The number of mortgage borrowers behind in their loans dropped during the three months ended Sept. 30 to a seasonably adjusted 9.13%, according to a report released Thursday by the Mortgage Bankers Association.

However, that only includes loans that were at least one payment past due, not loans that are in the foreclosure process. The number of foreclosures started — which happens typically after a borrower is 90-plus days late — rose to 1.34% of all loans from 1.11% a quarter earlier.

“Delinquency rates dropped pretty sharply,” said Michael Fratantoni, MBA’s vice president of research and economics, “mostly from a reduction in 90-plus days late category. That represents a move to the next category of delinquency — foreclosure starts.”

So while overall delinquency rates are improving, it’s only because foreclosures are being pushed through the pipeline faster.

“The foreclosure starts rate increased for all loan types and the foreclosure starts rate for prime fixed loans set a new record high in the survey, as more loans entered the foreclosure process,” said Fratantoni.

Loans very seriously delinquent can sit in the pipeline for months, contributing to the high delinquency rates quarter after quarter. If they exit quicker, it shows up in improved delinquency rates.

The foreclosure rate for prime fixed loans set a record high at 1.12%. That high rate for the safest loan category is an indication that the main causes of mortgage payment problems have continued to shift since the mortgage meltdown began back in 2007.

In the initial stage of the crisis, toxic subprime loans were the driving force behind the high default numbers. These were mortgages that were often unaffordable to begin with, their borrowers dependent on soaring home prices, which added value to their homes, to make them work.

Now, more fundamental economic issues, especially job losses, are the main causes of delinquency.

The economy is unlikely to improve substantially over the next few months, according to Fratantoni, and job growth will be sluggish. The MBA is forecasting that the unemployment rate will be around 9.5% through to the end of 2011.

“So much depends on the job market,” Fratantoni said. “And while we’re getting some job growth, it’s still weak.”

The robo-signing scandal, which broke in September and involved problems with filings of foreclosure related documents, had little or no impact on the MBA’s delinquency statistics; it simply came too late.

But, by delaying foreclosure starts as the banks sort out all the problems, it could well increase foreclosure inventory numbers in the fourth quarter of 2011.  

Thanks to new federal rules, reverse mortgages don’t have to sting as much at the outset. Previously these loans — which let owners 62 or older borrow against their home and don’t have to be paid back until the owner moves or dies — always carried high upfront fees.

A new option, called a HECM Saver, cuts the initial insurance premium — one of the biggest costs — from 2% to 0.01% of your home’s value. On a $400,000 home, that means paying $40 instead of $8,000.

Another welcome change: more thorough mandatory counseling for potential borrowers, which is designed to make sure you really need a reverse mortgage, understand it, and can afford to stay in your home even after taking out the loan.

Banks are also cutting deals on fees, which can add up. The traditional reverse mortgage, called HECM Standard, still carries that 2% upfront premium. On all types of these loans, origination fees can hit $6,000. And you’re on the hook for closing costs, including an appraisal and title insurance.

But today some lenders will pay more than half of the initial premium and waive origination fees, says John K. Lunde of analytics firm Reverse Market Insight. Start your shopping at the lender directory at reversemortgage.org.

The new fee structure could make reverse mortgages appealing to far more homeowners. Up to now the high upfront fees have turned off most seniors the majority of borrowers use the proceeds to pay off a regular mortgage.

The HECM Saver, says Barbara Stucki of the National Council on Aging, “puts conventional wisdom on its head.” For example, reverse mortgages let you opt for a line of credit. With no credit check needed and potentially lower fees than on a HELOC, the loan could be the best way to set up an emergency fund.

Picking the right loan remains tricky. Do you want a lump sum (with a variable or fixed rate?) or the variable-rate credit line or monthly payment options?

The new HECM Saver adds another wrinkle: The amount you can borrow a function of your age and your home’s value is lower than it is with a HECM Standard. A 65-year-old in a paid-off $300,000 Illinois home could net $182,000 with a traditional loan but only $146,000 with a HECM Saver, according to MetLife Bank. To see your options, visit AARP.

