AP Home sales

In the midst of the mayhem on Capitol Hill, the Department of Housing and Urban Development today launched the new and expanded “Hope for Homeowners” program.

Given all the mortgage rescue names being bandied about (“Hope Now”, “FHA Secure”, etc.) I’ll just take a moment to remind you about the crux of the Housing and Economic Rescue plan that was signed into law on July 31st. It expands the FHA loan program to back $300 billion worth of loans if the loans are modified and the lenders/owners of the loans agree to write down the principal balance to 90 percent of the newly appraised value of the property. Maximum mortgage amount is $550,440.

I guess that’s good news, if it were not for the fact that mortgage rates have shot up in the last week, thanks to widening credit spreads. Right now the spread is approaching levels of earlier this summer, before the Fannie/Freddie takeover. These are rates not seen since 1986.

So I guess it’s not surprising, given what’s going on (or not going on) on the Hill, that mortgage applications fell off a cliff again last week, for the second week in a row. The Mortgage Bankers Association reports a 23 percent drop in overall volume from the previous week, a 35 percent drop in refis and an 11 percent drop in the purchase index.

• Mortgages and Car Loans Tougher ... Not Impossible
• Mortgage Applications Plunge as Credit Tightens
• Congress Making Progress On Revised Bailout Plan

Let’s face it, nobody really wants to buy a house right now, especially when we’re all losing trillions in the stock market while buying big-ticket items like, well, oh, an insurance behemoth (AIG) and hundreds of thousands of mortgages (Fannie/Freddie).

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