In the final three months of 2011, 85 percent of homeowners who refinanced their first-lien mortgage either maintained about the same loan balance or lowered their principal.

Of these borrowers, 37 percent kept the same amount, and 49 percent represented “cash-in” borrowers who lowered their mortgage debt – that’s a 26-year high for Freddie Mac’s analysis.

Long-term mortgage interest rates have set new lows several times since October of last year. This week, Freddie Mac reported yet another record low at 3.87 percent for the 30-year fixed rate.

“Savvy homeowners are taking advantage of some of the lowest fixed-rates in more than 60 years to lock in interest savings,” said Frank Nothaft, Freddie Mac vice president and chief economist.

“Cash-out” borrowers, those that increased their loan balance by at least five percent, represented 15 percent of all refinance loans, the lowest percentage in the 26 years of analysis. The average cash-out share from 1985 to 2010 was 46 percent.

The net dollar amount of home equity converted to cash as part of a refinance, adjusted for inflation, was at its lowest level in 16 years– not since the third quarter of 1995.

In the fourth quarter, an estimated $5.5 billion in net home equity was cashed out in the refinance of conventional prime-credit home mortgages, down from $5.6 billion in the third quarter – and significantly less than during the peak cash-out refinance volume of $83.7 billion during the second quarter of 2006.

The median interest rate reduction for a 30-year fixed-rate mortgage was about 1.4 percentage points, or a savings of about 26 percent in interest rate, the fourth-quarter report said.

Over the first year of the refinance loan life, the median borrower will save about $2,700 in interest payments on a $200,000 loan.

The 30-year fixed rate mortgage slipped to 3.87 percent after setting the previous low of 3.89 last month, according to Freddie Mac.

Economists see mortgage rates at or near their lows for much of this year as the housing market looks for a sustainable turnaround while remaining weighed down by slumping home prices and unresolved foreclosure delays.

State and federal authorities are close to finalizing a massive settlement with lenders to resolve the “robo-signing” of improperly processed foreclosures.

“Most mortgage rates eased to all-time record lows this week as fourth quarter growth in the economy fell short of market projections,” said Frank Nothaft, vice president and chief economist, Freddie Mac.

The Gross Domestic Product rose 2.8 percent in the final three months of 2011, below the market consensus forecast of 3.0 percent, while consumer spending in December was flat.

Sales of new single-family homes fell 2.2 percent in December, topping off 2011 as the worst year on record based on existing U.S. housing data since 1963.

Moreover, 20 U.S. cities saw a combined 3.7 percent drop in home prices for November compared with a year earlier, with 19 of the 20 cities seeing declines, according to the latest figures from the widely cited S&P/Case-Shiller indices.

Here’s Freddie Mac’s overview of mortgage rates:

• 30-year fixed-rate mortgage averaged 3.87 percent, with an average 0.8 point for the week ending February 2, 2012, down from last week when it averaged 3.98 percent. Last year at this time, the 30-year FRM averaged 4.81 percent;
• 15-year fix-rate averaged 3.14 percent, with an average 0.8 point, down from last week when it averaged 3.24 percent. A year ago at this time, the 15-year FRM averaged 4.08 percent.
• 5-year Treasury-indexed hybrid adjustable-rate mortgage (ARM) averaged 2.80 percent, with an average 0.7 point, down from last week when it averaged 2.85 percent. A year ago, the 5-year ARM averaged 3.69 percent.
• 1-year Treasury-indexed ARM averaged 2.76 percent this week, with an average 0.6 point, up from last week when it averaged 2.74 percent. At this time last year, the 1-year ARM averaged 3.26 percent.

However, MasterCard took a $495 million after-tax charge related to litigation with merchants. Not including the charge tied to price-fixing lawsuits, MasterCard beat Wall Street expectations.

Analysts say that reform rules reducing “swipe fees” charged merchants for debit card transactions may help MasterCard better compete against No. 1 rival Visa, which releases its quarterly report next week.