You may not feel a cash pinch now, but someone will later. No matter what kind of reverse mortgage you take out, you’ll be charged not just interest but also a 1.25% annual insurance premium on the outstanding loan balance (up from 0.5%).

You don’t have to pay interest and premiums during the life of the loan (you are still responsible for taxes, homeowners insurance, and maintenance, though). Instead, the bill comes due when your house is sold. So your heirs will collect some cash only if the sales price is higher than the loan balance and total lifetime fees.  

Rates on 30-year fixed-rate mortgages (excluding jumbos) hit an average of 4.3% in September, the lowest level since 1953, according to Freddie Mac, and are still hovering below 4.5%.

Fifteen-year rates are even more mouthwatering: 3.8%. Mind you, those are averages. The most creditworthy borrowers can do even better, snagging rates perhaps a quarter of a percentage point lower.

So what’s in this for you? A lot, potentially. If you have a credit score of 720 or higher and at least 20% equity in your home, you might use these crazy-low rates to shorten your mortgage term, free up cash, or even add to your real estate holdings, for example.

Whatever you decide, don’t wait too long.

“The consensus is that rates will gradually move up in the new year,” says Frank Nothaft, chief economist for Freddie Mac. Freddie projects that the average 30-year fixed will hit 5% by the end of 2011.

It’s easy to see why more than a quarter of borrowers today are choosing a 15-year mortgage, according to analytics firm Core-Logic, up from about 9% in 2007. A 15-year lets you save in two ways: You get a rate that’s about half a percentage point lower than that of a standard 30-year, plus you can save tens of thousands by retiring the loan in half the time.

Let’s say you took out a $270,000, 30-year mortgage at 5.9% when you bought your house in 2005. You’re paying $1,596 a month in principal and interest and now have a $250,000 balance.

Let’s further assume that you roll $5,000 in refinancing costs into a new 15-year mortgage at 3.8% (so the loan is for $255,000). Your new monthly payment will be a heftier $1,860, but you’ll save more than $147,000 in interest over the life of the loan.

What if you can’t manage the bigger monthly bite? Refi to another 30-year and simply pay more in months when you’re able to, assuming you’re disciplined enough to actually follow through with that plan.

Given that few new mortgages carry prepayment penalties anymore, kicking in extra money shouldn’t be a problem, says Keith Gumbinger, vice president of mortgage data tracker HSH Associates.

Caveat: If you have only a few years left on your current mortgage, or you plan to move soon, a refi may not pay off. Calculate how long it will take to break even on your closing costs, up to three years is typical.

Freeing up cash may be your biggest priority right now. Maybe you’re trying to replenish your emergency fund after being out of work, or you have lots of high-interest credit card debt to pay off.

Maybe your twins got into Harvard, and you need to cover some of the tuition out of current income. Or maybe you see enough investment opportunities around that you want to lower your monthly payment and invest the difference.

In those cases, choose a 30-year loan. Using the previous example, if you refinance to a $255,000 30-year at 4.4%, you’ll lower your monthly payment from $1,596 to $1,277.

True, you won’t save nearly as much in interest as you would with a 15-year. But that’s not so bad, says Matthew Keeling, a certified financial planner in Mashpee, Mass., as long as you do something smart with the extra $319 a month you’ll save.

Do your retirement plans call for moving to a house near the beach or a cabin in the mountains? If you can afford another mortgage payment, you may want to start your search now, while rates are in your favor and prices are depressed. Ditto if you’ve been wanting to buy a second home or an investment property, says Jonathan Bergman, vice president of Palisades Hudson Financial Group in Scarsdale, N.Y.

Assuming you’re buying the place as a true second home, lenders generally charge the same rate they would for a primary residence. But if you intend to rent the place out, even if just for a few years until you retire and you need rental income to qualify for the mortgage, it’s considered an investment property.

