The slow rolling collapse of the housing industry in this country -- which the Center for Economic and Policy Research estimates could wipe out $6 trillion in housing wealth in 2008 -- has gotten me to thinking about the future. Why do we even have mortgages? What would the housing industry look like without them? Is there a better way? My conclusion is that we should eliminate mortgages altogether. This will cause housing prices to drop, which will make it possible for more people to buy homes instead of living in houses that are really owned by the mortgage holders.

The reason we have mortgages is that the $10 trillion industry supporting them is powerful and self-sustaining. It fuels an enormous housing construction and furniture industry. And there are those in government who think home "ownership" is a worthy social goal. Unfortunately, when people take on a mortgage and then move into a house, the people who live there don't have its title -- the mortgage holder does. Simply put, home ownership is an illusion for most people -- the mortgage holder owns the house until the mortgage is paid off. Instead of renting from a landlord, the "homeowner" is living in a house that's owned by a mortgage holder.

With the rise of securitization, that mortgage holder is no longer the company that originated the loan. It's an investor who holds a mortgage-backed security (MBS) that contains your mortgage and thousands of others. It's an oft-repeated illusion that this is "home ownership." But that illusion is critical for keeping the mortgage industry alive. Unfortunately, if Fannie Mae (NYSE: FNM) and Freddie Mac (NYSE: FRE) fail, it will be us citizens who will be on the hook for the $1 trillion needed to bail them out.

Mortgage applications increased 7.5% for the week ended July 4, 2008, the Mortgage Bankers Association announced Wednesday.

The Mortgage Bankers Association's composite index of applications increased to 513.4, on a seasonally-adjusted basis, from last week's 477.7.

Compared to a year ago, the composite index is down 18.1% on an unadjusted basis.

The Refinance Index increased 8.7% to 1,379.3 from 1,269.2 the previous week and the seasonally adjusted Purchase Index increased 6.7% to 365.8 from 342.8 one week earlier.

Meanwhile, the average rate for a 30-year fixed loan increased slightly to 6.43% from 6.33% the prior week. The average rate for a 15-year fixed mortgage increased to 5.94% from 5.90%.

Mortgage applications decreased 9.3% for the week ended June 20, 2008, the Mortgage Bankers Association announced Wednesday.

The Mortgage Bankers Association's composite index of applications declined to 461.3, on a seasonally-adjusted basis from last week's 508.4. Compared to a year ago, the composite index is down 25.3% on an unadjusted basis.

Also, the Refinance Index decreased 12.1% to 1,212.2 from 1,378.6 the previous week and the seasonally adjusted Purchase Index decreased 7.4% to 333.4 from 360.2 one week earlier.

Mortgage rates dip

Meanwhile, the average rate for a 30-year fixed loan decreased slightly to 6.39% from 6.57% the prior week. The average rate for a 15-year fixed mortgage decreased to 5.95% from 6.14%.

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

The Mortgage Bankers Association's composite index of applications declined 8.7% on a seasonally-adjusted basis to 508.6 from last week's 557.1. Compared to a year ago, the composite index is down 21.3% on an unadjusted basis.

The Refinance Index decreased 15.0% to 1,378.6 from 1,622.1 the previous week and the seasonally adjusted Purchase Index decreased 4.3% to 360.2 from 376.2 one week earlier.

Mortgage rates rise

Meanwhile, the average rate for a 30-year fixed loan rose to 6.57% from 6.24% the prior week. The average rate for a 15-year fixed mortgage increased to 6.14% from 5.78%. Also, the share of applications that involved a refinance declined to 37.4% from 39.8% one week earlier.

The venerable George Bernard Shaw once observed that the United States and Britain are two nations separated by a common language.

Well, in the initial decade of the globalization era, one could argue that the United States and Britain are two nations united by a common housing slump.

That's because U.K. home prices plunged an alarming 2.5% in May 2008, Nationwide Building Society announced Thursday -- the largest drop since 1991.

