Rising defaults and interest rates hamper Bernanke's rescue plans
Filed under: Economy
The mini boom in refinances fizzled quickly as interest rates crept back over five percent. At the same time, rising unemployment helped push homeowners into delinquency or foreclosure, setting a record for the number of homes in some stage of foreclosure during the first quarter of 2009. About 12.07 percent of mortgages were delinquent or in the foreclosures process in the first quarter.
All this bad news means Federal Reserve Chairman Ben Bernanke's efforts to lower the costs of mortgages and revive the housing market are stalling. Now that mortgage rates are over five percent, refinancings have stalled. "Housing is not going to be the engine to get us out of this recession," Robert Eisenbels, Chief monetary economist for Cumberland Advisers, told Bloomberg. "They've squeezed a lemon and now they're trying to squeeze some more, but you can only get so much juice out of a lemon."
Refinancing applications fell 19 percent to the lowest since early March, before the Obama administration announced the loosening of rules for Fannie Mae and Freddie Mac. The Fed also hoped to keep mortgage rates down with its aggressive program of purchasing mortgage-backed securities and Treasurys. When first announced, 30-year mortgage rates fell to 4.78 percent, but by May 27 Bankrate.com reported the average rate was back over 5.08 percent.
The 12.07 percent of mortgages delinquent or in the foreclosure process during the first quarter of 2009 is the highest since the Mortgage Bankers Association started the survey in 1972 and up from 8 percent in the first quarter of 2008. The really bad news is that during the first quarter more prime mortgages went into foreclosure than subprime mortgages -- 49.8 percent were prime loans and 43.2 were subprime loans.
That means the impact of rising unemployment is now being seen in the default and foreclosure numbers. "More than anything else, this points to the impact of the recession and drops in employment on mortgage defaults," Jay Brinkmann, the chief economist for the Mortgage Bankers Association told The Washington Post. "Looking forward, it does not appear the level of mortgage defaults will begin to fall until after the employment situation begins to improve."
The majority of foreclosure problems remain centered in four states: California, Nevada, Arizona and Florida. These four states account for 56 percent of the increase in foreclosure starts. The first quarter housing sales market was weakest in the West, where sales fell 3.8 percent. Sales were flat in the Midwest and Northeast. The South saw an increase of 1.9 percent in sales.
Lita Epstein has written more than 25 books, including The 250 Questions You Should Ask About Buying Foreclosures.
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Reader Comments (Page 1 of 1)
5-29-2009 @ 9:59AM
Pete said...
I was Laid off, so i decided to take my social sercurity and retirement. Becasuse this limits my income, i am having a hard time getting a mortgage. The banks will not count my saving as anything.
Did, bid on a house, but owners have it listed too high and will not come down, they are still living pre declining house prices.
Its not good, cause after messing up the first time the banks are too leary.
Its a double edge sword out there.
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5-29-2009 @ 9:59AM
CAVUTO said...
the market is scared to have a pull back...wall street thinks everyone will dump their shares if they do...profits for most companies are down 30% to 60%...obama is trying to instill artificial confidence in this market..now he is trying to foolishly get people to buy houses and cars by scaring them with higher interest rates...( i better go buy a house now that interset rates are going up)..i say don't buy a thing...force the goverment to bring down interest rates and also it will bring down home prices further..use your head!!
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5-29-2009 @ 1:26PM
Docwho said...
Sorry, lower interest will only drive up housing prices - lower interest rates was the cause of all these problems .
5-29-2009 @ 2:43PM
Thomas Paine said...
I can see that you don't get it. Where does the money come from? Investors, people like you and I and other people that have put some money away into something like a CD or other investment instruments. When that money is not paid back or is a total loss, don't think that companies who invest that money that they get from the investors is going to loan more money out at a low interest rate, knowing they may never get paid back.