And mortgage rates on investment properties are running about a half to a full percentage point higher. Still, the numbers are “pretty compelling,” says Justin Krane, a certified financial planner in Los Angeles.  

To cement the deal, the Holicks stepped up with a $9,700 gift to cover a 3.5% down payment, FHA loan fees and closing costs on a $107,000 condo. Katie’s monthly payment including condo fees is $886, about what she would have paid in rent.

“We figured now, when she’d have a reasonable chance of finding something she could afford, was the right time to help,” says Ken.

With home prices and mortgage rates appealingly low and no-money-down loans nowhere to be found, more young adults are turning to family to get into their first home.

Over the past year, 36% of first-time buyers got help with their down payment from family or friends, typically parents, according to the National Association of Realtors, up from 28% the previous year.

If you want to give your child a leg up on a home purchase, first make sure you’re on track to hit your retirement goals, says Scarsdale, N.Y. financial planner Jonathan Bergman. Then you’ll need to figure out whether you want to give her the money, extend a loan, or cosign the mortgage. Use the guidelines below to help you decide.

• You want to chip away at your estate. Right now, you and your spouse can each give $13,000 tax-free per year to your child (and another $13,000 each to his or her spouse). A larger gift will simply count against your $1 million lifetime gift-tax exemption, so you still may not have to pay gift taxes, says Morristown, N.J. financial planner Chris Cordaro.
• He’s just shy of 20%. If your child has, say, $38,000 to put down on a $200,000 home, kicking in a couple thousand dollars means he won’t have to pay for private mortgage insurance.
• You can have an open family discussion. Your other kids should know that you are providing this aid, whether you intend to help them in a comparable way, and if not, why you made that decision.

How to do it: Today’s tighter lending rules mean your child must be able to prove he’s had the funds in the bank for at least 90 days before he applies for a loan. If you don’t want to hand over the cash that early, be prepared to show that you’ve had the money in your account for at least 60 days.

The bank wants to make sure you didn’t borrow on behalf of your child, says Bill Howe, a mortgage broker in Scottsdale. The bank will also require a letter stating that you don’t expect the loan to be repaid.

• She can pay you back and still qualify for a mortgage. Rules prohibit family loans on the 3.5% down payment needed for government-insured FHA mortgages. For conventional mortgages, lenders typically allow parents to fund only half to three-quarters of a 20% down payment, says San Francisco mortgage broker Edward Craine. The bank will also want your child’s monthly debt payments — including the mortgage, the loan to you, student and car loans, and credit card payments — to be less than 40% of her pretax income.
• You’re prepared to lose the money. Your kid may fully intend to repay you, but her ability to do so could change quickly if, for example, she loses her job or has to move suddenly. “As a parent, you are typically the last one in line to get paid,” says Cordaro.

How to do it: If your child needs only a few thousand dollars, your estate planning attorney can draw up a personal-loan agreement. Or use a lending website such as virginmoneyus.com (cost: $100 and up).

For a larger loan that would allow your kid to deduct the interest, get a formal mortgage (at least $300). You’ll need to pay taxes on the interest you collect and charge at least the IRS’s minimum rate, which changes monthly and runs from 0.35% to 3.35% today, depending on the length of the loan (go to irs.gov and search for “Applicable Federal Rates” — you want to use the plain AFR rate).

• Your child has no other way of getting a loan. Cosigning is risky. After all, you’re on the hook for the mortgage if your child runs short of cash. But it might make sense if your kid is, say, in grad school and already has a job lined up, or has a solid but sporadic income that would disqualify him from getting his loan approved.

No matter how you end up helping your child, keep in mind that your check doesn’t entitle you to pop by Junior’s abode unannounced whenever you feel like it.

Says planner Bergman: “Ultimately it works best if the aid comes with no strings attached.”  

Homes in foreclosure sold for 32% less than homes not in foreclosure during the third quarter, according to a report released Thursday by RealtyTrac. The biggest average discount for any state was in Ohio, where foreclosures went for 45% below non-foreclosure sales.

