Treasury Secretary Timothy Geithner told lawmakers Tuesday that the government played a role in bringing down the housing market. He also blamed the government for creating moral hazard and leaving taxpayers responsible for cleaning up the mess, and said the government made mistakes that were avoidable. As part of his pitch to lawmakers for housing finance reform, Geithner stressed that fundamental change is needed -- change that is based on a shift of what many believe is the ""American Dream.""

More legal woes have developed for Bank of America, as some of its mortgage investors brought a lawsuit against the lender in an attempt to force the bank to buy back bad loans. The original balance of securitized loans involved in the case was $2.8 billion, and the plaintiffs claim their trustee ""unreasonably failed"" to sue BofA. Another group of investors, which is engaged in talks with the bank in hopes of avoiding a legal battle in court, has nearly doubled the amount of allegedly faulty loans it wants Bank of America to repurchase.

Despite new rules for short sales under the government's Home Affordable Foreclosure Alternatives (HAFA) program which went into effect on February 1, real estate agents responding to a survey said short sale transactions are still taking too long. A survey published recently by property valuations company Equi-Trax reveals the majority of short sales are taking four to nine months to complete, and Realtors say lenders are to blame, although some concede that borrowers need to be better educated about short sales.

Research released this week by the senior research economist at the Federal Reserve Bank of Cleveland reveals homeownership is more sustainable for people who come to the table with down payments. The study examines the types of homeowner assistance that the government uses to promote homeownership -- generally down payment subsidies or interest rate subsidies -- and finds down payment subsidies are more helpful and less expensive.

The Federal Reserve Board on Wednesday issued a final rule and proposed a second rule to revise the escrow account requirements under Regulation Z, and requested public comment on the second rule. The revisions would revise escrow account requirements for certain home mortgage loans.Under the final rule issued Wednesday, the escrow account for first-lien loans would only be required if the loan's annual percentage rate is 2.5 percentage points or more above the average prime offer rate.

Fannie Mae this week unveiled the Servicer Total Achievement and Rewards (STAR) program, which will measure and evaluate mortgage servicers' performance in supporting the housing recovery. The program will examine how the servicers help homeowners avoid foreclosure, and will feature incentives, awards, and an annual scorecard, as well as a monthly snapshot so servicers can track their progress. It will directly link servicer performance to the customer experience and the number of homeowners the servicer has helped.

For the second week in a row, mortgage rates continued to drop. Freddie Mac reported the rates of 30-year fixed-rate mortgages fell to 4.95 percent (0.6 point), and Bankrate reporting a drop as well, from 5.16 percent last week to 5.09 percent (.45 point) this week. The 15-year fixed rate mortgage averaged 4.22 percent (0.7 point) this week, down from last week's 4.27 percent.

Existing home sales rose again in January, for the third consecutive month, with the annual rate of 5.36 million marking the first time in seven months that sales activity was higher than a year earlier. Home sales are now 5.3 percent above the 5.09 million level in January 2010. Lawrence Yun, NAR chief economist, said the improvement is good but could be better. The national median existing-home price for all housing types was $158,800 in January, down 3.7 percent from January 2010.

As the housing market struggles to get back on its feet, one element holding it back is the prevalence of fraud that increases in times of trouble. In December the CoreLogic Fraud Index revealed fraud losses for 2010 were estimated to be $11 billion. In the past week, the FBI has reported several convictions for mortgage fraud schemes all over the country. The agency says scams involving false promises and fraudulent sales pitches will continue to be a major focus.

Another lawsuit may join the ranks of suits against banking executives for their part in the housing collapse. There are reports that the Federal Deposit Insurance Corporation (FDIC) is said to be considering a lawsuit against former executives of the now defunct Washington Mutual bank, for alleged fraudulent lending practices. The government agency may seek up to $1 billion in damages. The FDIC took control of Washington Mutual and sold it to JPMorgan Chase for $1.8 billion in 2008.