Declining Mortgage Rates Helps Foreclosure Prevention

From 6.06 percent last year, the average for 30-year fixed rate loans is now down to 5.1 percent, the lowest since 1971. For 15-year, the average rate is at 4.83 percent. It has not been this low since March 2004 when an average of 4.7 percent was experienced.

The decline has caused a 500-percent increase in applications for loan refinancing for properties troubled by foreclosure over the past few months. However, although the foreclosure crisis has been somehow addressed by the low rates, the overall housing market is still in a sluggish pace.

Despite the low mortgage rates, there has not been much increase in the number of new loans to buy new homes. Instead, majority of the mortgage applications (a whopping 83 percent estimate) is for refinancing of existing loans to prevent foreclosure. Home sales have been dropping by 8.6 percent every month.

The Federal Reserve has been continually taking measures to further decrease rates. Back in November, it announced that it will buy mortgaged back securities from Freddie Mac and Fannie Mae. It is expected to start buying securities within the month.

As the Fed buys mortgaged back securities, the demand for such securities increases, subsequently resulting to lower rates. This move is expected to boost home sales, although not in the short run. Results are not expected to take effect until after three to five months.

Still, whatever future the housing market faces depends on the consumers. Once they are confident again on the economy, the housing condition can be expected improve. Otherwise, not much will change from the present situation – foreclosure rate still up, home sales frozen, and the housing market feeble.

By Cassiano Travareli