There’s a lot happening in the real estate market these days, and the jury’s still out on whether or not we’re in a real recovery. Foreclosure rates remain high despite a national dip in foreclosure activity, and the mortgage industry continues to struggle. To top it off, the $25 billion settlement between the states and banks may not do much to help homeowners.

Foreclosures

According to RealtyTrac’s foreclosure activity report, foreclosure filings—which include default notices, scheduled auctions, and bank repossessions—decreased 2 percent from January to February and 8 percent year-over-year.

It’s good news, but there are still problems. The year-over-year decrease is the lowest since October 2010, and ten of the nation’s 20 largest metro areas by population experienced an increase in foreclosure activity. Those with the highest foreclosure rates were Riverside-San Bernardino, Calif., Atlanta, Ga., Phoenix, Ariz., Miami, Fla., and Chicago, Ill.

According to Brandon Moore, CEO of RealtyTrac, it’s just the beginning. “The foreclosure and mortgage settlement filed in court earlier this week will help pave the way to a property functioning foreclosure process…. That should result in more states posting annual increases in the coming months,” he said in a press release.

With more foreclosures hitting the market in the coming months, we could see another drop in home prices. If we’re lucky, timing will work in the real estate market’s favor: it’s home buying season, and the combination of low prices and interest rates could mean foreclosures will sell faster than in previous months.

Mortgages

This was another mixed month for mortgages, according to a recent weekly survey by the Mortgage Bankers Association. The market composite index, which measures loan application volume, was down more than 2 percent month-over-month in the week ending March 9, 2012. Applications for refinances also decreased, down 3.29 percent from four weeks previous. The refinance share of mortgage applications is at its lowest level since November 25, 2011.

Michael Frantantoni, vice president of research and economics for the Mortgage Bankers Association, thinks the decrease is tied to upward trends in mortgage rates but insists those who need help are getting it. In a statement, he said, “HARP volume continued to grow as a share of total refinance volume, reaching roughly 30 percent of refinance activity in the last two weeks. Typical HARP loans had loan-to-value ratios above 90 percent, indicating that lenders are reaching out to underwater borrowers.”

Let’s hope underwater homeowners are getting help somewhere. Most would agree that the government’s plan to help housing, like the Making Home Affordable program—which includes HARP and HAMP—hasn’t done enough to help struggling homeowners.

Freddie Mac

One of the biggest issues at hand right now is the stability of Freddie Mac, the secondary mortgage market giant. According to its latest financial results, the government sponsored entity (GSE) made $1.5 billion in the fourth quarter of 2011. But that wasn’t enough to cover the $1.7 billion dividend due to the Treasury in that same quarter, and Freddie’s asking for yet another bailout—this time to the tune of $146 million. To date, Freddie Mac has received $72.3 billion in Treasury outlays and has paid back only $16.5 billion.

The bailout is just the beginning of Freddie’s problems. The company reported a total loss of $1.2 billion for the full-year 2011, compared to a total comprehensive income of $282 million for the full-year 2010. The GSE also suggests it may need an additional bailout as changes in home prices, interest rates, mortgage security prices, spreads, and other factors put more stress on its finances.

Foreclosure settlement

In February, 49 state attorneys general and the nation’s five largest lenders reached a settlement worth $25 billion. In addition to requiring changes in lending practices, the settlement also gives each state a share of the money, which is intended to be used for programs to help struggling homeowners and victims of foreclosure fraud.

It sounds good, but it looks like that’s not happening. Before the settlement was even approved by the U.S. District Court, some states announced they would be diverting funds from the settlement to prop up other areas of their budgets. In Missouri, for example, Gov. Jay Nixon plans to use nearly all of the state’s $41 million settlement payment to offset some of the “challenging budget cuts [he] was forced to make.”

Missouri’s not alone. Pennsylvania, Georgia, Vermont, Maryland, and Wisconsin all plan to use the money for something other than its intended purpose, and more states could follow suit in the coming months.

Ilyce R. Glink is the author of several books, including 100 Questions Every First-Time Home Buyer Should Ask and Buy, Close, Move In!. She blogs about money and real estate at ThinkGlink.com and at the Home Equity blog for CBS MoneyWatch.