Friday, February 02, 2007 8:45 AM
Fed Stands Fast on Rate; Little Solace for Homeowners
posted by
joelc
It wasn’t long after Ben Bernanke took over the reins of the Federal Reserve from Alan Greenspan that he put a halt to the 17 consecutive upward adjustments in the federal funds rate (FFR) — the short-term interest rate banks charge each other — back in August 2006.
On Wednesday, the Federal Open Market Committee (FOMC) decided to keep its hands-off stance, leaving the FFR at 5.25 percent. Needless to say, many real estate industry analysts are hoping the Fed continues to maintain this wait-and-see attitude towards the national economy for the remainder of 2007, giving the industry a chance to fully recover its lost luster after five years of prosperity.
In a statement released Wednesday, the FOMC seemed pleased with the overall progress of the economy in a positive direction, especially the housing sector. “Recent indicators have suggested somewhat firmer economic growth, and some tentative signs of stabilization have appeared in the housing market,” the Committee said.
Although this bodes well for consumer loans, home equity lines of credit, and credit cards, it does little to alleviate the long-term effects starting to be felt by homeowners who signed on to very risky adjustable-rate subprime mortgages during 2005 and 2006.
The interest rates on more than $1 trillion in these “exotic” mortgages are due to reset to higher rates in both 2007 and 2008. Perhaps the rate increase won’t be as much as it might have been otherwise due to the Fed’s latest position on the economy. However, there is no guarantee either. And when the rates are adjusted, many distressed homeowners will feel the effects of increased mortgage payments right away, resulting in the spigot to the foreclosure pipeline being opened at least a little more.
Total foreclosures increased nationwide by 42 percent from 2005 to 2006, according to the latest figures released by RealtyTrac. How much higher can they go is anybody’s guess at this point. Foreclosures are a lagging indicator of local economic activity, after all. So for information on the future direction of foreclosures around the nation, keep logging on to www.RealtyTrac.com.