Interest Rates Will Rise in March 2010 and on

The government purchasing of mortgage backed securities is nearing an end. To quote, Steve Harney, national residential real estate expert, “When the banks have to lend their own money to people on a 30 year loan, they’re not going to be satisfied with 5%…”If you’re frequented my website, you know that I pay close attention to what’s happening in the real estate market. I do this so I can be a strong source of valid and useful information for my clients and my readers. What I’m going to cover in this article is going to be like smelling salts that wake you up from a daze.

The Fed will gradually slow the pace of the purchasing mortgage-backed securities (MBS) in anticipation of a full execution of the program to keep the mortgage interest rate low by the end of March, 2010.

It marks an extension of the MBS-purchasing program past the previously anticipated year-end date of December 2009. The slowing of purchases is intended to “promote a smooth transition in markets” as the government ends its participation in the agency MBS market. Basically, the government is going to stop buying mortgage securities in March, 2010.

To implement the gradual slowing of agency MBS purchases, agents acting on behalf of the Federal Reserve Bank of New York’s open market trading desk plan to reduce the average weekly purchase amounts beginning with the reporting week that starts September 24, according to a NY Fed statement.

Will the real estate market be strong enough to withstand this slowdown? Are banks and their investors, willing to invest money into such an unsteady market area, such as the current real estate market? This is the big question…is the party [of low interest rates] coming to an end?

With the largest purchaser of MBS, not buying up these assets (helping turn money over quickly for banks and their investors), will banks be apt to continue writing mortgages at 5%?

The answer is no.

So rates will go up after March, 2010.

Question is, how high and will buyers continue coming out to buy? I would say the answer to buyers still buying is a big fat YES [they just can’t pass up the fact that prices are down 35% from peak]. Additionally, as mortgage interest rates go up, prices must drop.

NJ Foreclosure Update

Mortgage foreclosures way up in N.J.

By Cynthia Burton

Inquirer Staff Writer

New Jersey’s residential-mortgage foreclosure rate shot up 29 percent from 2008 to 2009, with a South Jersey county among the hardest hit, according to statistics released yesterday.The number of commercial foreclosures, meanwhile, was up 68 percent, from 875 to 1,471.

The counties with the biggest increases in residential foreclosures were Atlantic, Bergen, and Sussex.

Nationally, about 2.8 million properties are in some stage of foreclosure, an increase of 21 percent over 2008, according to a report by Realty/Trac Inc., which tracks foreclosures.

Pennsylvania had 44,732 foreclosure filings last year, a 20 percent increase over 2008, according to the report.

The foreclosure crisis will not get better any time soon, said James Hughes, dean of the Edward J. Bloustein School of Planning and Public Policy at Rutgers University.

The crisis started when lenders sold exotic mortgages to people who neither understood nor could afford them. Now the crisis is rapidly moving through the middle class.

“There were a lot of sharks in the cities getting people to buy existing housing at inflated prices, and people were in over their heads. You had all those scandalous mortgage products,” Hughes said.

And he said there is a “shadow inventory” of foreclosures. At President Obama’s request, many banks have held back on publicly filing foreclosure actions, but that won’t last.

In New Jersey, most of the properties in foreclosure, about 63,000, were residential, according to figures compiled by the Office of the Clerk of the Superior Court. In 2006, there were about 25,000.

Many residents find their mortgages are higher than their home values, putting them under water.

“Joining into the aftereffects of predatory lending, you now have middle-class households who have lost their jobs and stretched themselves too thin,” Hughes said.

New Jersey’s unemployment rate hit a 33-year high, going to 10.1 percent in December, according to figures released yesterday by the state Department of Labor and Workforce Development.

Phyllis Salowe-Kaye, executive director of New Jersey Citizen Action, which counsels distressed homeowners, said a group of failing mortgages “won’t be kicking in until the end of 2010 and 2011. It’s really a serious issue.”

The courts have been feeling the bump since at least 2007, when filings went up from 24,857 to 36,360.

Kevin Wolfe, chief of civil practice in the Administrative Office of the Courts, said there was a five- to six-month backlog in reviewing cases.

Another factor delaying foreclosures is that since last January, the state has required lenders to try to mediate alternatives with delinquent property owners. They are not obligated to make deals.

Salowe-Kaye said she had mediations scheduled through April, a four-month backlog between the time a foreclosure is filed and her organization can get a mediation meeting with a lender.

Advocates and the state are still struggling with ways to slow the mounting number of foreclosures.

A $40 million fund aimed at reducing mortgages for troubled homeowners went largely unspent due to technical problems.

Former Gov. Jon Corzine took about $29 million of it to patch the budget hole, and the Legislature recently reallocated the money for other uses.

The problem was that the program came too late in the process, Salowe-Kaye said.

The “defunded” state program offered $25,000 loans to qualified homeowners who could persuade their lenders to cut their mortgage principles by $25,000, thus making the loans more affordable.

Money left in the program has been allocated to counseling people who have missed a monthly payment or two and to helping them get back on track with their lenders when they fall a month or two behind in their payments. And other money - about $8 million - would go into a revolving loan fund that community developers would use to buy and fix up foreclosed homes, said Assemblywoman Mila Jasey (D., Essex), who sponsored the bill reallocating the money.

“It’s really important to get that money out right now,” she said. “We have speculators who are buying up property with no intent to return those properties to the people in the neighborhoods.”