Real estate experts are calling the current housing market “bipolar”, citing the rise in sales and prices on one hand and the hike in interest rates and repossessions on the other.

The final diagnosis: negative in the short term, but turning positive by the end of the year.

According to a CNNMoney article:

One of market’s biggest hurdles is getting beyond the lapse of the $8,000 homebuyer tax credit. Thanks to the incentive, buyers scrambled to beat the April 30 deadline, pushing new home sales up nearly 30% in March.

But that just borrowed buyers from later months. And now we face the hangover effect.

Industry insiders believe the hangover is worthwhile, however, because the credit helped stabilize housing when it most needed help. Home prices have been steadier in recent months, recently experiencing their first year-over-year rise in more than three years.

Still, there are some strong negatives dragging on the market.

1. Interest rates have been intermittently creeping up. Although nobody expects 6% until at least 2011, the days of 4.5% mortgages are behind us.

2. Bank repossessions are on track to surpass a million homes in 2010. But at least foreclosure filings fell in April, the first time since RealtyTrac began reporting.

3. More than a quarter of borrowers are “underwater,” meaning they owe more than their homes are worth.

4. “Strategic defaults” — where underwater homeowners walkway even when they can still afford to pay — accounted for 31% of all foreclosures in March, according to a recent study.

But there is one factor that has experts really scared: homes that are ready to be sold but haven’t been put on the market. Right now, there could be more than 4.5 million homes in “shadow inventory,” according to a recent report by Barclays Capital.

The Mortgage Bankers Association has released its first quarter numbers for mortgage delinquencies and foreclosures and it’s a new record high.

From an AP report:

The number of homeowners who missed at least one mortgage payment surged to a record in the first quarter of the year, a sign that the foreclosure crisis is far from over.

More than 10 percent of homeowners had missed at least one mortgage payment in the January-March period, the Mortgage Bankers Association said. That number was up from 9.5 percent in the fourth quarter of last year and 9.1 percent a year earlier.

More than 4.6 percent of homeowners were in foreclosure, also a record. But that number, which is not adjusted for seasonal factors, was up only slightly from the end of last year.

Jay Brinkmann, the trade group’s chief economist, said the foreclosure crisis appears to have stabilized. Seasonal adjustments may be exaggerating the change from the previous quarter, he added.

“I don’t see signs now that it’s getting worse, but it’s going to take a while,” he said. “A bad situation that’s not getting worse is still bad.”

The number of American homeowners who have missed at least three months of payments or are in foreclosure has surged to around 4.3 million, Brinkmann estimated.

A Harris Interactive online survey from mid-May showed that 59 percent of those surveyed would not consider walking away no matter how much negative equity they had in their home.

The research was conducted on behalf of RealtyTrac and Trulia.com and surveyed 2,596 adults aged 18 and older across the U.S. Other findings according to the survey summary on the RealtyTrac website:

• Only 1 percent of homeowners with a mortgage say walking away from their home would be their first choice if they were unable to pay their mortgage;
• If their mortgage were to go “underwater,” 41 percent would at least consider walking away;
• Most consumers (95 percent) would expect to pay less for a foreclosed home than for a similar home for sale that is not in foreclosure;
• 78 percent of U.S. adults believing there are downsides to buying foreclosed properties compared to 85 percent in May 2009;
• 45 percent of U.S. adults age 18 and above are at least somewhat likely to consider purchasing a foreclosed home in the future, compared to the 55 percent one year ago;
• Renters are showing strong interest in buying foreclosed properties, with 57 percent at least somewhat likely to purchase a foreclosed home in the future.

Read the full results report here.

In a classic case of “too little, too late”, the U.S. Senate voted to ban “liar loans” as part of the financial regulatory reform bill and require lenders to fully document a borrower’s income before approving a loan.

From a CNNMoney report:

This would effectively end the origination of no-doc or stated-income mortgages, which many call “liar loans” because borrowers did not have to prove their income. Housing experts point to these mortgages as one catalyst for the housing collapse.

The bill would also prohibit lenders from giving brokers incentives for steering customers to loans with higher interest rates or prepayment penalties.

