Interest Rates Dropped While Mortgage Loan Modifications to Prevent Foreclosure Increased
In December 2008, lenders modified about 122,000 mortgage loans in an effort to help struggling homeowners avoid foreclosure.
Loan modifications are permanent changes to mortgage contracts to reduce payments of borrowers.
Hope Now, a group of lenders, counselors and mortgage servicers, said that efforts such as negotiated payment plans aimed at preventing foreclosure jumped to almost 239,000 in December.
According to the industry organization, which includes as its members subprime loan servicers and Wells Fargo, it would prefer underwriting new mortgage loans with low principal or interest rates rather than establishing payment plans to extend costs.
Hope Now said that December data showing the rise in the number of prime borrowers facing foreclosures only emphasized the need to help homeowners of distressed properties. The total foreclosure filings in December increased to 34,000, with 75 percent in prime mortgage loans.
The group hopes that loan modifications will continue until such time that the economy has stabilized.
On the other hand, the Federal Home Loan Mortgage Corp. or Freddie Mac said that the average interest rate for 30-year fixed loans declined to 5.10 percent from 5.12 percent. For the same period last year, the fixed-rate mortgages of 30 years averaged 5.68 percent.
Federal Reserve announced in November 2008 that it would purchase about $500 billion mortgage-backed securities of lenders to boost cash flow into the struggling housing market and reduce the number of foreclosure properties. This announcement triggered the decline in mortgage rates.
Meanwhile, the average interest rates on 5-year adjustable-rate mortgage increased to 5.27 percent from 5.24 percent. Interest rates on 1-year adjustable-rate mortgage dropped to 4.9 percent from 4.92 percent.
Both Freddie Mac and Federal National Mortgage Association or Fannie Mae guarantee or own nearly 50 percent of the total $11.5 trillion outstanding loan debt. The U.S. government took control of these government-sponsored enterprises in September of last year.
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