Despite recent volatility, the market has held up pretty well this month and appears to have found its footing in the past three days. Clearly, the downturn could've been worse given the headlines coming from Japan, Libya and the Mid-East generally -- not to mention America's ongoing struggles with high unemployment and the bursting of the housing bubble.

Lest you lapse into a false sense of complacency, we bring you Gary Shilling's 5 Things to Worry About:

Click "more" to read the rest of the post.

Editor's Note: The following blog post was written by James Altucher, managing director of Formula Capital, and originally published on his website:  The Altucher Confidential. 

Tell us what you think!

Many people have said to me in the past month, “I’m going to buy a home.” Or, “What do you think of the idea of me buying a home?” I like the second batch of people. They are my friends and it seems like they are sincerely asking for my advice. And I’m going to give it to them. Whether they meant it or not.

I have some stories about owning a home. One of them is here: “What It Feels Like to be Rich” where I describe my complete path into utter depravity and insanity. The other one is still too personal. Its filled with about as much pain as I can fit onto a page. Oh, I have a third one also from when I was growing up. But I don’t want to upset anyone in my family so I’ll leave it out. Oh, I have a fourth story that I just forgot about until this very second. But enough about me. Lets get right to it.

Click "more" to see the rest of the post

It is very important that we wind down Fannie Mae and Freddie Mac at a careful and deliberate pace," Treasury Secretary Tim Geithner said at a hearing on Capitol Hill Tuesday.

Geithner was mainly preaching to the choir: If there's consensus on anything in America these days, it's that "something" must be done about Fannie and Freddie, which have received nearly $160 billion in government aid since 2008.

The problem is there's little or no consensus as to just <I>what</I> should be done about the government-sponsored housing giants.

"They all want to wind them down. There's lot of plans and lots of talk but there's nothing sold out there," says Paul Muolo, executive editor of National Mortgage News and author of Chain of Blame: How Wall Street Caused the Mortgage and Credit Crisis. "It's all theoretical."

The problem with winding down Fannie and Freddie is the GSEs buy about 70% of all mortgages originated in the U.S. and there just isn't enough capital or risk appetite in the private sector to fill the void.

"You can't pull that much liquidity out of the mortgage market without crashing it," Muolo says. "If you crash it, home prices will fall by 50% and we'll be in a worse situation than we were three years ago."

Given that and the political calendar, Muolo predicts there will be a lot of talk but very little action on Fannie and Freddie before 2012, at the earliest.

"They're kicking this can down the road as long as they can," he says.

The number of housing foreclosures are falling. There were slightly more than 225,000 foreclosure proceedings in February, down 14% compared to January, and an even more impressive 27% drop vs. a year ago, according to RealtyTrac.

Good news for struggling homeowners, as more of you are staying in your home. However, this doesn't mean the housing market has turned the corner.  The decrease in foreclosure activity, RealtyTrac says, is likely due to a slowdown in filings because of various lawsuits regarding improper foreclosures by the banking industry.  If anything, the legal holdups are probably just dragging out the process and will prolong any real estate resurgence. 

The housing market remains troubled.  December's S&P/Case-Shiller Index showed a drop in home values across the board. Like Case-Shiller, RealyTrac's data shows the hardest hit areas are still suffering. Foreclosure activity is still highest in Nevada, Arizona and California.

The solution according to Aaron and Henry is to let nature takes its course.  The Obama administration's mortgage modification plan is having little lasting effect.  The principle reduction ideas being floated may help existing homeowners and may aid banks somewhat, but they likely keep prices inflated and dissuade those on the sidelines from buying. (See:
"Pretty Ham-Fisted": Glenn Hubbard Reviews Obama's Newest Housing Fix)

What's the best solution?

• New home sales fell 12.6% in January.
• Mortgage applications are near a 15-year low.
• The Case-Shiller Index has fallen five straight months.
• Foreclosed homes were 26% of total sales in 2010.
• 27% of mortgage holders are under water on their mortgages.

Against that grim backdrop, and with its HAMP program widely viewed as a failure, the Obama Administration is floating a proposal for its latest plan to fix the housing market, The WSJ reports: Force banks to pay for reductions in loan principal for struggling homeowners.

