When the federal government bailed out the banks a year ago it was with the expectation that taxpayer money would be recycled back into the economy in the form of more loans. We all know how that didn’t play out according to Washington’s plans.  But now that the recession has been unofficially deemed over and the economy seems to have stepped back at least a few feet from the financial-crisis cliff, are lenders following the script (finally) and opening the spigot? More

You'd think the subprime bust would mean no more mortgages for borrowers with little skin in the game. Well, it doesn't.

While most lenders have tightened standards for down payments — usually requiring at least 10% down and 20% for the best rates — the Federal Housing Administration has continued to offer loans to borrowers putting down as little as 3.5%. On Thursday the House Financial Services Committee is considering whether to boost the minimum down payment requirement to 5%.

I think the move is overdue, especially since FHA mortgage defaults are at a record high and the agency's reserve fund is at a record low. More

Ed Glaeser has some fascinating ideas about cities — why some thrive and others don’t. Raised in New York City, the Harvard economist studies the economic, environmental and emotional forces that shape where we live and the price we pay for our homes. I interviewed Glaeser for the "Minds Over Money" feature that ran in MONEY's December 2009 issue, and we talked a lot about the forces that move real estate prices and what’s next for the housing market. (One of Glaeser's most provocative opinions: He wants the mortgage interest tax deduction abolished.) More

Now that the home buyer's tax credits are back up and running through May, the next bit of housing-related economic stimulus is focused on homeowners who are willing to spend money to make their homes more energy efficient. More

A looming shift in Federal Reserve policy could send the 30-year fixed mortgage to 6% or higher, up from Monday’s rock-bottom rate of 5.02%. For all the hullaballoo about the stimulative impact of last week’s decision to extend the $8,000 First-Time Home Buyer Tax Credit and create a $6,500 credit for current homeowners, a sharp rise in the bellwether mortgage rate could muck up a housing recovery. More

Five personal finance highlights from around the Web:

• FICO, the company that provides the nation's leading credit score, reveals how many points a consumer's credit rating will drop as a result of specific events. LIz Pulliam Weston sheds light on the impact of maxing out a card or making a late payment. [MSN Money]

• Will the McMansion buyers of the future want to live without theater roooms and butler's pantries? Luxury home builders think so. [The Wall Street Journal]

• '"I want to be rich" is not real a goal. And good financial planning requires clear, measurable goals. [The Boston Globe]

• Buffett: Investment opportunity is greater in the United States than abroad. The Oracle thinks the worst of the financial panic is behind us. [Reuters]

• Temporary conforming loan limits won't expire this year. The Federal Housing Finance Authority will extend the limit of $417,000 (up to $729,750 in high-cost areas) through 2010. [Washington Business Journal]

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The lobbyists for the National Association of Realtors sure earned their fee this go-round. Not only did Congress agree to extend through April, 2010 the existing $8,000 tax credit for first-time home buyers scheduled to expire at the end of this month, but now we’re going to all pay for existing homeowners to have a similar tax break.  In the new bill President Obama was slated to sign today — the housing credit legislation was  tacked onto legislation extending unemployment benefits — existing homeowners will be able to claim a $6,500 tax credit if they buy a new home they intend to use as their primary residence.

Congress also decided to swing the door wide open for more Americans to get in on both tax breaks More

Five interesting stories from around the web:

• The U.S. unemployment rate cracked double digits this morning. Clusterstock takes a look at the cities where it is hardest to find a job. [The New York Times, Clusterstock]
• Report: Hundreds of credit cards are still using "unfair or deceptive practices." Cards are upping interest rates, penalties and fees ahead of regulatory changes coming in February.  [MarketWatch]
• Why do so many people fail at making a budget? It's because, according to Wise Bread, they omit a crucial task: Tracking what they spend. Here's a step-by-step guide to getting started. [Wise Bread]
• The National Association of Realtors' seasonally-adjusted pending home sales index rose for the eighth consecutive month in September, but Move.com says it didn't see its usual spike in listings last spring. The site says visitors are browsing, but not buying. [Hot Property]
• Princeton professor Daniel Kahneman discusses attitudes toward gains and losses, and why overconfidence hurts individual investors. [Nightly Business Report]

With the November  30 expiration of the First-Time Home Buyer Tax Credit fast approaching, the wrangling in Washington over whether to extend the program is getting mighty interesting.

