Foreclosures Continue To Increase

Posted in Foreclosures, July 17th, 2008 |

All the indications are there of the worsening of economic gloom as foreclosures continue to increase unabated. The crisis gripping Fannie Mae and Freddie Mac, the two pillars of the mortgage industry, spells disaster. It means that getting a loan to buy a house is going to be more difficult than what it already is. There is bound to be a rise in mortgage rates. This is a warning to those thinking of buying a house or refinancing a property loan.

Those whose mortgages are already backed by Freddie Mac and Fannie Mae need not worry provided they are not in a pressing need to refinance.

Further increase in rates will cause a further rush of foreclosures. Already thousands are grappling with reset mortgage rates from this summer. The lending crisis will also affect those looking for other types of financial assistance in the form of car or student loans.

Michael Kitces of Pinnacle Advisory Group, Columbia, aptly opines that a bank that loses out million on mortgage loans can hardly afford to advance money for more loans. The dollars are just not there.

The latest panic has been caused by the loss of confidence in the government supported loan giants – Fannie Mae and Freddie Mac. The timing has been disastrous. The jumbo mortgage giants badly need funds to stay on the rails. Keith Gumbinger of HSH Associates said that although it is difficult to predict the forthcoming maze of events, one thing is clear – capital will have to be raised somehow. To attract buyers to buy bonds for a shaken company, higher yields will have to be offered. The higher cost will then have to be passed on to those seeking loans. If the government fails to send out a lifeboat to Fannie Mae and Freddie Mac then mortgage rates will have to be pushed up above 7% for the first time since the last six years. This will considerably delay the recovery of the real estate market of the county. Even if the government gives a helping hand, increase of interest rate by at least half a percent is unavoidable because of the rising cost of selling mortgage-supported securities.

The national housing loan totals to $12 trillion. Freddie Mac and Fannie Mae own or back half the loans. In the past week all these loans have lost half their market value following doubts about the companies not having sufficient funds to meet the foreclosure crisis.