As real estate gains value nationwide, banks are acting more quickly on delinquent loans and repossessing more homes.

For years the process has been slow and arduous, with hundreds of thousands of borrowers living in homes for months, even years after they had stopped paying the mortgage. That is now changing.

After falling dramatically for more than a month, applications for mortgage refinances finally swung to the positive last week, rising 5 percent from the previous week, despite the continued rise in mortgage rates, according to the Mortgage Bankers Association.

The average rate on the 30-year fixed rose from 4.07 percent to 4.15 percent. Refinance activity, however, is still 36 percent below where it was at the start of May.

Amid newly energized trading in the stocks of mortgage giants Fannie Mae and Freddie Mac, shareholders filed suit Monday against the federal government, contesting its takeover of the two in 2008.

The City of Austin Police Retirement System in Texas and Seattle-based bank Washington Federal are seeking $41 billion in damages. They charge that the conservatorship of Fannie Mae and Freddie Mac was "unlawful and unwarranted," as is the requirement instituted this year that the two pay the Treasury all of their profits.

"The government has appropriated many billions of dollars' worth of private shareholder property, without providing any compensation for this action," according to the filing.

Fannie Mae reported record profits in the second quarter of this year and has now paid the Treasury $95 billion in dividends, nearing the $116 billion it originally drew. Shareholders believe they should be reaping some of these profits, not the federal government.

As home prices rise, demand for jumbo mortgages is rising too. And as investors look for new ways to cash in on the housing recovery, these mortgages are starting to look more attractive.

Since the housing crash began, the market for jumbo mortgage-backed securities, pools of these loans sold to investors, has been close to nothing. Banks still make the loans, but hold them on their books. Now that is beginning to change.

(Read More: Jumbo Mortgage: CNBC Explains)

While the number of jumbo loans originated in the first quarter of this year was up 15 percent from a year ago, the number of those loans securitized and sold by lenders was up 400 percent, according to Inside Mortgage Finance. Four billion worth of jumbo loans were sold to investors, more than the $3.5 billion in jumbos originated in all of 2012.

For the past three years they have been swarming over the hardest hit housing markets, buying distressed properties in bulk and pushing prices higher by double digits. The idea for these investors was not to buy and flip, but to hold and rent. Now some investors say they have priced themselves out of the market.

"Higher prices are reducing returns on investment, and investors are responding by cutting back on their purchasing plans until conditions sort out," said Chris Clothier, a partner in MemphisInvest.com and Premier Property Management Group, which commissioned a national survey of investors conducted by ORC International. "Fewer foreclosures, rising property values and competition from hedge funds are making it tough to find good deals on distress sales."

Several years of rock-bottom interest rates, fueled by the federal government, have had investors in a desperate search for yield. That was a plus for real estate investment trusts (REITs), which are required to pay 90 percent of their profits out in the form of dividends to investors. The minute rates began to rise, suddenly the darlings became the duds.

At an annual industry conference in Chicago this week, rising interest rates are front and center. Representatives of more than a hundred REITs are questioning how they will have to change their strategies should rates suddenly soar.

"REITs are highly sensitive to the interest rate environment, they're effectively bond substitutes on the equity side. They are enormous users of capital," says David Toti, a REIT analyst at Cantor Fitzgerald. "A change in rates impacts their cost of capital, and it impacts their ability to acquire aggressively."

(Read More: Reverse Mortgages Backfiring on Seniors)

As America's population ages, the hard sell is on for reverse mortgages. Promising happier days ahead, the former "Fonz," actor Henry Winkler, is giving the hard sell in relentless television ads. But the housing crash and the fiscal state of today's seniors are causing many of these loans to backfire.

Reverse mortgages were originally designed for seniors who wanted to take out their home equity to spend during retirement. Unlike a regular mortgage, they require no monthly payments, and the borrower can take out a lump sum or receive regular payments.

(Read More: Home Prices Jump to Seven-Year High)

"The wealth in the home is, in most cases, wealth that is sitting idly when people have a hard time making ends meet on a day-to- day basis, so having access to that allows people to basically tap that cash to pay needs or to do more comprehensive financial planning," said Peter Bell, of the National Reverse Mortgage Association.

Home prices continue to rise well beyond expectations, taking their biggest jump in April since February of 2006, when housing was booming.

Prices nationally increased 12.1 percent in April from a year ago, according to the latest reading from CoreLogic, a real estate data and analysis provider. This includes prices of distressed homes. On a month-over-month basis, prices rose 3.2 percent.

Even without distressed sales in the mixed, either short sales or foreclosures, home prices rose 11.9 percent. Prices nationally, including distressed sales, are still down over 22 percent from their peak in April of 2006.

A sharp rise in mortgage rates over the last few weeks means it may already be too late for many homeowners to benefit from a refinance.

This just as thousands were gaining equity in their homes and finally becoming eligible.

At the same time, it is pushing some renters off the fence, fearing they too will miss the boat on the best conditions for home buying.

Home prices saw their largest annual gains in six years reaching double digits on a widely watched monthly report.

Prices in the nation's top ten and top twenty markets rose 10.3 percent and 10.9 percent in March from a year ago on the S&P/Case-Shiller Home Price Indices.

These are the highest annual returns since 2007 for the two. Nationally prices rose 10.2 percent annually in the first quarter.

(Read More: Boom Is Back: Home Prices Jump Most in Seven Years)

"We are still coming off the bottom," said S&P's David Blitzer. "Right now they're healthy, if we go far beyond this, we're talking in six months or a year from now, twenty percent gains. Then I think we start getting worried about bubbles again."