“Deceptive mortgage practices like hidden steering payments directly led to the Wall Street meltdown and resulted in millions of families losing their homes,” said Sen. Jeff Merkley, D-Ore., co-author of the bill.

The provisions build on Federal Reserve regulations that required lenders to verify the income and assets of subprime borrowers. Those rules, which went into effect in October, did not ban incentive payments, called yield-spread premiums.

“This should make the mortgage market a safer place for consumers,” said Julia Gordon, senior policy council for the Center for Responsible Lending.

C.A.R. issued an alert last week, warning consumers of a loophole in California law that allows lenders to sue foreclosed borrowers for the difference between the mortgage and property value.

C.A.R. is also sponsoring legislation to close the loophole (Senate Bill 1178).

From the C.A.R. alert:

California has protected borrowers from so-called “deficiency” liability on their home mortgages since the 1930s, but the evolution of mortgage finance requires that the statute be updated. Essentially, it says that if a homeowner defaults on a mortgage used to purchase his or her home, the homeowner’s liability on the mortgage is limited to the property itself. The law has worked well since the 1930s to protect borrowers, ensure the quality of loan underwriting, and allow borrowers brought down by financial crisis to get back on their feet.

Unfortunately, the original law does not extend the protection to loans that refinance the original purchase debt, even if the refinance only was to gain a lower interest rate. Recent years of low interest rates and aggressive marketing campaigns by lenders have induced tens of thousands to refinance mortgages. Few homeowners realized that by refinancing their mortgage, they were forfeiting their protections and now are personally liable.

“Lenders have a responsibility to ensure that borrowers understand loan terms and can meet them,” Goddard said. “SB 1178 puts in place much-needed consumer protections and deserves swift passage by the California legislature next week.”

Is two months a trend?

Bay Area home prices rose again by 5.5 percent from March to April. March saw Bay Area home prices rise 33 percent from February.

While prices were up, sales volume was down – single-family home sales declined by 3.7 percent from March to April in the Bay Area.

From California RealEstateRama:

Redfin today released new data on the San Francisco Bay Area market showing that the median price of a Bay Area single-family home increased 5.5% from March to April. In Marin County, prices for single-family homes jumped 10% in one month, aided by lower interest rates for jumbo loans. Santa Clara County house prices increased 7% month over month and 33% year over year, driven by a shrinking supply of bank-owned properties. House prices in Alameda, San Francisco and San Mateo counties grew by between 1% and 2% month over month.

Sales volume for single-family homes declined from March to April by 3.7% in the Bay Area. Alameda decreased 19%, San Francisco decreased 18%, San Mateo and Santa Clara decreased 5%; in the core Bay Area counties, only Marin County increased, by 5%.

Based on its own brokerage activity in April, Redfin expects May sales to increase in the Bay Area. June sales volume is still hard to forecast, but early-stage traffic and customer-activity metrics so far suggest that June will not be as strong as May.

For the full report, go here.

A federal grand jury in Sacramento has returned indictments in two separate California mortgage fraud cases.

In the first case, five defendants from Elk Grove and Fair Oaks were charged with 11 counts of mail fraud related to their alleged operation of a mortgage fraud scheme. The men changed their names to Muslim names to obtain new credit, according to a report from California RealEstateRama:

The indictment alleges that Glenn Watkins legally changed his name to “Rasheed Khaleb” to fraudulently purchase two homes. Once those homes fell into foreclosure, he legally changed his name to “Jason Johnson.” Likewise, the indictment alleges that Kevin Watkins changed his name to “Jamal Ali” then to “Calvin Carter.” Their uncle, Frederick Davis, allegedly changed his name to “Ammar Rashad,” to purchase a home, then to “Corey Green” once that home fell into foreclosure. Paul Yearby Jr. legally changed his name to “Malcom Ali” in order to execute the fraud scheme.

In the second case, a Roseville man was charged with making false statements to financial institutions on four mortgage applications for two residential properties in Lincoln and Roseville.

Both cases are the result of an ongoing investigation by the FBI and the IRS.

We posted an item last month about the federal government’s plan to give $2.1 billion to 10 states – California is one – to come up with unique ways of stemming the tide of foreclosures.