In early September, Senator Johnny Isakson, the patron saint of the National Association of Realtors (and a guy who made his fortune selling real estate) teamed up with Senator Christopher Dodd to back a plan that would increase the current $8,000 credit to $15,000, make it available to all homeowners (not just first timers), and double the income-eligibility rules. More

Mortgage rates are below 5% again. But they might not stay that way for long — even though the Federal Reserve reaffirmed its ridiculously low, 0% to 0.25% target for the federal funds rate.

Yes, it's great for borrowers that the Fed kept its target rate so low. But the text you should really care about is this little tidbit from the Federal Open Market Committee's policy statement:

"To provide support to mortgage lending and housing markets and to improve overall conditions in private credit markets, the Federal Reserve will purchase a total of $1.25 trillion of agency mortgage-backed securities and up to $200 billion of agency debt. The Committee will gradually slow the pace of these purchases in order to promote a smooth transition in markets and anticipates that they will be executed by the end of the first quarter of 2010."

More

It's not shocking that the National Association of Realtors is working hard to have the $8,000 first-time home buyer tax credit extended past its current December 1st expiration. But what is surprising is how little public discussion there is of the downside of this extension.

It's a full-court press from the NAR: The powerful trade association has its lobbyists pushing the case on the Hill, and it's asking its members to get the message out too. In a video featuring member Realtors talking up the virtues of the credit, the NAR includes a message superimposed on a wave of stars evoking the U.S. flag: Congress: Don’t Let America’s Real Estate Recovery Expire.
More

When the Obama Administration announced the Making Home Affordable program in February, it estimated that the refinancing part of the program, known as HARP, could help as many as four million to five million homeowners with little or no equity (and even up to 5% underwater) refinance into less costly loans. So far it hasn’t exactly played out to expectations. Through July just 60,000 or so homeowners have landed a refi through HARP.

That makes it unlikely that HARP will come anywhere close to delivering on the administration’s goal by the time the program’s current authorization runs out in June 2010. (Its sister program, Home Affordable Modification Program, or HAMP, is authorized through 2012.)

While Treasury has the power to extend HARP past next year's deadline — which won't really help unless Treasury can also arm-twist lenders into doing these deals — a handful of other crisis-induced rule changes will need  Congressional action to be extended beyond this year. More

It's Friday — time to catch up on some of the week's most interesting, and sometimes puzzling, news in the world of personal finance.

1. Thought you had health insurance? Hah! The Washington Post ran a great story Monday about how insurance companies have canceled the health insurance policies of thousands of people after those policyholders have filed for claims related to expensive medical problems. The cancellations, known in the trade as "rescissions," are ostensibly justified by policyholders' failure to disclose previously existing medical conditions — think of someone who survives a heart attack who doesn't admit to cardiac problems when applying for health coverage the following year. The problem, according to the Post, is that rescission has become not only a tool for fighting fraud, but an excuse for insurance companies to weasel out of paying claims. One such case: After a woman filed a claim for emergency gallbladder surgery, her attorney alleges, her health insurer canceled coverage for her and her husband because he had failed to mention his high cholesterol. More

Five months after launching the Home Affordable program designed to keep millions of Americans from losing their homes to foreclosure, the Obama administration had to summon mortgage executives to D.C. in late July to ask: What gives? So far, 230,000 loan modifications are up and running. That represents just 15% of the homes that were hit with foreclosure filings in the first six months of 2009 according to RealtyTrac, and comes on the heels of 2.3 million properties that received foreclosure notices in 2008.

The magnanimous explanation is that the mortgage industry simply needs time to get its systems and personnel up to speed on processing applications. The less magnanimous take, as reported in the The New York Times, is that mortgage servicers have plenty of financial incentives to drag their heels.