That was, according to company CEO James Saccacio, the biggest disparity since late 2005.

“With foreclosure sales, you have highly motivated sellers,” said Daren Blomquist, a spokesman for RealtyTrac.

The deals were even better for buyers who picked up a home that had been repossessed by the bank (known as REOs in industry lingo). Prices on the nearly 114,000 REOs sold during the quarter were a whopping 41% lower on average than non-foreclosed homes sold.

That means you could get a $200,000 house for $118,000.

Blomquist said less-than-mint conditions of many REOs was a major factor in their lower prices.

That said, it may be telling that the average price of homes sold rose 6.4% from the previous quarter to an average of about $250,000, while distressed property prices fell 2.5% to $170,000.

The foreclosure discount may have ballooned because home sales have dropped since the homebuyer tax credit ended and more foreclosures came on the market during the quarter. That meant buyers had plenty of options so homes not priced to move could sit on the market.

“It’s the time value of money,” said Duane LeGate of House Buyer Network, which puts together short sellers with homebuyers. “Banks get an REO, they price it and nothing happens. Costs mount up. They get a low-ball offer and they take it.”

By taking a low offer instead of sitting with the house for months and paying property taxes, heat, utilities and maintenance, they cut their losses. Whereas as regular home seller can often wait for a better offer.

Even with the bargain prices, the number of REO sales completed during the quarter plunged by about 25%. However, overall home sales also dropped, so the market share of foreclosures stayed about the same.

In Nevada, 54% of all homes sold were REOs or short sales. That was the highest percentage of any state but a slight decline from the second quarter, when 56% of sales were foreclosures.

Arizona (47%), California (40%) and Florida (37%) also had high foreclosure sales. More surprising was that they accounted for 35% of all Massachusetts purchases. 

Trick question. Actually, it’s two questions.

Question No. 1: Is now the time to buy?

Question No. 2: Is buying a house a good investment?

The first answer is easy: With a few exceptions, if you have 20% to put down and good credit, now is a great time to buy. That’s been the case all year, and I’d argue that we’re probably closer to the end than to the beginning of the really great time. Let me explain.

Back in January home prices had dropped 28% from their peak. More important, interest rates were at historical lows. By locking in a mortgage for 15 or 30 years on a value-priced home, you were getting an incredible deal, even if home prices decreased. (I took my advice and bought a New York City apartment.)

At the time, I thought that prices and rates were more likely to rise than fall. I was half right: Home values have been inching up since the spring, but mortgage rates, incredibly, dropped further.

By August (the latest numbers available) the median home price had risen 1% over a year ago, but 30-year rates had dropped a half-point to 4.5%. Assuming 20% down and a 30-year mortgage, the total cost of owning a median-priced home is now down $16,000 from a year ago.

Home values may waffle over the coming year, but because Americans take out such large, long mortgages, rates are what really matter. And I am more likely to grow hair than see 30-year mortgage rates drop below 4%. It’s far more likely that rates (and the cost of ownership) will rise.

Now for question No. 2: Is a house a good investment?

First, it depends on what you mean by investment. If your definition is strictly about dollars returned, a house probably won’t be a great use of your capital. If you bought the median-priced house today with 20% down, to recoup your total costs (and I’m not including property taxes and maintenance here) over three decades, the home’s value would have to rise about 3% a year.

That’s likely, but you’ll almost certainly (we all hope) do much better than that in the stock market. The fact is, however, that that’s the normal case for housing; the booms that began after World War II and in the late 1990s were the exceptions.

Of course, there are places where you might do better. I bought my condo in Manhattan, a small island that, by virtue of the business done on it, has a sustained demand for property. And smaller, energy-efficient housing in cities or inner suburbs around San Francisco or Chicago is likely to be in higher demand than big, outer suburban homes with long commutes to Las Vegas or Atlanta.

According to urban and environmental planning professor William Lucy of the University of Virginia, this move toward urbanization in American housing is the reversal of a trend that’s been in place since 1945. Keep it in mind when making your buying decisions.