The California plan has been turned in, and CNNMoney.com reports on the details:

California, which will receive $699 million to help an estimated 38,095 people, is proposing to pay 50% of an unemployed borrowers’ mortgage, up to $1,500, for as long as six months. For borrowers who are able to resume making payments but are saddled with arrearages, the state will cover up to $15,000, or 50%, of the amount owed, as long as the servicer matches.

The Golden State will also pay off up to $50,000 of an underwater homeowner’s mortgage as long as the servicer matches. And, for those who can’t afford to stay in their homes, the state will provide up to $5,000 to help the borrower find new housing.

Borrowers must be delinquent or in imminent default, but have adequate income to sustain modified mortgage payments. They must live in their homes and the loan cannot exceed $729,500.

More than 216,000 homes in California received a foreclosure notice in the first quarter of 2010, which equaled 23% of the nation’s total, according to RealtyTrac, an online marketplace of foreclosed properties.

For the full article, go here.

ForeclosureRadar, an online resource that tracks foreclosure activity across the U.S., reports that California foreclosure filings dropped in April for the first time this year.

From HousingWire.com:

Notices of default dropped 16% from March, after rising 3.75% from February. Default notices also increased 41% from last year, reaching 27,832 in April. The notices of trustee sale declined 10% from March to 30,578 in April. The amount of properties heading back to the bank as REO dropped 5.5% from March but stayed 19% above levels seen last year.

But the inventory of properties in pre-foreclosure or scheduled for sale did not drop as much. Pre-foreclosure inventory includes properties that have received a notice of default but have not been scheduled for sale. Pre-foreclosures dropped 3.17% from March, while the properties scheduled for sale dropped 2.7%.

Foreclosure cancellations, however, continue to increase after passing REO levels in December 2009. Cancellations increased another 11% in April, a sign that foreclosure alternative programs such as the Home Affordable Modification Program (HAMP) and the Home Affordable Foreclosure Alternatives (HAFA) program could be making a dent in California.

“The steady rise in cancellations leads us to believe that loan modifications and short sales are gaining traction” said Sean O’Toole, founder and CEO of ForeclosureRadar.com. “I’d caution, however, that cancellations also occur due to filing errors and extended postponements, which require the notice of trustee sale to be re-filed. In fact, 14.6 percent of new notice of trustee filings in April were on previously canceled foreclosures.”

The Zillow Home Value Index out this week shows that the number of homeowners with underwater mortgages continues to climb, but notes that California home values are on the rise.

The Zillow report said that the percentage of single-family home mortgages with negative equity rose to 23.3 percent in the first quarter of 2010, from 21.4 percent in the fourth quarter of 2009.

From the Reuters coverage of the Zillow report:

U.S. home values in the first quarter were down 3.8 percent year-over-year and down 1 percent quarter-over-quarter, to $183,700, according to the Zillow Home Value Index. It was the 13th consecutive quarter of year-over-year declines.

“Several large California markets have shown significant stabilization in home values, marking what could be a bottom,” Stan Humphries, Zillow chief economist, said in an interview. “But, most markets across the country remained in decline.”

Home values declined year-over-year in 106 of the 135 metropolitan areas tracked by Zillow.

But home values in several large California metro areas — Los Angeles, San Diego, San Francisco, Santa Barbara and Ventura — have risen significantly for at least the past 10 months, up from lows reached in April or May 2009.

Humphries said the government’s recently expired homebuyer tax credits likely only shifted the timing of sales, rather than creating new demand.

Humphries said inventory levels were rising during the first quarter and home values continued to decline at a steady clip, even when the tax credits were still in place.

As a result, national home values are likely to reach bottom in the third quarter, and home value appreciation will likely then be near zero for some time, possibly as long as five years, he said.

The number of homeowners losing their homes to foreclosure across the country rose to a new peak in March, with more than one in every thousand homes, or 0.11 percent, being foreclosed, the highest since Zillow began recording national foreclosure data in 2000.

Foreclosure resales remained high in March, accounting for 22.2 percent of all U.S. home sales. Foreclosure resales made up the majority of sales in several metropolitan areas, including Merced, California, at 66.3 percent; Madera, California, at 63 percent; and the Modesto, California, at 61.7 percent, the reports showed.