised to kick-start housing activity nationwide.

The Home Affordable Modification Program was trumpeted by the Administration to help 3 million to 4 million homeowners with underwater mortgages by paying lenders to reduce monthly payments to manageable size and then paying homeowners to continue to make those payments.

With the nation's housing market continuing to struggle, interest rates have continued to fall, and this week they fell even more. According to a report today, interest rates fell to the their lowest level on record since Freddie Mac started tracking them back in 1971.

The Federal Reserve is doing everything it can to get buyers interested in coming back to the housing market, but it has just not been happening yet. Any hopes that the housing market was turning the corner were negated with news that third quarter sales were 21% lower than the same period last year.

Imagine, if you would, that you lost your home to foreclosure, but you later learned that the entity that seized your property likely had no right to take it. It sounds unbelievable, right? Well, a recently initiated investigation involving GMAC indicates that may be exactly what has happened in tens of thousands of foreclosure cases across the country.

The investigation, undertaken by the Florida Attorney General, is examining three law firms for allegedly providing fraudulent affidavits that identify who holds the original mortgage note in foreclosure cases. According to a report from NPR, this action has caused GMAC to suspend pending eviction and foreclosure activities.

A frequent question voiced in dinner party circles in this neck of the woods (the metropolitan New York City area) is, 'How low will home mortgage rates go?'

That question is usually accompanied by, 'Should I refinance now, or wait?' if the inquirer already owns his/her residence.

To the latter, I usually respond with, if you can lower your fixed mortgage rate by 1.50 percentage points (150 basis points in Wall Street terms), and total closing costs can be recovered in 30 months, it usually makes sense to refinance.

If you were a potential home buyer and heard talk of a double dip recession, what would you think? You might think that the next drop will be worse than the first and that you probably shouldn't buy now. You might wait a bit to see what happens. That's exactly what most Americans are doing and that's exactly why demand for home loans is at a 13-year low.

This is happening despite record low mortgage rates of 4.69%. The record low rates attracted refinancing, which accounted for 78.7% of all applications last week. But even refinancing fell 2.9%

Bank earnings are upon us. Citi (C) reported a $4.4 billion profit, the largest positive number in three years. Last week JPMorgan Chase (JPM) and Bank Of America (BAC) had great numbers to crow about as well. Part of the good news came from lower loan loss reserves as the economy begins to get some traction on the up side. But some of the positive report was a result of bond trading and/or investment banking. And that's a little troubling.

The reason for investor concern is that bond trading and investment banking are not sustainable business models. They are more like geysers: they shoot up beautifully when the timing is right -- but one never knows when that timing is, unless the geyser is Old Faithful, which none of the bond trading or investment banking deals are. Yes, they contribute hugely to the bottom line as bond traders catch a trend in interest rates and make extraordinary gains or develop new products that create new revenues. But just as quickly the bond market can turn (like the stock market), and large gains turn to losses.

Last year, American International Group (AIG) lost up to $2 billion because its Financial Products group unwound most of its remaining trades with Goldman Sachs (GS). Of course, this was the situation that led to the insurer's near-collapse in September 2008. The losses sustained last year resulted from AIG's continued efforts to extract itself from a precarious financial situation.

AIG's realized losses came on approximately $3 billion in mortgage-collateralized debt positions. After last year's extrication, AIG has $1.3 billion in CDOs with Goldman Sachs, because the company believed the positions could perform better than their current prices would reveal.

Friday marked the failure of another bank, pushing the 2010 total to 42. The Federal Deposit Insurance Corporation took over Beach First National Bank in Myrtle Beach, South Carolina.

The bank had $585.1 million in assets and $516 in deposits. Bank of North Carolina, based in Thomasville, is taking over the failed bank's assets and deposits. The Beach First failure is expected to cost the FDIC $130.3 million.

A growing number of loan defaults, especially in the commercial real estate sector, have put considerable pressure on banks across the country. In fact, failures are expected to peak this year, exceeding the 140 that occurred in 2009, which was the worst year since 1992.

The former head of the world's most powerful central bank once again provided tutelage to Washington-based investigators regarding the source(s) of the financial crisis.

Former U.S. Federal Reserve Chairman Alan Greenspan, testifying Wednesday before the Financial Crisis Inquiry Commission, reiterated that the supply of money globally -- not the Fed's monetary policy on interest rates -- was the primary driver of the extended low interest rate period that contributed to the U.S. housing market bubble, the bursting of which set in motion the financial crisis.

Today was one of those days that started directionless and ended up less bad than it looked toward the end. Mortgage applications were down and the earnings picture was mixed. Alan Greenspan dodged the heat that he was responsible for the crash after the bubble in testimony today, although there is still much debate on that. Gold came almost to a 2010 high measured by the key ETF, and the 10-Year Treasury auction went better than many expected.

Here were today's unofficial closing bell levels:

Dow 10,897.52 -72.47 (-0.66%)
S&P 500 1,182.44 -6.99 (-0.59%)
Nasdaq 2,431.16 -5.65 (-0.23%)

Over the past couple of years, one of the most troubling aspects of the economy has been the ailing housing market, and in particular the large volumes of homes that have fallen victim to the foreclosure crisis. Finally we get some evidence that things may be moving in the right direction again.

While no one will argue that we are out of the woods just yet, it does appear as things are at least starting to recovery slightly.

U.S. foreclosure filings rose 15% in January to over 300,000. This is the eleventh straight month that foreclosures have passed 300,000.

Here is the situation:

• 315,716 properties received a notice of default, one in every 409 households.
• Bank seizures may rise to 3 million this year, according to Realty Trac.

Home prices fell yet again in November, losing 0.2% month-over-month (on a not seasonally adjusted basis), following a 0.1% drop in October. The Standard & Poor's/Case-Shiller's home price index reported only five out of 20 metro areas with gains, and from November 2008 to November 2009, home prices are off 5.3%. Need a benchmark? It's late 2003: Six years of appreciation have been obliterated by the financial crisis.

The slide worries analysts who wonder if the housing recovery is strong enough to keep moving forward. A stall on the housing side, of course, could push through the rest of the economy, ultimately putting the squeeze on consumer spending (further) and impeding overall growth.

The Federal Reserve picked up a $52.1 billion profit last year, a record for the organization. The result is due largely to its 2009 bailout efforts. Of the profit generated, $46.1 billion will be handed over to the Treasury Department -- the largest profit payment made since records began back in 1914. The previous record was $34.6 billion, in 2007. Last year, the Fed turned $31.7 billion over to the Treasury Department.

According to the Associated Press, the profit didn't come from the $700 billion lent to financial institutions -- and then to auto companies like General Motors. Rather, it was the result of earnings from the securities it had in its portfolio last year. Several investment programs were launched last year to help kickstart the U.S. economy and drive down rates on mortgages and consumer debt. Through the programs, the Fed bought $300 billion in government debt, and under another, it's on a trajectory to buy $1.25 trillion in Freddie Mac and Fannie Mae mortgage securities.