Even though rates on 30-year, fixed-rate mortgages dropped slightly this week they are still above 6% for the third week in a row. Freddie Mac reported Thursday that the 30-year rate was down to 6.05% from 6.06% the week before.

Frank Nothaft, chief economist at Freddie Mac said, “The housing market is still struggling amid falling house prices and stricter lending standards. Coupled with higher delinquency and foreclosure rates, a smaller share of families own their homes this year.”Meanwhile, average rates for the 15-year, fixed-rate mortgage went the other direction - up. They rose slightly to 5.60% from 5.59% last week.

5-year, adjustable-rate mortgages were also down to 5.67% from 5.73% last week. One-year, adjustable-rate mortgages remained the same at 5.29%.

Due to the recent housing crisis foreclosures are estimated to reach 2 million by the end of next year. And that is causing bankers to rethink the way they set mortgage rates.

Previously there was a great divide of people that had a credit score of 600 or better and those that did not, but now the up-front fees are gradually varying based on credit scores. And some experts are saying that mortgage points may soon start resembling home owners insurance more than anything with factors such as the material of your house, whether it’s in a trendy neighborhood and its replacement cost coming into consideration.

Also being included in the up-front point consideration is the size of your down payment, your employment history, the house’s history and anything else that might affect repayment of the loan. Besides that you could be charged higher interest rates if you choose to live in a less up-and-coming neighborhood or the color of your house is bright pink.

This could be good news for you though if you have excellent credit records and conventional taste as it will most likely pay off in the form of lower than average interest rates and better mortgage terms. For now, credit scores matter the most, and the higher your score is, the lower your rate and fees will be.

Transunion.com released their analysis of trends in the fourth quarter for the mortgage industry recently. The report, the third in an ongoing series, said that the national average of mortgage debt per borrower fell from the previous quarter by almost 4%, with only 2 states showing an increase - Hawaii and Alaska. On the other hand mortgage loan delinquency was up almost 17% from the previous quarter at an average of 2.99%.

Keith Carson, a senior consultant in TransUnion’s financial services group said, “The market continues to see the effect of the mortgage crisis in the steeply increasing mortgage delinquency rates among borrowers across the country.”This trend is forecasted to continue rising throughout the rest of the year up to 4% or more by the end of 2008. The reasons for this include a lull in economic activity and the consequences of the mortgage crisis. Fortunately, things are expected to get better in 2009 as home prices stabilize and economic conditions improve.

The interest rate cuts made by the Federal Reserve over the past months have helped keep adjustable-rate mortgage increases modest, but it may not be all the housing market need.

Although the loans are adjusting by only 1% on average, loan defaults and foreclosures are still rising. Many industry experts believe this is because of falling house prices and not just the payment shocks associated with adjustable-rate mortgages.
With the falling house prices, many borrowers owe more on their homes that their homes are worth, especially after making little to no down payments or taking second mortgages.

And in the end, payments are still going up for these borrowers, even if it isn’t as much as it was previously.

According to Freddie Mac, inflation fears is the reason for mortgage rates rising this week after staying virtually the same for the past three.

30-year, fixed-rate mortgages jumped to 6.03% from 5.88% last week. 15-year, fixed rate mortgages were also up to 5.62% from 5.40% last week according to  Freddie Mac.

Frank Nothaft, Freddie Mac vice president and chief economist said, “Average rates on mortgages increased across the board this last week as the most recent economic data raised inflationary concerns in the capital markets.”

5-year, adjustable-rate mortgages also rose to 5.68%, up from 5.48% last week. And one-year, adjustable-rate (ARMs) saw a rise to 5.28% from 5.10% last week.

 The Bank of England has also released a plan to help British homeowners facing difficulties due to credit costs. The Chancellor of Exchequer, Alistair Darling, announced that the plan would swap government bonds for mortgage backed securities.

