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Demand for New Mortgage and Refinancing to Prevent Foreclosure Pushed By Low Rates

Even during the holiday season, mortgage applications have continually climbed. The average number of mortgage applications has reached its highest in five years. They range from new loan applications to refinancing of already existing loans that are on the verge of foreclosure.

The sharp increase in demand can be attributed to the record-low mortgage rates. In December 2008, for example, fixed 30-year loan rate averaged 5.03 to 5.04 percent – the lowest since July, 2003. The drop in mortgage rates has pushed the demand particularly for loan refinancing for properties troubled by foreclosure.

To further put pressure on lowering mortgage rates, the Federal Reserve declared that it will start buying mortgage-backed securities starting January. Back in November 2008, it has already announced such plan. The Fed plans to buy $500 billion worth of securities.

Aside from mortgage rates, actual home prices have also been dropping, making home buying even more affordable. Home prices since 2008 have been approximately 23 percent lower than the prices in 2006. This resulted from increasing foreclosure rate, among others.

However, consumers have not yet gained back confidence when it comes to buying properties. Still having the recession in mind, consumers are reluctant to purchase homes in fear that they might end up in foreclosure.

Another reason why consumers are hesitant in investing in new properties is that home value falls in the long run, thus, they might not be able to acquire refinancing when the value of their property has already fallen lower than the worth of their mortgage.

Also, although rates have dropped, mortgage criteria have become firm on the other hand, making it difficult to have an application approved. Although the government can take measures to lower home costs, it cannot be of help when it comes to the credit record of borrowers. A homebuyer whose credit history is not very pleasing, those who have gone through foreclosure for example, still might not be able to buy a home.

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