Since the beginning of the year, major banks have raised over $200 billion in capital, far in excess of the $75 billion of new capital that the government stress tests had called for. The market prices of major bank stocks have recovered dramatically since March, indicating that Wall Street investors see a recovery in the banking industry.

For sale signs haven't been lasting long in Redwood City, an affluent suburb of San Francisco populated with million-dollar homes, waterfront marinas and the corporate headquarters of tech companies like Oracle and Electronic Arts. That's particularly true in 94065 ZIP code, where listed properties on average last only 40 days. Prices are down 15%, but homes are moving.

But as layoffs, rather than risky mortgages, become the main reason that borrowers default on their home loans, foreclosures likely will remain elevated this year and into 2010. Many economists expect unemployment, now at 9.4 percent nationwide, to rise as high as 10 percent, and some project it will exceed the post-World War II record of 10.8 percent.

In the best case, by seizing homes, Fannie and Freddie will turn non-performing loans into cash-producing assets and maintain their properties' value until the market mends. Or it will end up costing taxpayers a bundle if Fannie and Freddie's foray into being landlords goes south.

A side effect of a growing rental program could be fewer foreclosure listings, at least for Freddie, because this pulls homes off the market. Both companies have said they are eager to grow their rental programs.

The foreclosure crisis has saddled plenty of lenders with homes they never wanted to own. As usual, Fannie Mae and Freddie Mac are suffering at a grander scale.

The government-controlled mortgage financiers now own more than one in every nine foreclosed properties, according to data provider RealtyTrac and the companies' recent regulatory filings.

Mortgage Volume Down 8.6% Last Week - Mortgage applications were down last week, with the Mortgage Bankers Association index off 8.6 percent to 895.6 on a seasonally adjusted basis from 979.7 the previous week.

On an unadjusted basis, the index decreased 8.1 percent compared with the previous week, but was up 28.4 percent compared with the same week a year ago.

Refinancing demand has trended down from its mid-April peak, while purchase mortgage demand has increased modestly in recent weeks, even after accounting for normal seasonal increases this time of the year.

The Refinance Index decreased 11.2 percent to 4588.6 from 5169.3 the previous week and the seasonally adjusted Purchase Index increased 0.5 percent to 265.7 from 264.3 one week earlier.

Average mortgage rates showed a slight decrease:

* 30-year fixed-rate mortgages decreased to 4.76 percent from 4.79 percent;
* 15-year fixed-rate mortgages decreased to 4.50 percent from 4.57 percent;
* 1-year ARMs increased to 6.41 percent from 6.36 percent.

Home owners are not aware that the latest government stimulus package gives them a special tax credit of up to $1,500 for making certain home improvements.

Also, if you are buying a primary home and you have not owned a primary residence in the last 3 years, you may qualify for the new $8,000 first-time-homebuyer tax credit. You can’t use the credit to help with your down payment, the credit can be claimed on your 2008 tax returns if you buy the home in 2009.

If you buy the home after you file your taxes on April 15, you can simply file an amended 2008 tax return and the IRS will send you a refund check for $8,000.

The lending industry has been firmly opposed to this approach, saying that cramdowns would raise borrowing costs for everyone. But because of the extended financial crisis, there has been increased pressure on lenders to get behind this program.

"All tools to address the worsening foreclosure crisis are on the table," said Edward Yingling, president and chief executive of the American Bankers Association, the banking industry's main trade and lobbying group.

The National Association of Home Builders, which also has opposed cramdowns, said in an interview with the Wall Street Journal that it too was reversing its position.

Legislation to allow bankruptcy restructuring of individual mortgages was introduced Tuesday in both the House and Senate. Sen. Dick Durbin, an Illinois Democrat and close associate of President-elect Barack Obama, introduced the Senate bill.

If you are shopping for a loan or planning to soon, here are some tips:

Mortgage Hunting Tip Guide - It's imperative to know your rights. - In the past 2 years, state legislators have passed several laws aimed at helping homeowners. Some highlights

Rates on 30-year fixed-rate mortgages averaged 6.47 percent with an a verage 0.7 point, down from 6.52 percent last week and 6.52 percent a year ago. The 15-year fixed-rate mortgage averaged 6 percent with an average 0.7 point, down from 6.07 percent a week ago, and 6.18 percent a year ago.

Five-year Treasury-indexed hybrid adjustable-rate mortgages (ARMs) averaged 5.99 percent with an average 0.6 point, down from 6.02 percent last week and 6.34 percent a year ago. One-year Treasury-indexed ARMs averaged 5.29 percent with an average 0.5 point, up from 5.18 percent last week and 5.6 percent a year ago.

Although mortgage rates are affordable by historical standards, there is continued evidence of weakness in housing, Freddie Mac Chief Economist Frank Nothaft said in a statement accompanying the release of the survey. Housing starts fell to 0.965 million units (annualized) in July, the slowest pace since March 1991, and home builder confidence remained at an all-time record low in August since polling began in January 1985.

"Next week, market watchers will be looking to the release of house-price indices from S&P/Case-Shiller, OFHEO and Freddie Mac for signs of whether home prices may be slowing their descent as recent monthly indices have shown, or whether the observed deceleration was temporary," Nothaft said.

Freddie Mac also reports that rates on 15-year mortgages declined to 4.95 percent from 5.21 percent, rates on five-year adjustable-rate mortgages dropped to 5.13 percent from 5.4 percent, and rates on one-year ARMs slipped to 4.99 percent from 5.26 percent.

Borrowing costs on 15-year fixed products fell to 5.65 percent from 5.73 percent over the week and five-year adjustable-rate mortgages were down to 5.75 percent from 5.86 percent, but one-year ARMs bucked the southward trend by bumping up to 5.46 percent from 5.43 percent.