Net revenue for the fourth quarter of 2011 was $1.7 billion, a 20.2% increase versus the same period in 2010.

Domestic and international transaction volumes saw double-digit increases.

Worldwide purchase volume during the quarter was up 15.2 percent, on a local currency basis, compared with the fourth quarter of 2010, to $648 billion. MasterCard also reported an increase in processed transactions of 23.2 percent to 7.7 billion.

As of December 31, 2011, the company’s customers had issued 1.8 billion MasterCard and Maestro-branded cards.

“We are pleased with our strong fourth quarter results as we are seeing sustained momentum driven by new deals and the ongoing shift away from paper-based payments,” said Ajay Banga, MasterCard president and chief executive officer. “For the full year, despite ongoing economic uncertainties, we posted strong performance ahead of our long-term objectives.”

Twenty U.S. cities saw a combined 3.7 percent drop in home prices for November compared with a year earlier, with 19 of the 20 cities seeing declines, according to the latest figures from the widely cited S&P/Case-Shiller indices.

That marks the third straight month of a price decline.  October saw a year-over-year decline of 3.4 percent.

These figures indicate that many homeowners are not seeing the benefits of some positive, although slow to develop, signs of a housing market recovery.

Existing-home sales rose 5 percent to a seasonally adjusted annual rate of 4.61 million in December, from a downwardly revised 4.39 million in November, according to the National Association of Realtors.

Total inventory at the end of 2011 dropped 9.2 percent to 2.38 million – its lowest level since March 2005, the NAR said.

Some recent reports have been mixed. New home sales fell to their lowest level on record at the end of last year. Pending home sales, however, remain above year-ago levels.

S&P/Case-Shiller said the biggest home price declines for November were in Atlanta, Chicago and Detroit, while Phoenix was the only region to show an increase.

“Despite continued low interest rates and better real GDP growth in the fourth quarter, home prices continue to fall,” said David M. Blitzer, Chairman of the Index Committee at S&P Indices. “Nationally, home prices are lower than a year ago…the trend is down and there are few, if any, signs in the numbers that a turning point is close at hand.”

Lending standards and demand for residential real estate loans were also little changed during the fourth quarter. Standards on home equity lines of credit were about unchanged, while demand for such credit weakened overall.

There was a “moderate” easing of standards on all types of consumer loans over the last three months of 2011, the Fed said, while some banks also eased terms on auto loans.  Demand for credit card and auto loans reportedly had increased somewhat, while demand for other types of consumer loans was about unchanged.

U.S. banks had tightened credit in the third quarter of 2011 as Europe’s debt crisis worsened, according to the central bank.

In the fourth quarter, the Fed reported today that there was more widespread tightening of standards than in the previous survey on loans to non-financial firms that have operations in the United States – but with significant exposures to European economies.

However, half of the U.S. bank respondents said they noted an increase in business over the past six months as a result of decreased competition from European banks (or their affiliates and subsidiaries).

Of the 56 domestic banks surveyed – receiving the questions on or after Dec. 21 and responding before Jan. 10 – the Fed said 53 reported lending conditions to big and mid-sized U.S. firms (annual sales of $50 million or more) had remained basically unchanged over the past three months.

Three said they had “tightened somewhat.” This was the first credit tightening since the final quarter of 2009.

On credit standards for small U.S. firms (annual sales of less than $50 million), 50 reported lending conditions remained basically the same, 2 reported tightening standards somewhat and 1 reported a somewhat easing of standards.

Meanwhile, the 23 U.S. branches of foreign banks that were interviewed, which mainly lend to businesses, reported a tightening of their standards.

“Domestic banks reportedly experienced stronger demand for (commercial and industrial) loans from firms of all sizes on net,” the Fed said.

About 50 percent of domestic banks expect a decline in the delinquency and charge-off rates on their commercial and industrial loans – both to large and middle-market firms and to small firms.