"The administration is looking at the right problem, but in a pretty ham-fisted way," says Glenn Hubbard, Dean of Columbia Business School and the top economic adviser to President George W. Bush during his first term. "The issue with principal forgiveness is that it's very hard to do."

Because of the securitization of mortgages, multiple parties would have to agree to the principal write-downs at the core of the plan -- or risk having contracts and bond covenants wiped out. "This [plan] would really run roughshod over the rule of law," Hubbard says.

According to The WSJ, the cost of the principal write-downs "won't be borne by investors who purchased mortgage-backed securities." In other words, bondholders would get 100 cents on the dollar (yet again).

Barring (yet another) government bailout, the only way to do that would be for the banks to have to cover payments on those securities, Hubbard says. "The problem is the government is also telling banks they need to keep raising equity capital; those two statements are in direct opposition to one another."

How to Build a Better Mousetrap

Hubbard has long argued that the most efficient way for the government to "fix" the housing problem is through "mass refinancings" funded by Fannie Mae and Freddie Mac. (See: Refi Madness: Use Fannie and Freddie to Solve the Housing Crisis, Hubbard Says)

 Because the government has given those reviled institutions an unlimited backstop through 2012, "we're already on the hook for the credit risk," he says. "We've already guaranteed Freddie and Fannie so there's no incremental cost to taxpayers of doing this."

In the accompanying video, Hubbard mentions other potential ways to resolve the housing crisis, including a modern version of the Depression-era Homeowners Loan Corp. or the covered bond model used in Europe.

"It's not that we have to reinvent the wheel ... but we really need to take action now," he says. "Unfortunately I don't see that action coming now. The president would have to lead on a broader set of reforms then he has," at least to date.

Aaron Task is the host of Tech Ticker. You can follow him on Twitter at @atask or email him at altask@yahoo.com

Nearly five percent of home mortgages in the U.S. were in the foreclosure process in the fourth quarter of 2010, matching an all-time high, according to new data from the Mortgage Bankers Association.  Even more alarming, almost 14 percent, or one in seven mortgages, in the U.S. were either in the foreclosure process or had overdue payments in that same time period.

That's obviously bad news for existing homeowners but potentially good news for those in the market to buy. (See: More Homeowners Are Underwater, Now Here's the Good News...)

"Make sure you're not buying off more than you can chew [but] if you were in need of a home and you have the wherewithal to be approved for a down payment then it probably is a good time to buy a house," says John Sauro president of North Atlantic Mortgage Corp.

All those foreclosures are making homes more affordable and the interest rate environment remains favorable. The average rate on a 30-year fixed mortgage slipped to 5 percent from 5.05 percent last week, Freddie Mac reports.  That's up from the 40-year low of 4.17 percent in November but still historically attractive.

Although lending standards are for the most part tougher, Sauro says all kinds of non-traditional mortgage products are still available, at least until Dodd-Frank bill takes effect. He cites a variety of options for prospective buyers, including ARMs (adjustable rate mortgages) and "the no income check loans" which infamously sprouted during the heyday of the subprime era and caused so much heartache.

The main difference between now and pre-bubble days is "you better make sure you've got a great job, money in the bank and great credit scores," Sauro says. For example, the lenders still offering no income loans require "up to 60% of the home’s value and you must have excellent credit and be able to verify cash assets," he says.

So it's not exactly like the go-go days of the housing boom, but if you qualify, "this is a very good time to buy," says Sauro.

Hmm, a mortgage broker saying 'it's a good time to buy'? Some things never change.

The time has finally come for serious talk on how to dissolve the country’s largest home lenders: the government-backed Fannie Mae and Freddie Mac.

Late last Friday – when the world was focused on the resignation of Egypt’s President Hosni Mubarak -- the Obama administration sent Congress a white paper entitled “Reforming America’s Housing Finance Market” laying out its recommendations on how to “wind down” the role of Fannie and Freddie and “dramatically transform the role of government” in the U.S. housing market.

