On the House: Low rates, but banks hold back

<div class=”container_image_left”> <a href=”http://www.philly.com/inquirer/columnists/al_heavens”><img src=”http://media.philly.com/images/40*40/may08_inq_heavens1.jpg” alt=”” title=”” class=”img_border” border=”0″ height=”40″ width=”40″ /></a> By Al Heavens </div> <p class=”byline lastline”>Inquirer Real Estate Columnist</p> As mortgage rates decline, the question most readers are asking me these days is this: How low can they go?<p> What the experts are telling me is that the rates could fall below 4 percent without more government intervention. </p><p> The Fed’s decision to create the lowest possible rate target for federal funds – money the central bank provides to lenders – was an effort to encourage looser credit. It doesn’t really seem to have worked. Banks continue to be tightfisted, and the economy is at a standstill.</p><p> If lenders aren’t willing to ease the rules and actually begin lending again (with the proper controls), then it really doesn’t matter how low the rates go. Few people will be able to borrow, and we’ll get stuck even deeper in this mess.</p><p> Foreclosures are at record numbers, and predictions are that the situation will get worse before it gets better. Voluntary loan-modification programs to rescue borrowers in trouble aren’t working – a pronouncement that comes from both the comptroller of the currency and advocacy groups.</p><p> In many cases, some of these “modified” loans involved payments higher than before they were “fixed.” </p><p> <span style=”font-weight: bold;”>Philadelphia mortgage broker Fred Glick maintains that the same people who wrote stupid loans are now in the loan-modification and credit-repair business (both unregulated), and he periodically sends me e-mails he gets promising high returns to brokers using these outfits. </span></p><p> “I am surprised that anyone is surprised,” Peter Buchsbaum, a veteran Abington mortgage broker, said of loan-modification problems. “We allowed the same decision-makers to make a new loan. They lent money either to the wrong borrower or put the right person in the wrong loan originally, and now they have a new plan.”</p><p> The mortgage industry needs to get back to looking at loans not simply based on “some computer criteria,” Buchsbaum said, but at “people who have shown an inclination to pay a debt in the past and can they afford the payment going forward. The loan and borrower must make sense together.” </p><p> New Jersey is rolling out a program designed to put some controls on mortgage modification. Spokesman Chris Donnelly says the program will have homeowners and lenders working with mediators and housing counselors to structure modifications that will be affordable to the homeowners.</p><p> In addition, the state’s Foreclosure Prevention and Mortgage Assistance programs, both of which use trained, certified counselors, are designed to help homeowners fix their delinquent mortgages permanently.</p><p> Can we go much deeper into the foreclosure pit? We can and will, I’m sorry to say.</p><p> “What is truly disconcerting is that the greatest increase in delinquencies is in prime mortgages,” said Philadelphia economist Kevin Gillen. “What began with subprime has spread to the larger housing market, and to the overall macroeconomy.</p><p> “The downturn in the housing sector may have started the downturn in the national economy, but that dynamic has now been turned around the other way,” Gillen says. </p><p> “We’re all subprime now.”</p>

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