Fed Cuts and Stimulus Package Won’t Stem Foreclosures

Interest rate cuts and a plan by the White House and Congress to pump $150 billion into the economy are unlikely to keep many Americans from losing their dream of homeownership to foreclosure, Reuters reported.

Wall Street was quick to applaud an unusually aggressive interest rate cut from the Federal Reserve on Tuesday, which came as President George W. Bush and lawmakers scrambled to assemble a package of tax rebates and other measures intended to stave off a recession.

But industry experts say these steps won’t necessarily translate into lower mortgage costs for some 2 million Americans with risky subprime home loans with rates that are scheduled to adjust sharply higher over the next year.

For those who qualify for traditional 30-year fixed-rate mortgages, lower rates are now available thanks to recent Fed interest rate cuts. But many subprime borrowers have mortgages larger than what their properties are worth, and experts don’t see home values rising any time soon.

Many homeowners who financed their homes with subprime mortgages did so expecting the value of those properties would rise, enabling them to refinance out of their pricey mortgages and into loans with better terms.

But the housing market turned down and it continues to slide.

Over the 12 months through November, prices on previously owned homes fell 3.3 percent, according to the National Association of Realtors. In Western areas of the United States where home prices rose sharply during the boom, prices tumbled nearly 7.0 percent.

In addition, new home construction has slowed to just half of the pace it hit when it peaked in 2006, and experts say it will not pick up until record high inventories of unsold homes are pared back. For that to happen, prices may need to fall further.

[KHS]

[ⓒ Maeil Business Newspaper & mk.co.kr, All rights reserved]