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Why Consumers Should Still Worry About Mortgages

August 31st, 2009

mortgage-rate-trends.jpgIn the second year of the recession, consumers have good reasons to worry about the health of the U.S. housing industry. Good real estate deals are easy to find in a buyer’s market because consumers can benefit from short sales and widespread auctions of foreclosed homes. While mortgage lenders continue to receive the stabilizing assistance of the government bailout, the housing market has not recovered.

Potential homebuyers can still find relatively low interest rates. In April 2009, the average interest rate for a 30-year fixed mortgage still hovered just below 4.9%. Meanwhile, mortgage lenders like Wells Fargo face other problems. Here is a brief discussion of three signs that the mortgage market has a long way to go—higher credit costs, growing unemployment, and rampant loan modifications.

On April 9, 2009, Liz Moyer from Forbes reported that the federal bailout continues to reduce the effect of lender credit losses. Moyer also noted that the bailout “isn’t stopping banks from experiencing higher credit costs. Wells [Fargo] and others will likely see rising loan delinquencies and defaults through the year, especially with unemployment on the rise.” In fact, Wells Fargo reported $3 billion in profits in the first quarter of 2009. Rising unemployment is also a bad sign for the economy. As more people lose employment, there will be a new wave of foreclosures. The data reported for March 2009 already showed increasing foreclosures.

Two other problems present a clearer picture for the housing market. In the “U.S. News and World Report” on April 17, 2009, Amanda Ruggeri noted that residential construction sank to the second-lowest level in history, and “business lending dropped by 24 percent at 21 banks that have received more than $211 billion from the government.” Remember, the drop in business lending was a concern during the presidential campaign in late 2008. Six months later, U.S. businesses are still distressed by the lack of credit to keep them afloat.

Another problem some experts identify as a sign of the troubled housing market is the high number of homes scheduled for foreclosure that the banks choose not to repossess. Instead, banks try to modify home loans, including under programs supported by President Obama. Some critics complain that stopping foreclosures temporarily provides little help for the economy because the banks offer new monthly mortgage payments to homeowners that are not much lower.

Meanwhile, the U.S. Treasury Department still highlights federal assistance for distressed homeowners. The federal website, MakingHomeAffordable.gov, targets homeowners who might be among 7 to 9 million people qualified for assistance. On this website, homeowners can find out if they are eligible for mortgage refinancing or mortgage modification.

If you are a consumer, continue to follow the trends in the mortgage market. Because the housing industry has not recovered, seek professional advice for issues like whether to buy a home, sell a home, refinance, or negotiate a lower mortgage payment. Take the time to research the trustworthiness of each housing professional. One option is to visit Treasury.gov to find out if you have been targeted for a scam by a company offering foreclosure mitigation or loan modification assistance.

Somewhat related article: What to Bring When Applying for a Mortgage


Angela Baca is a teacher and freelance writer who has produced an impressive total of 684 articles and 397 sales at Constant Content.


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