Foreclosed Homes Continue to Surge Despite Low Interest Rates

Foreclosed homes rate in the United States increased by 3.3 percent for the fourth quarter of last year, and 1.26 percent from 2007, representing 1.5 million distressed properties.

Experts were hoping that a low mortgage interest rate would lead to a decline in foreclosed homes rate. They were proven wrong with the latest data that showed banks are unwilling to approve mortgage applications despite low interest rates and credit-worthiness of homeowners.

Industry experts believed that a low mortgage interest rate would provide affordable payment schemes to homeowners and homebuyers, thus reducing the number of foreclosed homes in the market.

Recent market data indicated that 30-year fixed-mortgage interest rate declined to 5.29 percent, compared with the previous week’s 5.37 percent rate. Interest rates for the 30-year mortgage declined to 5.28 percent last January.

Low interest rates and the U.S. Federal Reserve’s decision to purchase government debts have failed to make life easier for borrowers who have good credit. Banks are hesitant to approve mortgage loan applications even that of borrowers who have good credit scores.

This development did not bode well to the housing market that is languishing for a long time now due to problem of foreclosed homes.

According to Weiss Research real estate analyst Mike Larson, he is expecting mortgage rates to decline to a low of 4.5 percent. He added that if his expectation comes true, the rate would be the cheapest in the American history.

As interest rates continue to rally downward, applications for loans rose by 21.2 percent, according to data from the Mortgage Bankers Association (MBA). Homeowners who want to refinance their high interest rate loans to save their properties from turning into foreclosed homes, accounted for about 73 percent of all mortgage applications.

Keith Gumbinger of mortgage information publisher HSH Associates said that generally, about 60 percent of borrowers who applied for loans were approved.

However, the loan approval rate is lower than the percentage recorded by the MBA during the peak of the housing market. For example, over 66 percent of loans were approved in 2005, while about 79 percent borrowers received loans in 2003.

According to industry experts, the foreclosure crisis has resulted to more stringent underwriting standards that potential loan borrowers do not bother to consider purchasing a house on account of all the troubles that they have to go through to get their loans approved.

By Cassiano Travareli