Federal Rescue Fail to Save Spread of Repo Homes

by Peter Vernon on Foreclosure Crisis

The latest effort of the federal government to revive the ailing housing market by reducing the number of repo homes has failed to meet industry expectation.

Borrowers, following the U.S. Federal Reserve’s announcement that it will purchase over $1 trillion bonds to lower interest rates to give a boost to the housing market, have wasted no time to apply for home loan mortgages.

However, with the extent of devastation created by repo homes in the housing market, even low interest rates could not immediately repair the damage done by the foreclosure crisis.

The agency’s decision helped reduce the rate of 30-year mortgages, bringing it to slightly above 4 percent from more than 5 percent this month and from 6 percent for the last month of 2008. The interest rate reduction motivated distressed homeowners to apply to lower their monthly mortgage payments and save their properties from becoming repo homes.

However, industry experts pointed out that the recovery of the housing market is hindered by a 25-year record high unemployment rate, an unprecedented number of unsold repo homes and stringent lending standards.

Americana Mortgage Group President Bob Moulton noted that many borrowers locked in refinancing with interest rates of not more than 5 percent.

But Moulton warned that repo homes will continue to wreak havoc on the housing market and the country’s economy unless foreclosure will be totally eradicated from the system. He acknowledged that the Federal Reserve’s low interest rates will help towards eradicating foreclosure but a lot has to be done still to stabilize and strengthen the housing market.

According to the Mortgage Bankers Association (MBA), mortgage delinquency and loans in foreclosure increase by 11 percent during the fourth quarter of 2008. The MBA’s National Delinquency Report noted an 8 percent increase in the number of loans a month delayed in mortgage payment but not in foreclosure.

RealtyTrac data showed that one per 440 homeowners with loans received one or more foreclosure filings in February of this year, a rise of 30 percent from the same month of the previous year.

This increase in foreclosure filings happened despite various corporate and state moratoriums.
Meanwhile, Standard and Poor’/Case-Shiller indexes showed that home prices stumbled by over 26 percent after their highest in 2006.

Effort of the federal agency to reduce the borrowing cost came after President Barack Obama announced his $275 billion housing recovery package.

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