For all its public jawboning, the administration nonetheless insisted that Home Affordable is “on pace” to help millions of homeowners over the next three years, and set a public goal of having 500,000 loan modifications up and running by November.

But at the same time there seems to be growing acknowledgment that foreclosure prevention is just one part of the equation. Attention is now shifting to what to do with all the existing foreclosures and the steady stream that is expected to continue flooding the market even if Home Affordable lives up to its goals.

One proposal making the rounds in D.C. is Right to Rent: a program, first floated two years ago by liberal think-tanker Dean Baker, that would allow folks who have lost their home to foreclosure to continue living in the home as a renter.  As Baker sees it, giving the foreclosed the right to rent their home at a market rate for a long stretch (perhaps five to 10 years) is a win-win. The landlord (an investor or bank) gets market rental income, the homeowner isn’t uprooted, property values aren’t further depressed by foreclosure fire sales, and taxpayers aren’t asked to bail out lender or borrower. In mid-July a Treasury official confirmed the administration is mulling the idea.  The House has supplied traction too, recently passing the Neighborhood Preservation Act, which would permit FDIC-insured banks to lease back homes to folks it has foreclosed on. Did you catch that artful spin? This isn’t solely about helping the foreclosed; it’s about protecting your neighboring home’s value.

I’m a bit dubious how this might play out in the real world. First off, determining “market value” rent is going to be interesting. The current thinking is that appraisers will handle that job, and we all know how smoothly things are going in that neck of the real estate world. I’m also curious how homeowners stripped of their equity will respond to sending a rent check to the lender who foreclosed on them. (Or to the investor who buys the foreclosed property from the lender.)  Thoughts?

Real estate appraisers must be feeling pretty picked on. A new Center for Public Integrity report takes on crooked appraisers who, after being banished from their own business, continue suckering unwitting homeowners as real estate agents and as bosses of unregulated appraisal contract firms.

The Realtors and homebuilders are on their case too, claiming appraisers are costing them business by lowballing valuations. (Our readers' comments on that post make for a fascinating debate over what's right or wrong with the appraisal process nowadays.)

There’s been no shortage of bad actors at every phase of the real estate deal, so I wasn’t surprised by the Center for Public Integrity’s report.

The debate over how homes are valued, though, is a big deal because it gets to the heart of why the country’s housing market isn’t recovering very quickly. I live in South Florida, which saw some of the nuttiest increases in home values in the country during boom times and now is suffering through one of the worst real estate markets in the nation. For a while, absolutely nothing was selling; even now, just about the only thing moving are foreclosures and short sales. So forget looking for comparable sales, or “comps” — if you find a recent sale in your neighborhood at all, it probably will be a bargain-basement foreclosure. Go back further and it will be an inflated boom-era deal.

This is the kind of thing driving lenders batty, because even those that want to make loans fear they’ll bet wrong and end up with more junk. For that matter, it’s also driving buyers crazy — is the house worth this much? Or if I wait, will I miss the bottom? And sellers are tearing their hair out, too, wondering why appraisers can't recognize the value they see in their own home.

Appraisal is so much trickier in a declining market, says Knoxville, Tenn. appraiser Leslie Sellers, president-elect of the Appraisal Institute trade group. Anything selling today might involve incentives — the seller pays closing costs or (yes, he has seen this) throws in a John Deere tractor. Maybe the sellers were 10 days from foreclosure and so took any old offer. A good appraiser will spend the time to ferret all this out, Sellers says.

But many of the good appraisers have gone, say industry veterans, tired of getting yelled at by Realtors to fudge values or sick of getting squeezed on the fees. Since the well-intended Home Valuation Code of Conduct (HVCC) took effect, they say, appraisal management firms have become more like appraisal mills, churning out values cheaply and quickly — and often, wrongly. “It’s a race to the bottom,” says Ted Faravelli, executive director of the California Association of Real Estate Appraisers.

On this, the professional appraiser groups and the Realtors agree. But what’s the solution? HVCC isn’t going away, and probably shouldn’t. Will Congress have to act, or is this just another phase we have to work through to get the deals cranking again?