Low Interest Rates Prevent More Bank Foreclosed Homes
May 18th, 2009 by 
Joseph Smith
The decision of the U.S. Federal Bank to lower interest rates has allowed some distressed homeowners to refinance their mortgage and avoid bank forclosed homes, according to Dallas Federal Reserve Bank Richard Fisher. The lowering of interest rates is part of the agency’s effort to boost the economy and stabilize the housing market.
In 2008, the central bank lowered the federal funds rate to almost zero. The move was made in anticipation of the deluge of variable rate mortgages scheduled to reset at the end of 2009. The resetting of variable rate mortgages is expected to continue until 2011.
Central bank governors were concerned that the coming resetting of variable rate mortgages would trigger a flood of foreclosures that would extend and intensify the economic recession. Fisher explained that the agency made the decision to lower interest rates because of the looming foreclosure crisis, adding that what the country is experiencing right now could be worse if interest rates were not reduced.
Fisher’s claim that the economy is showing signs of recovery is echoed by his regional counterparts and Federal Reserve Chairman Ben Bernanke. However, Fisher cautioned that the recovery would be a slow one for some time.
He cites several signs of economic recovery, including the revival of short term lending for businesses and the increase number of companies able to sell bonds because they have access to capital that they need in order to grow.
He also noted that U.S. producers received high prices which ease anxiety that deflation or price decline would reign and undermine efforts for economic recovery.
Meanwhile, Fisher said that the agency is concerned that the liquidity designed to boost the economy would trigger inflation, However, Fisher said that it is not an immediate problem because of the slackening of both production and employment.
He predicted that joblessness will continue to increase nationwide and will hit 10 percent before the year ends. Out of the 12 federal districts, only Texas has experienced an employment increase in 2008.
Data showed that the current unemployment rate is pegged at 119,000 and is expected to increase to 300,000 by the end of 2009. Market studies and trends showed that increasing unemployment is the major factor that will trigger the second wave of bank foreclosed homes.
