McLEAN, VA -- Freddie Mac (NYSE:FRE) today released the results of its Primary Mortgage Market Survey (PMMS) in which the 30-year fixed-rate mortgage (FRM) averaged 5.25 percent with an average 0.8 point for the week ending February 5, 2009, up from last week when it averaged 5.10 percent. Last year at this time, the 30-year FRM averaged 5.67 percent.

The 15-year FRM this week averaged 4.92 percent with an average 0.8 point, up from last week when it averaged 4.80 percent. A year ago at this time, the 15-year FRM averaged 5.15 percent.

Five-year Treasury-indexed hybrid adjustable-rate mortgages (ARMs) averaged 5.26 percent this week, with an average 0.6 point, down slightly from last week when it averaged 5.27 percent. A year ago, the 5-year ARM averaged 5.21 percent.

One-year Treasury-indexed ARMs averaged 4.92 percent this week with an average 0.5 point, up from last week when it averaged 4.90 percent. At this time last year, the 1-year ARM averaged 5.03 percent.

“Interest rates for fixed-rate mortgages rose this week amid economic reports that were somewhat better than consensus forecasts had anticipated,” said Frank Nothaft, Freddie Mac vice president and chief economist. “The economy slowed by 3.8 percent in the fourth quarter of 2008, less than the market consensus, with inflationary pressures held at bay. Meanwhile, personal incomes fell by only half as much as some market forecasters predicted.

Low mortgage rates and falling house prices have made housing the most affordable in 19 years. The National Association of Realtor's monthly affordability index rose to an all-time record high in December 2008 since records began in January 1971. As a result, pending existing home sales rose 6.3 percent in December 2008 and were up 2.1 percent from the previous December." Today's Local Market Conditions Report

Capitol Hill has been dominated by time-consuming debates over bailouts and stimulus packages. But one controversial subject that could directly affect hundreds of thousands of home owners appears to be on a fast track to passage.

That's the so-called "cramdown" legislation designed to keep financially-distressed owners out of foreclosure. Cramdown means a court can tell a lender: Your borrower may owe you $200,000 on the house, but the property is only worth $100,000 in today's real estate market, so that's all you're owed from here on in.

Take it or leave it. You can't foreclose.

Bills in both the House and Senate would allow bankruptcy court judges to cut - or cramdown - the loan balances owed by home owners, plus reduce the interest rate and monthly payments to affordable levels.

To qualify, borrowers will need to file for Chapter 13 bankruptcy, agree to a court-supervised household expenditures plan for up to five years, and make at least partial repayments on debts to their creditors.

Democrats in both houses of Congress have been pushing this for two years as a way to stem the sharply rising numbers of foreclosures. But until last November's election, they didn't have the votes in the Senate to pass it or the President who'd sign it into law.

Now they do, and the legislation could pass before the end of February.

Not surprisingly, banks and mortgage lenders hotly oppose the whole idea -- and warn that they'll have to raise interest rates on all future borrowers if they can't foreclose to recover what they loaned out.

But proponents of the legislation argue that all other personal assets, except a primary home mortgage, already are subject to bankruptcy court-imposed modifications under Chapter 13.

Even second homes are eligible for cramdowns in bankruptcy proceedings, they say, so why not include primary homes if it will help lower the number of foreclosures?

Though the final version of the legislation still must be negotiated between House and Senate, it's likely it will come with three key features:

First, only mortgages closed prior to the date of enactment will be covered.

Second, all delinquent borrowers will need to contact their lenders and inform them of their intention to file for bankruptcy. That will allow lenders to put together their best offer -- including a reduction of the amount owed and the interest rate -- before the borrower actually files.

And finally, if there is an increase in the value of the house during the five year bankruptcy period, the lender will be owed some portion of it. Today's Local Market Conditions Report

It won't make today's tough underwriting and heavy equity requirements disappear overnight, but active real estate investors should keep their eyes on the Treasury's plans to create what's called a “bad bank” or toxic asset purchase program.

What's a “bad bank”? The one under consideration at Treasury would buy frozen mortgage assets off the books of large and small commercial banks. That in turn would give them the capital they need to lend to all sort of borrowers, including real estate investors.

Most investors -- whether active in rental residential or commercial properties -- have the same frustration right now: Banks simply aren't lending. If they are, the underwriting requirements and terms are deal-breakers.

Even banks that have received buckets of bailout money from the federal government aren't lending on real estate. Part of the reason, the banks say, is that their portfolios are clogged with mortgage-backed securities that nobody wants and that are difficult to value.

They can't raise new capital for new lending without getting rid of these assets. And that's where the “bad bank” idea comes in.

Under one Treasury plan, the FDIC would create an institution -- similar in some ways to the Resolution Trust Corporation that helped with the S&L crisis in the early 1990s -- that would buy these assets and eventually resell them when market conditions improve.

How tough has the credit squeeze on residential and commercial income investment real estate gotten lately?

Last week the Federal Reserve Board released its latest quarterly survey of lending executives and found that 80 percent of ALL banks had ratcheted down their lending standards on investment real estate during the prior three months -- forcing investors to put down far larger equity money up front and pay higher fees.

Those tougher restrictions can be seen throughout the real estate sector. For example, many larger wholesale lenders now require minimum 40 percent and 50 percent downpayment cash -- plus credit scores above 740 - just to qualify for the best terms on a small rental property purchase.

If you can't afford that sort of heavy equity up front, be prepared to get whiplashed with high rates, “delivery fees” and other penalties, because the hard reality is: The banks don't want to lend, or don't have the capital to lend, for real estate.

Sure, Fannie and Freddie and FHA are funding home buyers and refinancers, but the real squeeze is on investors.

Will a “bad bank” or new RTC loosen up the pipeline, as the Treasury claims? That's hard to say, but we'll keep you posted on what develops in the weeks ahead. Today's Local Market Conditions Report