Housing Market Woes Affect New Mortgages
According to an annual study by the Federal Reserve, areas and neighborhoods that have been the hardest hit by foreclosures and depreciating home values are also those seeing the least amount of new mortgages.
This may seem counter intuitive. Considering that foreclosed homes usually come at a discount, you may think that these homes and areas would be easier sells.
Not only is the U.S. in the midst of an economic slump, but the struggling housing market is one of the primary causes, and one of the factors keeping the economy down. New mortgage loans are down 12% from 2009 to 2010 and part of the problem in high foreclosure areas is due to the fact that investors have pulled out of the housing market.
In 2005, 52% of mortgages in these neighborhoods were owned by people who did not live in the home. Basically, investors were buying these houses and renting them out. By last year that number had dropped to 29%.
Furthermore, due to tightened lending restrictions, struggling homeowners are missing out on record low mortgage rates and a federally sponsored mortgage refinancing initiative. Refinances have been most limited in the five states that have seen the most foreclosures and the sharpest drop in home values: Florida, California, Arizona, Michigan and Nevada - thus really hampering the revitalization of these areas.
The Federal Reserve’s study hypothesized that if loan requirements were as lax as they were pre-financial crisis 50% more struggling homeowners (a total of 2.3 million) would qualify for mortgage refinancing.
The Obama Administration is considering making changes to the HAMP to make refinancing options available to a wider base of Americans.
Unfortunately, for the economy to really kick into gear experts insist that we need a stable housing market. The Federal Reserve is doing their part by promising to keep interest rates low. However, even if Obama’s plan to expand mortgage help through Freddie, Fannieand the FHA begins to pay dividends, full recovery of the housing market and the economy still seems to be a slow and arduous climb.