We listened in on Trulia’s Real Estate State of the Union Industry call, an insightful look by experts at the state of the U.S. housing market and how federal intervention has helped and may hinder its recovery.

The speakers were well chosen, and, in addition to Trulia CEO and founder Pete Flint included Howard Glaser, principal of the Glaser Group, mortgage and financial analysts based in Washington, DC. and Jonathan Miller, president and CEO of real estate appraisal and consulting firm Miller Samuel. Glaser, former government affairs SVP and general counsel of the Mortgage Bankers Association, is an expert on subprime lending, Fannie Mae, Freddie Mac and FHA. Miller was on the New York City Mayor’s Economic Advisory Council and one of the original members of Trulia’s advisory board.

The call included the results of Trulia’s recent American Dream survey, in which three key questions were asked of respondents as well as Trulia Voices community members:

* Do you still consider owning a home part of achieving the American dream? 97 percent said yes.

* How would you grade President Obama’s first year in office in regards to stabilizing the housing market? 37 percent gave the president an A or B, 26 percent gave him a C, and 37 percent gave him a D or F.

* What should President Obama focus on in 2010 to help stabilize and turn around the U.S. housng crisis? 62 percent said that job creation and job security were the most important efforts to be made; 45 percent said loan modification and reduction of foreclosures were paramount; 39 percent wanted the administration to ensure low interest rates; and 27 percent asked that Congress extend the home buying tax credit through the end of 2010.

Pete Flint called Obama’s first year in office “one of the worst times in America’s history.” Without laying blame at the feet of the current administration, Flint pointed out that this past year has seen unemployment go from 7 to 10 percent, foreclosures increase by 21 percent, and median home sales prices drop 12 percent. There were positive changes as well, he noted, such as mortgage rates dropping to around 5 percent, and housing inventory levels dropping from an 11 month to a 7.2 month supply. While Flint said the call was about housing, it touched other things of necessity, such as unemployment.

“The more than 300 comments on Trulia Voices were filled with passion,” Flint said. He read four for us, from a broker in Florida, a homeowner in Mich., a real estate agent in Wash., and a homeowner from Santa Barbara. Their opinions ranged from “Handled the housing crisis? I think ignored might be a better statement.” to “One year would seem too short a time frame to pass judgment.”

“There is no easy fix and we’ll have a long road ahead before we see a healthy real estate market,” said Flint. “We’ll continue to see a lot of volatility in the housing market in 2010. This administration needs to deliver on its promise of more jobs. Job creation and job stabilization means more Americans can qualify for loan modification. Keeping Americans in their home and helping them avoid foreclosure is absolutely a crucial step towards stabilization.”

Jonathan Miller called this past year’s housing market a “roller coaster ride to say the least – and I don’t think we’re done with the ride yet.” 

He said the key housing sale drivers were keeping Fannie Mae and Freddie Mac afloat and expanding FHA’s role in lending. He told the audience that the FHA market share has grown from 3 to 30 percent of all loans, largely because of downpayments of 3-5.5 percent as compared with convential loan 20 percent downpayment requirements. The federal tax credit was another key impetus. Both of these drivers indicated to Miller that the housing market cannot stand on its own two feet without federal intervention.

The other beneficial factor in increasing home sales for the past year was affordability, driven by the Federal Reserve’s ability to keep interest rates low. “However, it has not eased or helped give banks the confidence to ease their underwriting restrictions,” said Miller. “There was a saying a few years ago during the credit boom that to get a mortgage you either had to have a pulse or fog a mirror. Those conditions don’t exist today. Instead, we are seeing a return and perhaps over-correction in underwriting regulations.”

Miller shared his concern that the Federal Reserve, as part of the stimulus package, is considering the stop of the purchase of Fannie Mae’s paper, the mortgage paper that they buy from lenders. That’s supposed to stop or begin slowing down in March. “That has the potential to place upward pressure on mortgage rates,” said Miller. “If that is what is happening we’ll see mortgage rates in the next year or two trend upward. That hurts affordability and slows down buys.”

