I was hoping not to have to write this particular piece, but it seems I may have no choice, so here we go with housing.

What happens to today’s housing market without FHA loans?

Right now FHA loans are about 20 percent of the overall mortgage market (purchases and refis) and 40 percent of purchase applications.

Compare that to around 11 percent of the overall market during the last shutdown in 1995. For the nation’s big public home builders, it’s far more of an impact, according to analysts.

FHA Share of Borrowers:

“We have been alerted that FHA will maintain the ability for lenders to secure case numbers – one of the first steps in originating a FHA mortgage – and underwriting will not be impacted either. However, lenders will be challenged to close these loans during a government shutdown as they will not be able to secure mortgage insurance,” says Bob Walters, chief economist at Quicken Loans.

No FHA, which is really the only low down payment (3.5 percent) game in town for the somewhat less credit-worthy, would hit first time buyers particularly hard:

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Home prices fell 6.7 percent in February year over year, according to a new report from CoreLogic. That numbers includes distressed sales, that is, sales of foreclosed properties or short sales, where the bank agrees to let the homeowner sell for less than the value of the mortgage. If you take those sales out, however, home prices were basically flat.

“When you remove distressed properties from the equation, we’re seeing a significantly reduced pace of depreciation and greater stability in many markets,” notes CoreLogic’s [ CLGX 18.48  -0.33 (-1.75%) ] chief economist Mark Flemming. “Price declines are increasingly isolated to the distressed segment of the market, mostly in the form of REO sales, as the stock of foreclosures is slowly cleared.”

Distressed sales, though, still make up more than a third of all home sales, according to the National Association of Realtors, and that number is likely to rise at least in the near future. The banks have slowed the process of foreclosure, and that has reduced the number of bank owned properties hitting the market lately, but it’s a whole different story with short sales.

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Fewer Americans are falling behind on their mortgage payments; in fact, the fewest in two years. Mortgages just one payment past due (30 days) fell to their lowest level since just before the recession began. Is it delays in paperwork from the so called “robo-signing” (faulty paperwork) foreclosure servicing scandal? No. It’s actual fundamentals in the economy and the mortgage market. Go figure.

“As we got toward the end of 2010 we began to see another drop in weekly claims for unemployment insurance. I think that’s a key driver of the short term delinquencies,” notes Jay Brinkmann, chief economist at the Mortgage Bankers Association.

But even more significant is the improved underwriting that began after the mortgage market crashed. “The loans that are in the system now on average are better quality than what was in there before,” says Brinkmann, who explains that loans usually go bad in the first three years of life. We’re now past the delinquency peak on loans that were underwritten during the worst, headiest phase of the housing boom in 2006 and 2007. “These new loans are less likely to go bad,” Brinkmann adds.

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Most consider President’s Day weekend as the official start of the spring housing season.

There is, therefore, no more crucial time than now to have reliable data at our disposal for home sales, prices and inventories.

How else do buyers, sellers and investors know how to proceed? Unfortunately, the housing crash itself has undermined the veracity of those readings.

With the boom and the bust came the attention. Housing brought our economy down, and in doing so, boosted itself to the headlines. As with any big story, a cottage industry sprang up around it. Data providers came out of the woodwork, and as online sale and foreclosure web sites proliferated, so too did their ability to add to that data pool. The result is double edged: On the downside, some data providers are less-than accurate, but on the upside, their sheer numbers provide a system of checks and balances, tempering the most outrageous assertions.

So it seems sort of appropriate that today, as a new controversy swarms around potential errors in home sales figures from the National Association of Realtors, the exalted and much-contested SP/Case-Shiller Home Price Index is released.

It reports that home prices are dangerously close to an official double dip. Other data providers have been asserting recently that SP/Case-Shiller is too bullish (and of course too bearish).

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