“Smaller domestic respondents were more likely to expect improvements in commercial and industrial loan quality this year than their larger counterparts,” the Fed said.

About 60 percent of domestic banks indicated that they expect improvement in the quality of commercial real estate loans in 2012.

However, U.S. branches of foreign respondents mostly anticipated no improvement in the quality of their commercial and industrial loans this year, and only about 25 percent of these respondents forecast improvement in the quality of their commercial real estate loans.

The new “Residential Mortgage-Backed Securities Working Group” had its first full meeting today after a press conference by Holder.

The group is to “streamline and strengthen” other law enforcement efforts of wrongdoing in the “in the packaging, selling, and valuing of residential mortgage-backed securities,” Holder said.

However, Holder would not give any details on the subpoenas.

“Of course, I can’t go into detail about our existing investigations.” Holder said. “But I can tell you that significant efforts are moving forward, by both federal and state authorities.  And I can assure you that, if we uncover evidence of fraud or other illegal conduct, we will bring the appropriate criminal or civil charges.”

President Obama mentioned the new mortgage crimes unit during his state of the union speech this week, vowing to hold accountable those who helped cause the housing market collapse and financial crisis.

“Over the past three years, we have been aggressively investigating the causes of the financial crisis,” Holder said. “And we have learned that much of the conduct that led to the crisis was – as the President has said – unethical, and, in many instances, extremely reckless.”

The size of the new task force is substantial. Currently, 15 attorneys, investigators, and analysts – at Justice headquarters and throughout U.S. attorneys’ offices – are supporting the Working Group, Holder said.  The FBI also has assigned 10 agents and analysts to work with the group.

In coming weeks, another 30 attorneys, investigators, and support staff from U.S. attorneys’ offices will join the effort, he said.

The Commerce Department said that 302,000 new homes were sold in 2011, 6.2 percent below the 323,000 new homes sold in 2010.

Today’s report from the Commerce Department dampened other recent data that signaled positive trends for housing. Even the 30-year fixed mortgage rate jumped to 3.98 percent this week primarily because activity had picked up this month, said Freddie Mac.

On a seasonally adjusted annual rate basis, the number of new homes sold in December was 307,000, a decline of 2.2 percent from the previous month and 7.3 percent below the number sold in December a year ago.

The median sales price of new homes sold in December was $210,300, while the average sales price was $266,000. And based on government estimates, there is a supply of 6.1 months worth of homes for sale.

Before today’s Commerce Department report, there was a string of positive reports:

• New construction of one-family homes rose 4.4 percent in December to an annualized rate of 470,000, the most since April 2010;

• Existing home sales increased 5.0 percent at the end of the year to 4.61 million houses, the largest amount since May 2010;

• Pending home sales in November and December averaged the highest reading since the March and April 2010 period.

Housing market data showed a somewhat positive trend for the end of 2011, helping solidify, at least for now, a bottom for the longest-term rate.

Meanwhile, the Market Composite Index, a measure of mortgage loan application volume, decreased 5 percent last week on a seasonally adjusted basis from one week earlier, said the Mortgage Bankers Association.

The refinance share of mortgage activity decreased to 81.3 percent of total applications, from 82.2 percent the previous week. The adjustable-rate mortgage (ARM) share of activity decreased to 5.3 percent, from 5.6 percent of total applications from the previous week.

Among refinance borrowers n December 2011,  56.6 percent of applications were for fixed-rate 30-year loans, 24.3 percent for 15-year fixed loans, and 5.3 percent for ARMs.

“Fixed mortgage rates ticked up this week as the housing market ended 2011 on a high note,” said Frank Nothaft, vice president and chief economist, Freddie Mac. “New construction of one-family homes rose 4.4 percent in December to an annualized rate of 470,000, the most since April 2010. Existing home sales increased 5.0 percent at the end of the year to 4.61 million houses, the largest amount since May 2010. Furthermore, pending home sales in November and December averaged the highest reading since the March and April 2010 period.”