Miller also explained that another byproduct of the poor economy, is that the resulting credit tightening has changed the type of properties that are selling. In 2009, he told the audience, you saw a surge of first time home buyers, and lower priced properties. The jumbo market, nationally properties $417,000 plus (in high-priced areas such as New York City $729,000+) has been wiped out.

“Lenders that finance those are holding them in their own portfolio [instead of selling to Fannie Mae or Freddie mac, e.g] and the requirements are even more difficult than for the conforming loans,” he said. “On top of that we’ve seen sharp contraction in financing for new construction.” Large luxury condo developments have stalled now, simply because buyers cannot get financing, he told us.

Miller said that foreclosures exceed $2.8 million in filings and a member of a firm that tracks foreclosure numbers told him that the only reason it didn’t exceed $3 million is because the lenders are overwhelmed and slow in processing the foreclosures. “I think as a result, short sales are going to be part of many many transactions going forward,” he said. He also told us of a new concept called strategic non-foreclosures, where a lender lets a homeowner live in a house for 12 months before evicting them as long as they pay real estate taxes and some basic expenses. “You’re going to see a lot of experimentation in addition to loan modifications to try to resolve this foreclosure problem,” Miller said.

Miller was adamant that the housing market cannot now move forward without government intervention, unless it incurs substantial penalties or price correction.

“I think the primary solution in a very general sense has to be in job creation,” he said. Mortgage underwriting is the key limiter of transaction activity. Lenders are looking at balance sheet pressures for capitalization, at declining housing prices, unemployment double two years ago and increased layoffs, and they’re really only interested generally in very clean, vanilla-type lending products. The only way to ease that is to create an environment where there is a lot of employment.”

“Turn back the clock 13 or 14 months,” said Howard Glaser. “The housing market was in freefall or people feared it would be. It isn’t today. I think overall a realistic assessment is that the housing market has for the moment at least some stability to it, though that may be an illusory one and may not be sustainable. But it’s better today than a year ago.”

Last year, in 2009, the federal government contributed $2 trillion to the housing market recovery, Glaser told the audience. “That’s a big level of commitment and I think most of these programs were absolutely necessary or we wouldn’t have a housing market. But, it’s also like putting the housing market on heroin. We’ve become addicted to it, and it’s going to be difficult and painful to withdraw that intervention.”

The federal program that has not worked, according to Glaser is reduction of inventory through foreclosure relief. “While individuals have been helped, as a systemic matter it’s not had an impact,” he said. “You could pull HAMP [Home Affordable Modification and Refinance Program] out tomorrow and you’d not see a systemic impact. I expect we’ll see some changes in that program very quickly.”

Glaser said the biggest challenge ahead for the U.S. housing market and the federal administration is what to do about the exit strategy from federal help. He was adamant in his conviction that the administration would do everything it could to keep interest rates low. “If we begin to see a softening on the sales side, I would not be surprised to see another effort to get further stimulus as well,” he said.

Glaser expects changes in the Making Home Affordable Program this coming week. He also predicted that we would not see any discussion of moving from federal intervention to bringing private investment back in, or any real movement in the future of Fannie Mae or Freddie Mac. He saids there would be discussion about abolishing both in their current form but no action this coming year. “No one wants to fool with it while we’re so dependent on it,” he said. “I think it will take five to ten years to really come up with a different structure for both of those at this point,” he told us.

Glaser’s closing remarks were a dire warning that we not replace a flawed private housing market with a flawed federally-sustained one. He said that federal intervention by necessity picks winners and losers. Winners now, he pointed out, are conventional loans, large banks and single family homes. Losers are jumbo loans, small and independent banks, and condominiums.

“if those folks who who are getting that tax credit still can’t stay in their homes because they can’t afford them – if we are still making that mistake – and they default on them, we’re also going to pay a fee to the servicer and the borrower to keep them in the loan and if that fails the investor is going to take the loss. But in the current case the new investor taking the loss is Fannie and Freddie and FHA, and they’ll get their money back from the Federal Reserve and ultimately from the tax payers.”

Glaser warned that this is a vicious cycle that the U.S. has began and one that needs to be undone.

“We need to have a sustainable system of home ownership for the future,” he said. “That’s my main concern and a concern that I don’t think is going to be addressed this year though it really has to be.”

 Here’s the complete Trulia American Dream survey.