I agree with you on not buying anything that isn't necessary. Because you don't know if your going to have job next month or next year in this Global economy thanks to NAFTA. Also, with the Federal Government and State Governments going bankrupt and are bankrupt, like California and Governor Arnold Schwarzenegger who refuse to live within their means, who refuse to be responsible at balancing their budgets. They going to pass new laws so they can tax us to the point we're all flat broke and bankrupt. Now the Obama administration want to pass the Cap and Trade tax on all forms of energy. In other words, they want to steal money from all of us legally. Call it what you want, The Green Tax, The Carbon Foot Print Tax. It's still stealing from all of us. All because Congress refuses to be responsible at balancing the Federal Budget. You think the Great Depression was bad with 25% of the people out of work in our country at that time!!! What's coming in a few years from now is going to be far worse.
You have to pay attention to what Congress and the President are doing. Also pay attention to State lawmakers and the Governor of your state. Are they working in the best interest of the people? I doubt it.
If You didn't vote, you have no one to blame but yourself. If you voted for a candidate that you liked for what ever reason, but is not honest, has no integrity, and no character, and they don't share your values, then you have no one to blame but yourself for the mess going on now in State Government and Federal Government budgets, etc.
5-29-2009 @ 10:11AM
JERRY said...
The government bail outs for people upside down in their mortgage is not helping ANYONE.... There are no required modifcations for banks to Help Home owners...get their homes out of foreclosure...NO BANK IS HELPING...it's a big secret...So Where's the Banking Senator's all Hiding Now ?.. TV coverage is gone...Senator Dodd where are you ???
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5-29-2009 @ 10:15AM
CAVUTO said...
GM AND CHRYSLER WILL NOT HAVE TO RE-PAY BILLIONS IN TAXPAYERS MONEY IF THEY FILE FOR BANKRUPTCY..THAT IS WHY THEY ARE DOING IT..THEY GET TO START OVER WITH NO DEBT...OBAMA KNEW THEY WERE GOING TO FILE SINCE THE START OF LOANING THEM MONEY TO SURVIVE...HE WANTED TO STALL THEIR FATE SO HE COULD SHORE UP THE BANKING SECTOR..NOW THAT THE BANKS WILL SURVIVE IT IS TIME TO SWITCH TO THE AUTO INDUSTRY..WE JUST FLUSHED BILLIONS OF HARD EARNED TAXPAYER MONEY DOWN THE DRAIN...I WILL NOT BUY A GM OR CHRYSLER VEHICHLE EVER..I WILL BUY A FORD...I HAVEN'T BEEN THIS ANGRY SINCE JEFF IMMELT TOLD G.E. SHARHOLDERS HE WASN'T GOING TO CUT THE DIVIDEND..
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5-29-2009 @ 2:58PM
HM said...
When rates go from 4.78% to 5.08%, that causes a "boom" to "fizzle"? Come on.
Even if you are borrowing $200,000, a 0.3% increase is only about $600 a year, $50 a month. If the housing market fizzles because people cannot afford an extra $50 a month, then what we have/had can hardly be called a "boom."
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5-29-2009 @ 10:48AM
SANDY said...
fast and loose Bernake played a game with our minds. we all start to put in the paper work for lower interest rates and before it goes through, BANG! HE MOVES THEM UP! NICE RECOVERY IN YOUR POCKET BERNAKE! never trust the gov't the will screw you to death and then some after with estate taxes!
Say good bye recovery it will never happen!
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5-29-2009 @ 11:23AM
steven ruza said...
the rates are still to high. they should allow more money towards principle than interest. lets help the american people for petes sake
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5-29-2009 @ 12:37PM
John said...
If there is anyone out there that believes the Government is trying to Help Us= I have a bridge I'd like to sell You! If You are smart You'll turn off Your TV's and go outside and meet Your neighbors, etc and start UNITING again before it is to late.
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5-29-2009 @ 1:18PM
Docwho said...
