Home prices fell 5.3 pct in July, gov't says

Prices were down 0.6 percent from June on a seasonally adjusted basis, according to the Federal Housing Finance Agency.

The national decline in home values coupled with reckless lending standards during the real estate boom are the driving forces behind rising mortgage defaults and foreclosures. They have spurred a credit crisis that has shaken Wall Street to its core and caused the Bush administration to propose a $700 billion financial industry bailout.

The real estate industry expects more weak news Wednesday when the National Association of Realtors releases existing home sales for August.

The housing agency's director, James Lockhart, suggested Tuesday that mortgage finance companies Fannie Mae and Freddie Mac could loosen lending standards to help more homebuyers qualify for a loan and stabilize the market. The government took control of Fannie and Freddie earlier this month.

"I expect any changes to reflect both safe and sound business strategy and attentiveness to the (companies') mission," Lockhart said Tuesday in testimony prepared for a Senate Banking Committee hearing. He also said that modifying loans for troubled borrowers should be a "high priority."

Over the past year, the companies have tightened requirements and raised fees substantially, making it hard for borrowers with any blemish on their credit reports to qualify for a loan.

Lockhart explained the government had little option but to seize control of Fannie Freddie. Both companies, he said, were unable to raise money to gird against losses without aid from the government.

Without new money, the only other option was to do stop doing new business and shed assets in a weak market. "That would have been disastrous for the mortgage markets ad mortgage rates would have continued to move higher," Lockhart said.

But rates are creeping back up.