The U.K.'s median home price declined to173,583 pounds or $342,774. Prices are now down 4.4% in the past 12 months, according to Nationwide, the U.K.'s fourth-largest lender. Further, property values have declined for seven straight months, the longest consecutive drop since 1992.

U.K. housing slump mirroring U.S.?

London-based economist Mark Chandler told BloggingStocks Thursday there are new data points each week that suggest that those who felt the United Kingdom's housing sector would fare better than the U.S.'s during the economic downturn, are wrong.

Median home prices fell in two-thirds of American cities in Q1 2008, the National Association of Realtors announced Tuesday.

The median price fell 7.7% to $196,300 in Q1 2008 down from $212,600 for the same period a year ago, the NAR said. It was the largest year-over-year decline since the NAR started keeping comprehensive records of median home prices in 1979.

Median prices declined 12.3% in the West, 7.9% in the Midwest, 7.5% in the South, and 3.32% in the Northeast.

Merrill Lynch and Co., Inc. (NYSE: MER) CEO John Thain said today that the risk in the housing market is "much lower" than it has been recently as the credit crisis in the U.S. is "getting better." Leave it to the leader of a company which has written off over $30 billion in mortgage lending investment to make this claim. But the thing is, could he be right?

Although Thain said "economic pressure" will remain high over the next year, he expressed confidence that the end of the housing bubble, which is still popping in many parts of the country, is now in sight. Thain also indicated that food prices and shortages as well as higher unemployment will continue to have an impact on the U.S. economy. Of course Merrill has had three quarters of disastrous results like other large investment banks, and the company is still toiling with the idiocy of incredibly risky investments that have left it weakened financially.

Even if Thain had been hired by Citigroup, Inc. (NYSE: C) last year, he'd be in the same mess in the same industry. I'm not sure what "much lower" risk in the housing market means, although he's probably talking about his company's reduced exposure to those SIVs and other vehicles from the Flintstone era that start off fast before the wheels fall off.

I hope Thain is correct in his assessments, and Merrill Shareholders are probably wanting the same thing, just much more badly than myself.

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%.

Home foreclosures in the United States rocketed 57% in March 2008 compared to a year ago, as more homeowners relinquished their homes to lenders, according to data compiled by RealtyTrac.

More than 234,000 properties were in some stage of foreclosure - - roughly 1 in 538 U.S. households, RealtyTrac announced Tuesday.

Nevada, California, and Florida had the highest foreclosure rates, while Vermont, North Dakota, and South Dakota had the lowest.

Handing back the keys

Economist Glen Langan said Tuesday he's not surprised that RealtyTrac indicated that the large foreclosure increase showed that many homeowners were simply walking away from homes worth substantially less than the mortgage and deeding the home back to the lender.

"If you can't refinance -- and in many cases today with more-rigorous mortgage requirements, you can't -- a home sale probably doesn't make much sense," Langan said. "If it's a $20,000 gap, a mortgage of $400,000 and a house value of $380,000, you probably sell, or search harder to find a lender who will refinance the note."

"But if you hold a mortgage for $400,000 and the house is now worth $200,000 or $175,000 or even less, it makes makes very little sense to sell, so you simply hand the deed and keys back to the lender, and say 'It's yours,' " Langan said. "And that's what a lot of homeowners are doing now."

However, Langan underscore that 'handing back the keys' is not without it downside. Doing so will still lower a borrower's credit rating, although Langan admits "that's probably at the bottom of concerns for many homeowners about to give up their homes." Also, the rising foreclosures will add large amounts of inventory to an already oversupplied housing market, depressing home prices for a longer period of time.

Every economic problem or setback seeks a scapegoat -- someone decision makers, pundits, and others can blame (unjustifiably) for a turn of events that's preferred by virtually no one.

The criticism is parsimonious, unfair, and injurious -- but that hasn't seemed to stop practitioners from venturing forth with charges that are often tenuous, if not absurd.

Scapegoat-of-the-moment

The ever-incisive FT columnist Martin Wolf points out that former U.S. Federal Reserve Chairman Alan Greenspan is being cast as 'the villain' for the housing bubble, its bursting, and consequent impact on credit/bond markets and credit availability. All of it is unfair, Wolf notes, and he provides ample evidence to support his point.