Can't see the reason why the government is subsidizing new home buyers . Will the Government make up for my losses in my 401 (k) and IRA retirement accounts ?????
Sorry , but I had to work hard , sacrifice and save before buying my first home - with `20 % down and a fixed 6 % mortgage for thirty years , paid it off in 20. Others should be able to do the same. Sick and tired of the poor and rich classes getting a free ride on the backs of hard working , fiscal conservative American workers and taxpayers . It has to stop. Banks are ripping off savers paying piddly on savings and Cd accounts in order to provide inexpensive money to those who demand instant gratification !
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5-29-2009 @ 1:22PM
LIZ C said...
obama had a hard time appointing candidates that paid thier taxes to his cabinet....one of them is in charge of getting us out of this mess...a mess he helped along by not paying his taxes....
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5-29-2009 @ 1:37PM
greg said...
Get real people. If you can't afford a house with 5% interest rates, you can't afford a house period. In 1980 I bought my first house with 30% down, barely qualified for the 30 year, 18.25% loan, and paid it off in 13 years with one re-fi in that time. I didn't do anything special but cut back on all the unnecessary junk people seem to need now.
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5-29-2009 @ 2:52PM
walter said...
Greed ... FREEZE interest rats... Duh!!!!!!
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5-29-2009 @ 3:05PM
Jim said...
ANYONE THAT THINKS THINGS ARE BETTER, ARE JUST FOOLS, AS A TRUCKER.........SEEIN TRUCKS SITTIN, NO FREIGHT FOR FLATBEDDERS AND DRY BOX HAULERS........SEEIN THE EMPTY HOMES AND ECT... FOLKS WOULD BE WISE TO SAVE THERE MONEY...............ITS STILL WORTH SUMTHING FOR NOW.......THIS STIMULUS FOR SHOVEL READY PROJECTS DON'T EXIST, IT WAS JUST TO GROW BIG GOVERNMENT.........I HOPE YA YOUNGINS REALIZE NOW WHAT YA VOTED FOR.
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5-29-2009 @ 4:07PM
sgentilejr said...
There will be NO RECOVERY. Not this year, not next year and not before the year 2020 at the very earliest. YOU are the problem. It was YOU who bought all of those Imported products that resulted in your neighbors losing their jobs. It was YOU who bought imported products and gave our nations wealth away to foreigners and YOU who replaced our nations wealth with debt and more debt. It will take YOU at least until the year 2020 to wake up and start buying American made products only, to create wealth and jobs inside the USA. Yet, even more likely YOU will never wake up the the USA will become a Third World nation like Sudan and Somalia..
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5-29-2009 @ 4:30PM
Thomas Paine said...
Right on Nick. You couldn't be more right about your 5 points in turning things around and start having a stable economy.
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5-30-2009 @ 3:36PM
al sett said...
The gov't programs are all bull. I have an 840 Fico score, 80% equity in my house and enough savings to pay off the mortgage 10 times and the banks are giving me ahard time about modifying my interest rate. The robber barons are still around and the only difference is that they work for goldman sachs and the us gov't. What a jokethese guys have played on the dumbed down american citizens. They voted for these slime balls and deserve what they are getting.
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5-30-2009 @ 10:21PM
john brewer said...
Its not over yet folks houses are a bad investment unless your buying one that is totaly devalued. and intend to live in it thru the bad times. I seriously suggest renting for the next 5 years and pocketing the excess and maintenance costs.
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5-31-2009 @ 9:24AM
FOXYLYNX said...
WHAT HOUSING RECOVERY! ALMOST 50% OF THESE HOMES ARE IN SUNNY CA - NOW THE GOV IS GOING TO BAIL OUT CA BY BUYING BONDS. THERE IS NO END IN SIGHT OF THE BAIL OUT CRAP. IN THE MEAN TIME OUR TAXES ARE GOING UP ON EVERYTHING WE EAT AND DRINK.
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