This post first appeared on Minyanville.

There’s a good amount of buzz surrounding the Wall Street Journal’s piece on the staggering number of homeowners underwater on their mortgages. This, on the same day the Case-Shiller Home Price Index posted its fourth consecutive month-over-month increase.

Mixed signals? Possibly. But in reality, these two seemingly disparate data points suggest that even as foreclosure moratoria continue to keep bank-owned properties off the market — which is artificially limiting supply and creating the illusion of a tight housing market (the supply of existing homes is back to historical norms) — behind the scenes, more and more borrowers are falling behind, and staying that way.

The number of mortgages in the “90+ delinquency but not yet foreclosed” bucket is still growing and the rate of change is yet to slow. The looming backlog of foreclosures not yet completed is growing much faster than banks can (or are allowed to) push them through the system. Lender Processing Services (LPS), a spinoff of Fidelity National Information Services Inc. (FIS) estimates that 710,000 mortgages are more than six months delinquent but not yet in foreclosure. A year ago, that number was “just” 203,000.

So what does all this mean?

While another leg down in housing is certainly in the cards, another cliff-dive isn’t the likely scenario. Rather, a continued slow bleed, with increasing localization as certain markets recover while others languish. Second home and jumbo markets are still under pressure, even as investors feast on low-priced homes in some of the country’s seedier neighborhoods. But as long as the US government dominates the secondary market for mortgages (FHA/Fannie Mae (FNM)/Freddie Mac (FRE)/VA, etc), mortgages will be available to qualified (and unqualified, in the case of the FHA) buyers.

Betting on another all-out collapse in residential housing prices is akin to betting on the bankruptcy of the US government. Could it happen? Sure, but that certainly isn’t the base case.

A much more interesting (and profitable) bet is to find areas that have fundamental (ie, demographic) drivers for demand, and looking for affordable submarkets where demand is strong and not driven by the FHA. Are there a ton of these neighborhoods around? Nope, but they’re out there if you know how and where to look.

This post first appeared on Minyanville.

The Obama administration is busy touting the burgeoning success of its mortgage modification program. Unfortunately, it’s a farce: Out of one side of his mouth, the President touts a dedication to the besieged middle class, while from the other, lauds a loan modification program which steals money from struggling homeowners in favor of banks — already the recipients of billions in taxpayer-funded bailouts.

The ploy would be amusingly hypocritical if it weren’t so sad.

According to the Wall Street Journal, the Treasury Department claims that the Home Affordable Modification Program, or HAMP, has begun more than 650,000 so-called “trial modifications” since its inception this February. The commonplace explanation for the latest in a host of failed mortgage modification schemes is that it’s a natural first step to getting struggling borrowers back on the regular monthly payment track.

HAMP mandates that in order to qualify for a permanent loan modification, borrowers must first complete a trial period of three months with lower payments, in addition to submitting the proper documentation required for a more permanent solution. On the surface, this seems logical, even fair: Only after a show of good faith should homeowners be allowed a second chance.

Lenders like Wells Fargo (WFC), Bank of America (BAC), JPMorgan Chase (JPM), and Citibank (C), however, are required to show no similar evidence of good faith.

And I’ve yet to read a news story that accurately describes how this program works: Even as banks ask borrowers to cough up monthly payments on a house that’s likely to be hopelessly underwater, the foreclosure process continues.

Notices of default turn into notices of trustee sale, which turn into trustee sales, which turn into repossessions and eventually evictions. Meanwhile, as the homeowner is given a false sense of security that scraping together payments each month could save his house, lenders are under no obligation to grant a stay of foreclosure.

In other words, banks determined to take a loan through the foreclosure process can easily — and with Washington’s blessing — grant a trial modification which allows them to pinch a final three months of payments from homeowners already on the verge of financial insolvency, while offering nothing more than an empty promise in return.

To be sure, many of these homeowners got themselves in over their heads by overextending their debt load on an overpriced home. Foreclosure, in some cases, is a reasonable solution.

But an initiative touted as a long-awaited success in the battle against foreclosures is in fact just another way for Washington to redirect money from the pockets of ordinary Americans — however economically downtrodden — to big banks surviving solely by suckling the government teat.

This post first appeared on Minyanville.

It seems that with each passing month, the data gods deliver more and more evidence that the woe begotten US housing market may finally be emerging from its years-long doldrums.

Existing home sales: Up.
New home sales: Up.
Pending home sales: Up.
Home prices: Down, but at a slower pace.

Even a relic from the booming housing markets of yesteryear has reappeared: Bidding wars.

To be sure, multiple-offer situations are concentrated in lower priced markets, but some sales are simply mind-boggling. Here’s a sampling of just how out-of-whack supply and demand truly are in some of this country’s real estate markets:

Costa Mesa, California: Home gets a whopping 68 offers and sells for nearly $100,000 over asking (list price of $399,000, sale price of $495,000).

Manatee County, Florida: Home gets 27 bids, list price $124,000.

Phoenix, Arizona: Home gets 11 offers, sells for 50% above list price (listed at $70,000, sold over $110,000).

Even Canada is getting into the act: A bidding war in Vancouver drove one home up to $1.1 million — almost $300,000 above its asking price.

Talk to most real estate professionals and it’s the same story: Cash-flush investors and first-time home buyers armed with a federal tax credit, low interest rates, and 3% down-payment loans courtesy of the Federal Housing Administration are bidding up properties with reckless abandon.

So it’s settled then — we’re at the bottom, right?

Unfortunately, probably not.

Before we get too excited about these bidding wars indicating a bottom for the broad housing market, it’s important to consider that these situations are heavily concentrated in areas where home prices are low. The trend is far from prevalent in mid-tier and high-end markets.

Lower priced homes are typically easier for investors to flip into juicy returns and require a smaller cash outlay, which opens the playing field to those without deep pockets. Further, cheap homes attract first-time buyers, who can be more easily swayed into bidding above list by commission-hungry Realtors.

In addition, big banks like Wells Fargo (WFC), Bank of America (BAC), JPMorgan Chase (JPM), and Citigroup (C) are still holding back the majority of their foreclosure inventory from the market. This is partly due to the “soft moratoria” ordered by the White House along with banks being reticent to take big losses on homes that have tumbled in value. This is keeping supply low, frustrating would-be buyers into bidding aggressively with so little inventory to choose from.

Meanwhile, as readers of this column should know all too well, higher-end markets continue to struggle, as jumbo mortgages remain a chore to qualify for and down-payment money is nigh impossible to scrounge together for all but the most qualified buyers.

This dichotomy in the marketplace means now more than ever, anyone considering buying a home should live by the over-used adage that real estate is always local. Markets adjacent to one another, separated by nothing more than a school district line, could be headed in opposite directions — and it may be that the “good” area is far riskier than the “bad” one.