Darling said in an interview that this move would, “unfreeze the situation we’ve got at the moment. What the Bank of England will do is in effect lend the banks that money. In the meantime, the Bank of England will take a security.”

By offering commercial lenders government bonds, the central bank will add to their inventory of liquid assets and make it easier for them to both raise cash and lend, especially to consumers seeking mortgages. In return, the government will hold riskier mortgage-backed assets as security.

Freddie Mac has announced that it will begin purchasing jumbo conforming loans, which can be up to $729,750, as part of the Economic Stimulus Act. The Act temporarily raises Freddie Mac’s conforming loan limit from $417,00. However, the purchases will be limited to 224 high cost markets where the median home prices are higher than the original loan limit.

The companies Freddie Mac intends to buy the jumbo mortgage loans from include Wells Fargo & Co., JPMorgan, Chase & Co., Citigroup Inc’s Citimortgage and Washington Mutual Inc. And Freddie Mac will be allowed to buy mortgages from July 1, 2007 and forward.

Freddie Mac reported that 30-year, fixed-rate mortgage rates stayed the same this week at 5.88%, which is where they’ve been for the past 3 weeks.

Other rates, however, dropped a little bit this week. The 15-year, fixed-rate mortgages were at 5.40% from 5.42% last week. One-year, adjustable-rate mortgages dropped to 5.10% from 5.18% last week. And five-year, adjustable-rate mortgages fell slightly to 5.48%, down from 5.56% last week.

Frank Nothaft, Freddie Mac vice president and chief economist said in a statement, “Interest rates for fixed-rate mortgages held relatively steady for a second week, while ARM rates continued to decline amid market speculation that the Federal Reserve may cut rates again at its upcoming committee meeting.”

While many mortgage holders have already experienced the inability to pay higher monthly mortgages due to adjustable-rate loans resetting, it appears many more are still to come. Many companies are estimating that the peak of resets will happen around May and June which will cause a large number of homeowners to default and/or foreclose on their mortgages in the third and fourth quarters of this year.

Foreclosure filings include default notices, auction sale notices and bank repossessions. MArch’s foreclosure rate signified the 27th consecutive month of increases in national foreclosure filings from year to year.

Nationwide, 51,393 properties have been repossessed by the banks, often without a public foreclosure auction And another estimated 750,000 to 1 million bank owned properties are thought to be back on the market this year due to foreclosure.

This trend actually creates more foreclosures because when resets occur, homeowners previously would have refinanced at lower rates to be able to afford their homes. Now, however, lenders are making it more difficult to obtain loans with lower rates because the home values have dropped. And the other solution - to sell the home- isn’t viable either. Not with so many houses on the market these days.

A recent trend known as the “walkaway” trend, where homeowners simply stop making payments and then send the house keys back to the lender, has drawn a warning from Fannie Mae, one of the largest sources of mortgage lending in the U.S.

Fannie Mae sent out new guidelines at the end of March that addresses foreclosure situations, including the “walkaway” scenario. Beginning now, Fannie Mae will prohibit foreclosed borrowers from obtaining another loan through their company for 5 years unless “documented extenuating circumstances” exist. In those cases, the mortgage prohibition is for three years.

Even after those five years pass getting a loan will be no mean feat. If you have a foreclosure in your file, you will be required to make at least a 10 percent down payment and you need a minimum FICO credit score of 680.

There are many bad reasons for walking away from your home loan including having your credit standings wrecked and federal income tax liability. And when you apply for a loan from either Freddie Mac or Fannie Mae the standard application form asks whether you have ever experienced a foreclosure or handed over a deed in lieu of foreclosure. If you check “yes,” the loan is immediately shifted to manual underwriting which mean that every single piece of information is scrutinized by underwriters.

If you face real hardships such as a loss of employment that led to foreclosure then you’ll receive more sympathy from the underwriters. But, if you simply”walked away”, you may find yourself unable to get a new home loan down the road. The best option is to talk about your situation with your lender and try to work something out.