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Foreclosures still a concern as Fed raises emergency loan rate

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By : E. Nathaniel    99 or more times read
The Federal Reserve board made a surprising move Thursday, February 19, when it raised its emergency loan, or “discount” rate for banks from .5 percent to .75 percent. This sent financial markets into action as consumers and businesses are now concerned that a tighter monetary policy is going to go into effect sooner than later.

Central Bank leaders were quick to point out that the move is not tied to the board’s policy on regular lending rates. The current basis rate for Fed funds is zero percent, which it has been for some time. The idea has been to stimulate demand for housing and financing by making the cost of loans easier for businesses and home buyers to take on.

Still record levels of homeowners in financial distress and dealing with foreclosures is one thing that might help keep conventional rates in check for the time being. While housing data and total foreclosures have improved somewhat in the last several months, many Americans still owe more on their homes than they are worth.

The Mortgage Bankers Association released results of a report Friday that found that mixed results on the foreclosure front. The good news is that borrowers in the early stages of delinquency are fewer, with only 3.6 percent of homeowners 30 days delinquent in the fourth quarter of 2009, compared to 3.8 percent in the third quarter. The data was surprising as often higher winter expenses causes an increase in challenged mortgagees.

A look at the bigger picture shows there are still record numbers of homeowners in some sort of delinquency or foreclosure situation. However, top analysts point out that the deterioration of early stage delinquency is eventually going to help reduce the number of total homeowners in financial distress as the pool of foreclosures empties.

A little less than 10 percent of borrowers were delinquent in the fourth quarter with around 4.5 percent involved in the actual foreclosure process. This means a total of a little over 14 percent of homeowners dealing with financial troubles with their loan, the highest ever since the initial MBA survey in 1972.

Seriously delinquent borrowers are still the major concern for officials. With unemployment still high, many Americans have found themselves mired in almost impossible situations of trying to keep up with interest rates and late payments while struggling with zero or little income or assistance.

The good news is that many analysts believe unemployment has either peaked, or is near its peak at just under 10 per cent. So, while many homeowners are already in no win situations, the decline in the number of delinquencies shows that more people are finding jobs and avoiding getting into trouble in the first place. This is a good sign for the long term with regard to foreclosures.

It is hard to imagine the Central Bank raising its funds rate, which would raise the cost of borrowing for businesses and consumers, if it is still concerned about housing and foreclosures.
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