It looks like happy days are here again for the home loan borrowers. Interest rates are falling with average fixed rate for 30-year mortgages falling to around 4.75%. Home lending this 2009 ranked fourth highest on record, reaching $2.78 trillion, according to the Mortgage Bankers Association (MBA). This forecast by the MBA was revised upwards from its earlier estimate by more than $800 billion. The nice thing is there are lots of places to look for things like home loan advice.

The higher estimate was prompted by the Federal Reserve’s recent pronouncement on its programs to purchase Treasury bonds and mortgage-backed securities, as well as Fed refinance programs for Fannie Mae and Freddie Mac. The Federal Reserve’s move dovetails the unveiling early this year of the Homeowner Affordability and Stability Plan by President Barack Obama. Three components comprise the Obama program. First is authorization of $75 billion as subsidy for the restructuring of troubled home loans. Focus on loan restructuring is the second, under which a framework for clear and consistent guidelines shall be developed. An overhaul of US bankruptcy laws is the third, seeking to empower judges to force lenders to cut mortgage rates and allow bankrupt homeowners to write down mortgage principals. If you’re having trouble with a home loan just search “foreclosure rescue” on google and you can find a lot of information.

Washington, no matter which administration is in power, has always been sensitive to mortgage foreclosure. First of all, foreclosure of home loans consumes much real resources such as legal fees for lawyers and bailiffs, fees of surveyors, and the time spent in the proceedings . Each foreclosure has been estimated to cost the government and parties involved between $50,000 and $80,000. Another is the emotional cost as foreclosures are akin to dispossessing homeowners and family evictions. Homelessness is another negative association of foreclosures. Another thing people should really look into is bankruptcy to stop foreclosure.

On the positive side, home lending and hence homeownership are encouraged by government because the homeowners are expected to look after their property and its locality better than tenants. This is also one of the primary reasons in the bailout measures on troubled mortgages by President Obama as implemented by the Fed recently. Homeownership in the US is also encouraged by allowing taxpayers to deduct mortgage interest from their taxable income.

Another stimulus for lenders to disburse home loans to borrowers are the government subsidies to the lending and guarantees of Freddie Mac, Fannie Mae, Ginnie Mae and other similar government agencies. The Fed’s recent funding increase in its purchase programs for treasury bonds and mortgage-backed securities is a reflection of such a stimulus to home lending. Homeownership is likewise fostered by the postponement of capital gains tax which is allowed on all home sale.

Despite these sweeteners, several other things have to happen for home lending and homeownership to really take off. There has to be stabilization in employment in order to realize a real increase in home sales overall, according to industry observers. What is expected is that the funding increase for home lending this year would only go to refinancing home loans estimated at $1.96 trillion this year while purchases would only be at $821 billion. Consequently, home sales are actually expected to decline by 2.5 percent to 4.8 million units, says the MBA.

Filed under: Finance

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