That said, the key point to remember is this: Buying a fairly priced home at today’s rates may be the best deal you will ever get. And who knows? It may even turn out to be a good investment.  

The number of new private home starts rose in November to a seasonably adjusted annualized rate of 555,000, according to a Commerce Department report. That was 3.9% above revised October figures but 5.8% lower than a year ago.

The numbers were higher than expected. A consensus of housing industry experts surveyed by Briefing.com had predicted 545,000 starts for the month.

New construction has been running at just a fraction of its housing-boom self. At the peak of the market in 2005, more than 2 million homes were built.

“The construction industry is limping along toward the end of a lousy year,” said Mike Larson, a housing industry analyst for Weiss Research.

Larson did glean one positive out of the report — a seven-month high in starts for single-family homes — which came in at 465,000, up 6.9% from October. It was a dearth of multi-family starts that dragged the overall numbers down.

Another indicator of future housing market health, the number of housing construction permits that builders applied for, fell in November. There were 530,000 permits issued, which was down both compared with October (- 4%), and 12 months ago (-14.7%). Permits also came in well below forecasts of 560,000.

For Larson, those negative numbers provided further evidence that, “2011 will be another rebuilding year, if you pardon the pun. There will be no robust recovery for housing as usually happens when coming out of a recession.”

Kevin Brundgart, CEO of mortgage lender RoundPoint Financial, points out that low consumer confidence is playing a role in depressing the housing market, especially for new homes.

“We’ve reached no acknowledged bottom on home prices,” he said. “That has altered buyer psychology a bit. They may not be thinking about investing in homes.”

High inventories of existing homes, including many repossessed properties coming onto the market at low, low prices, has also claimed some of the market share that would normally go to the new construction.

That should only worsen with as many as 12 million mortgage borrowers in danger of losing their homes to foreclosure over the next two years. If even a fraction of those repossessions occur, it will flood the housing market and further lower demand for new homes. 

Sales of previously-owned homes jumped 5.6% in November to an annual rate of 4.68 million, the National Association of Realtors reported Wednesday. The rate was down 27.9% from 12 months earlier, when a homebuyer tax credit helped lift sales to a two-year high of 6.49 million.

The report came in slightly better than expected. A consensus of experts surveyed by Briefing.com had forecast an annualized sales rate of 4.65 million.

Despite low home prices and mortgage rates, the housing market has continued to struggle through the recovery. Existing home sales slowed in October, following two straight months of gains. But those gains came after home sales sank 27% in July, hitting the lowest levels in 15 years.

“This report doesn’t necessarily mean the housing market is getting better,” said economist John Canally of LPL Financial. “We’ve taken a couple steps forward, one step back, and this is a step forward, but next month might be another step back — these things tend to go in fits and starts.”

But Lawrence Yun, NAR’s chief economist, is hopeful that homebuyers will take advantage of improving affordability.

“The relationship recently between mortgage interest rates, home prices and family income has been the most favorable on record for buying a home since we started measuring in 1970,” he said. “Therefore, the market is recovering and we should trend up to a healthy, sustainable level in 2011.”

The inventory of homes on the market dropped 4% in November to 3.71 million units. Canally said inventories are well below their peak, but a level around 2.2 million units is considered healthy.

The median price of all existing homes sold during November was $170,600, up a modest 0.4% from a year ago. About two-thirds of homes sold during the month were in foreclosure, NAR said.

“The fact home prices went up is a good sign and shows that the housing market is continuing a slow recovery,” said Canally. “But home prices are still bouncing along the bottom.”

While Canally said the housing market has a long way to go on its road to recovery, he agreed with Yun that sales are likely to gradually improve in the coming year.

“Banks still aren’t willing to lend, but we’re working down that inventory, the job market is getting better and affordability is at an all-time high,” he said. “And now that we’re six months removed from the homebuyer tax credit there’s nothing pushing the market one way or another, so we’ll get a gradual recovery — no boom and no bust.”