According to the Wall Street Journal, the government suggested these three options which could be slowly implemented over the next five to seven years:

Option #1: The first option puts the vast majority of the mortgage market in the hands of the private sector, where lenders would originate mortgages and securitize them without any government backing.

Option #2: The second option is the same as the first, but would also create a limited government backstop that would primarily become active buying or guaranteeing loans in periods when private lenders retreated during financial shocks.

Option #3: The third option would create new privately owned companies to buy mortgages from banks and sell them as securities. Those securities would be explicitly guaranteed by the government as long as they meet certain criteria.

These government-sponsored enterprises were initially created to offer homebuyers easy and better access to more affordable capital when purchasing a home.  And for decades, Fannie and Freddie did help many Americans realize the American Dream of home ownership.

But times have changed since the financial crisis of 2008, which was spurred by the mortgage industry – Fannie and Freddie included – granting subprime loans with adjustable rates to borrowers who really could not afford to be purchasing a home.

In the last three years, Fannie Mae and Freddie Mac have received roughly $150 billion of your tax dollars to prevent their failure and an even worse collapse in the housing market.

So now, it looks likely that Fannie and Freddie will be dismantled for the same reasons they were created. In a press release, Treasury Secretary Tim Geithner said, “This is a plan for fundamental reform – to wind down the GSEs, strengthen consumer protection, and preserve access to affordable housing for people who need it.”

Critics argue that a world without a government-backed Fannie and Freddie would push up interest rates and make it more difficult for people to access credit for a home loan.

John Sauro president of Connecticut’s North Atlantic Mortgage Corp. is on the other side of this argument. He is a strong proponent of unwinding the GSEs, if done the right way. “If you get the government out of half of the stuff they are involved in, this country we will be a lot better off,” he says.  “I am an advocate of Fannie and Freddie being privatized, but we have to be careful here, you can’t do this overnight and you can’t do it in a way that will further depress real-estate values in this country, which represent a fifth of the GDP.”

Fannie and Freddie were not alone in driving this country into the worst recession since the great depression. They had the help of Wall Street and some of the biggest banks in the country, which not only offered these subprime loans, but bundled them into investment-grade securities.

Sauro believes it is time for these financial institutions – like Wells Fargo, Chase, Citibank, Bank of America and Goldman Sachs -- to step up to the plate and help solve the problem they helped create.

“These big financial institutions have the where-with-all to come in and buy a portion of Fannie and Freddie’s assets and take over that conglomeration called Fannie and Freddie and still issue loans.... The government can still offer a guarantee behind that, albeit temporary, until that organization is profitable.”

There is no incentive for the big banks to do this, so the chances of this happening seem very, very small, as Aaron points out in this interview.

But, as difficult a situation as this is to solve, it does look like some sort of privitization of these mortgage giants could come within the next few years.

FinReg = Monopoly of Housing Market?

Sauro is not a fan of government intervention in the housing market as noted earlier.

As a member of the Government Affairs Committee of The Association of Mortgage Professionals (NAMB), he is currently fighting a provision in the Dodd-Frank legislation that lets the Federal Reserve dictate the fees all mortgage loan officers can charge for their work.

He and NAMB say this will stifle competition and essentially create a monopoly or cartel of the mortgage industry and risks further depressing home prices. “You are going to create a monopoly of three or four banks – a cartel if you will – in this country that is going to dictate the cost of home financing.”

Bad loans, not loan officer compensation created the crisis he says.

To learn more about this issue, visit www.Repealfinreg.com.

Home prices fell another 2.6% nationwide in the fourth quarter of 2010, Zillow.com reported on Wednesday, bringing the median value for a U.S. single-family home to $175,200.

Thanks to those falling home prices, 27% of homeowners with a mortgage were underwater (negative home equity) at the end of the year.  That's 15.7 million homeowners.

Bad news for many reasons, notably because the more underwater homes the more potential for foreclosures.

However, there is a silver lining, as Aaron and Henry discuss in the clip.

1. Falling home prices increases affordability. The newest data shows the housing affordability index hit a 35-year low in some areas in the third quarter of 2010.  In many of those same locations prices are now below the historical average between 1989 and 2003. That's one condition needed to spur buyers into action.