Here is Freddie Mac’s overview of mortgage rates for the past seven days:

• 30-year fixed-rate mortgage averaged 3.98 percent, with an average 0.7 point for the week ending January 26, 2012, up from last week when it averaged 3.88 percent. Last year at this time, the 30-year FRM averaged 4.80 percent;
• 15-year averaged 3.24 percent, with an average 0.8 point, up from last week when it averaged 3.17 percent. A year ago at this time, the 15-year FRM averaged 4.09 percent;
• 5-year Treasury-indexed hybrid adjustable-rate mortgage (ARM) averaged 2.85 percent, with an average 0.7 point, up from last week when it averaged 2.82 percent. A year ago, the 5-year ARM averaged 3.70 percent;
• 1-year Treasury-indexed ARM averaged 2.74 percent, with an average 0.6 point, matching last week when it averaged 2.74 percent. At this time last year, the 1-year ARM averaged 3.26 percent.

A report by Javelin Strategy & Research finds that new regulations on so-called “swipe fees” – the fee banks charge merchants for debit card transactions – is a primary factor for the confusion.

Cash is the most regularly used payment option with 79 percent of 3,200 consumers surveyed having made a cash purchase within the past seven days. In comparison, about 65 percent of credit and debit card holders say they used plastic in the last week.

Javelin’s report examines how the Durbin Amendment, which reduced the fees banks can charge merchants, has changed purchasing habits since the reform took effect last October.

The biggest banks lost a significant revenue stream as a result of Durbin – an estimated combined $12.2 billion. Banks are reacting by steering consumers toward more profitable credit cards.

Last fall, the banks stumbled in their strategies by attempting to initiate debit card monthly fees. Bank of America proposed – then rescinded – a $5 a month card fee after a widespread and heavily publicized consumer revolt. Other big banks followed suit, abandoning similar plans.

Javelin found that big banks took a “big public relations hit in the last quarter of 2011 when they lost the opportunity to educate their customers” about the new regulations.

As a result, 70 percent of consumers believe that Durbin regulations will actually benefit banks, while only 30 percent believe that the regulations will benefit merchants.

“Consumers love their debit cards, but the majority would choose different payment options if they were charged a fee for using debit,” said Beth Robertson, Director of Payments Research at Javelin.

Javelin data shows that if banks were to implement debit card fees, 32 percent of consumers would choose cash as their payment option, 25 percent would pay with a credit card and 26 percent would switch to another bank that didn’t charge for debit cards, Robertson said.

“Banks should improve their messaging and educate consumers about new regulations so consumers can understand the effects of their payments choices,” Robertson said.

Adding to consumer’s confusion over debit cards the response of small-ticket merchants to the Durbin regulations.

Some have seen their costs for debit card acceptance rise significantly, and these merchants often encourage the use of cash or other payment options rather than more costly debit cards, Javelin reported.

“As a result, consumers are facing a bewildering onslaught of mixed messages about which payment option to use,” Javelin concluded.

The NAR’s Pending Home Sales Index, an indicator based on contract signings, declined 3.5 percent to 96.6 in December, compared to 100.1 in November.

But the index is 5.6 percent above December 2010 when it was 91.5. The data reflects contracts but not closings.

Lawrence Yun, NAR chief economist, said the trend is still positive, although contract cancellations persist.

“Even with a modest decline, the preceding two months of contract activity are the highest in the past four years outside of the homebuyer tax credit period,” he said. “Contract failures remain an issue, reported by one-third of Realtors over the past few months, but home buyers are not giving up.”

Yun said some buyers complete the sale after a contract delay, while others stay in the market after a contract failure and make another offer. Mortgage rates have remained at or near record lows for several months.

“Housing affordability conditions are too good to pass up,” Yun said. “Our hope is lending conditions will gradually improve with sustained increases in closed existing-home sales.”