Experts Said Lower Mortgage Rates Not Enough to Abate Foreclosures
December 11th, 2008 by 
Joseph Smith
Several federal government agencies are trying all avenues to lower mortgage rates to an unprecedented rate of 4.5 percent to abate the surge of foreclosures and hopefully strengthen the housing market.
The Federal Reserve has launched a $600 billion program to lower mortgage rates.
The Department of Treasury is planning to lower mortgage rates further in an effort to encourage buyers to buy foreclosed homes which it hopes will stabilize the home market prices and revive the economy.
However, experts are skeptical over these federal efforts to adjust mortgage rates. They believe that reducing the number of homeowners who are facing the threat of foreclosure should be the top priority. But they also believe that this initiative should be accompanied with efforts to increase demand for homes.
Some experts argued that potential home buyers are not keen on buying foreclosed properties because of the risk of continuous decline in home prices. Another problem is the difficulty of home buyers to find loans that require affordable down payments and contain reasonable terms.
University of California’s Fisher Center for Real Estate Chairman Kenneth Rosen pointed out that the problem is credit availability and not the interest rate.
Meanwhile, Lawrence Yun, chief economist of the National Association of Realtors, said that the group and some Treasury officials met to create an initiative to strengthen the housing market and reduce foreclosures through low mortgage rates.
The group’s proposal requires the federal agency to subsidize loan rates to allow home buyers to pay 4.5 percent for 30-year fixed-rate mortgages.
Yun explained that the initiative is expected to cost nearly $50 billion. He added that a 4.5 percent rate, which is lower by a percentage point compared with the current rate, is expected to increase home sales by 500,000 by 2009.
He believed that a lower mortgage rate would encourage people to purchase foreclosed homes despite the risks that home market prices will go on falling and the economic situation will worsen.
