Many have said we’re in the perfect storm for housing…oversupply of homes, weakened demand and the credit crunch.   We can now certainly add to that the effort by politicians to make their mark on the housing market.

The Associated Press is reporting that  Congress is looking to make changes to the bankruptcy laws so that judges can reduce the amount of the mortgage to help out homeowners.  Everyone of these fixes like this will have some kind of effect that we are not yet aware of.  However, since it’s an election year, politicians from both sides of the isle need to make it look like they are doing something.

I cannot give legal advise as a real estate professional, but it’s my understanding that a bankruptcy is much worse on one’s credit report than is a foreclosure or pre-foreclosure.

If this bill goes through, you can bet we’re going to see aggressive tactics by lawyers to convince homeowners to file bankruptcy so they can collect their fees.

It still seems to me, the best situation that struggling homeowners should pursue is to sell their home in a short sale situation.  Sure they run the risk that the bank might not accept the short sale.  In that case, they could consider going the foreclosure route or in a worst case scenario…bankruptcy.   If homeowners pursue the short sale route, they might also run the risk that their bank might not forgive their debt.  They might also be hit with a tax bill from the IRS.  However, from what I’m hearing, Congress is looking to pass a bill that would get the IRS off the backs of homeowners who have their debts forgiven in a short sale.  Additionally, many banks today are forgiving the debt. Even they realize, sometimes, it’s best just to move on.

The credit markets and housing markets will right themselves eventually.   If Congress wants to have an impact, they should encourage the States to require all mortgage brokers and loan officers be licensed and take continuing education.  While that is not a guarantee to clean up the business, it’s a major step in the right direction without completely fouling up the system.

It’s hard to believe, but people with good credit who would be considered for a prime mortgage are seeing rates as low as 5.75% for a 30 year fixed rate conforming loan. That is absolutely fantastic! If you are stuck with an ARM that is going to adjust in the next few months or even year, you should consider refinancing in to a fixed rate product given these low rates.

On another note, the Mortgage Bankers’ Association released their latest data this week that showed a jump in mortgage applications.

• The four week moving average for the seasonally adjusted Market Index is up 4.5 percent to 706.8 from 676.5.
• The four week moving average is up 3.1 percent to 431.0 from 418.2 for the Purchase Index, while this average is up 6.7 percent to 2342.5 from 2196.2 for the Refinance Index.