2.  Foreclosures help clear the market.  More foreclosures are bound to equal more pain for individuals that are forced out of their homes.  On a grander scale though,  foreclosures offer value to buyers and offers sellers an exit strategy, even if isn't ideal, just like bankruptcy.  The alternative - we've learned from the failed HAMP program - just postpones the inevitable.

Provided by Business Insider, Tuesday, January 25, 2011:

Gregory White, On Tuesday January 25, 2011, 7:24 am

Good morning. Here's what you need to know:

Chinese indices were lower in overnight trading, while the Nikkei was up 1.15%. Major European indices are mixed while U.S. futures indicate a negative open.

The Case-Shiller Home Price Index is released at 9:00 AM ET. Data is expected to show a 1.6% decline for home prices in November. 

The UK's GDP data for Q4 2010 came in much worse than expected, at negative 0.5%. Expectations were for a positive 0.5%. The result is being partially blamed on the bad weather period during the holiday shopping season. Here are the next dominos to watch for in Europe.

Spain's government announced a weaker bailout of its local banks than was expected, amounting to €20 billion from both the public and private sector. Many were expected a number closer to €80 billion. Here's why Spain is the crisis everyone is scared of in Europe.

India's central bank increased interest rates overnight by 0.25%. The move is meant to combat rising inflation in the country, including food inflation. Take a quick look at the emerging markets inflation that's panicking investors world wide.

Japan has increased its growth outlook for its fiscal year 2011-2012 and its inflation outlook as well. Inflation is now expected to rise at 0.3%, rather than the 0.1% projected in October. Now, prepare for the global economic super-cycle that's going to blow away your wildest expectations.

DuPont beat earnings estimates this morning and raised estimates for the year ahead. Its stock is higher in the pre-market as a result.

LM Ericson, the mobile phone manufacturer, came in with strong earnings and quarterly profits that increased by 10 times year-over-year. The company's shares were up significantly in Stockholm trading.

Russian President Dmitry Medvedev has blamed weak security for the terrorist attack that killed 35 at a Moscow airport yesterday. The group responsible for the attack is currently unknown. Check out the 15 costliest economic and political risks that could wreck the world economy.

Consumer confidence data is released at 10:00 AM ET. It is expected to rise to 54.3. Bonus: Lindsay Lohan and Paris Hilton have been offered $1 million to fight each other in a celebrity boxing match, according to Radar Online.

Foreclosure-gate is back.

The Massachusetts Supreme Court has ruled against U.S. Bancorp and Wells Fargo in a case that could have serious implications for the already depressed U.S. housing market.

The high court found that the banks wrongfully sold two foreclosed homes by failing to show the proper paperwork at the time of the sale indicating they actually owned those homes and had the right to a) foreclose on those properties and b) sell the homes to new owners.

If this decision is echoed in other states, the foreclosure mess is going to get a whole lot messier.

There is already a huge backlog of potential home foreclosures sitting on banks’ books as a result of last year’s “robo-signing” scandal, which forced banks to undergo a self-imposed moratorium on foreclosure proceedings.  It was expected that early this year these foreclosures would eventually go through and the problem would work itself out. (See: RealtyTrac: Foreclosures Drop in November But Will Come Roaring Back in 2011)

Now, the likelihood of that happening is much less.  

In the wake of the court's ruling, there may be increased scrutiny of deals already done. In addition, people may be less inclined to purchase a foreclosure property for fear that it might end in a repossession of the home.

Another freeze on foreclosures may be good for home prices in the short-term, but the long-term outlook seems more grim as RealtyTrac's Rick Sharga told Tech Ticker last fall.  About one-third of all sales are foreclosures sales, and a freezing up of related activity can't help but create a "chilling effect" on the market.

It looks like housing market has a long way to go before it flushes this mess for good. For a more rosy take on the situation, see: Upside Surprise! Whitney Tilson Sees Silver Lining in Foreslosure-Gate

___

Follow Yahoo! Finance on Twitter; become a fan on Facebook.