Chiefly: Greenspan did not create low, long-term interest rates. The low, long-term rates were caused primarily by a global savings glut, Wolf said. (See: China's savings rate.) The Fed had little control over this -- Greenspan even creatively and accurately referred to the Fed's inability to force long-term rates higher despite the Fed's best effort: he called it "a conundrum." Given the surplus savings sloshing around in global markets at that time, among other factors, those low rates would have occurred regardless of who was Fed chairman.

My Ph.D. adviser David E. RePass, professor emeritus at the University of Connecticut, used to frequently recite an axiom about the U.S. Congress that rings true, regardless of era, or circumstance.

"Congress does not react, unless not reacting will result in the wrath of the American voter."

Well, concerning housing, it looks like Congress sees the wrath of the American voter ahead because the legislative body is starting to react.

Two measures working their way through Congress may ease the housing crisis. The first, a bipartisan Senate measure, is a modest step to address the rise in home foreclosures, The New York Times reported Friday.

U.S. Rep. Barney Frank, D-Massachusetts and Chairman of the House Financial Services Committee, Thursday introduced legislation to enable the Federal Housing Administration to insure and guarantee mortgages that have been written down banks and other mortgage holders, Rep. Frank announced in a statement.

Rep. Frank's proposal would permit the FHA to provide up to $300 billion in loan guarantees which could potentially result in the refinance of 1-2 million at-risk mortgages, preventing foreclosures, "protecting neighborhoods and help stabilize the housing market."

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

The Mortgage Bankers Association's composite index of applications declined 1.9% on a seasonally-adjusted basis to 671.7 from last week's 684.9.

The Refinance Index decreased 4.7% to 2,448.2 from 2569.0 the previous week and the seasonally adjusted Purchase Index increased 1.6% to 368.8 from 363.1 one week earlier.

Mortgage rates rise

Meanwhile, the average rate for a 30-year fixed loan rose to 6.37% from 5.98% the prior week; 30-year rates are at five-month high. The average rate for a 15-year fixed mortgage increased to 5.72% from 5.26%.

Also, the share of applications that involved a refinance declined to 50.6% from 52%.

Economic Analysis: A large increase in conventional mortgage rates -- the average rate rose about 40 basis points in one week. The U.S. Federal Reserve has cut benchmark, short-term interest rates by 225 basis points, but mortgage rates have not fallen, they've risen. That's a tell-tale sign that banks remain concerned about their portfolios and about sluggish housing market conditions. For the housing sector to regain its sea legs, rates must move toward the lower-end of their 10-year range, which would increase housing demand by lowering monthly payments for purchases.

U.S. mortgage applications increased for the fifth week in a row, boosted by an increase in mortgage applications for purchases, the Mortgage Bankers Association announced Wednesday in a statement.

The Mortgage Bankers Association's index of applications to buy a home or refinance a loan increased 3% last week to 1086.6 -- it's highest level since March 2004. The group's purchase index increased 12% and the refinancing gauge fell 1%.

Meanwhile, the average rate for a 30-year fixed loan rose to 5.61% from 5.60% the prior week. Rates have declined about one-half percentage point since the end of 2007. The average rate for a 15-year fixed mortgage increased to 5.09% from 5.04%.

Purchases of new homes fell 4.7% in December 2007 to a 12-year low, the U.S. Commerce Department reported Monday, in a statement (pdf).

Sales fell to an annual rate of 604,000 homes -- the fewest since February 1995. Economists had expected a 645,000 annual rate.

Difficult 'comps'

In 2007, sales dropped 26% to 774,000, compared to 1.05 million in 2006. However, economists cautioned that the 2007 new home sale drop should be evaluated with a qualification in mind: the new home market registered 4 consecutive years of above-trend growth, which creates "difficult camparisons" -- hard statistics to beat, year-over-year.

In addition, the seasonally adjusted estimate of new houses for sale at the end of December was 495,000. The statistic represents a supply of 9.6 months at the current sales rate.