Foreclosures And Sub-prime Lending Top Priority In Washington

The increasing rate of foreclosures forced top officials of the city to call for a meeting. The Main agenda of the meeting of Federal Reserve Board’s Consumer Advisory Council in Washington on Thursday was home mortgage foreclosures. A report by the central bank pointed out the sluggish growth rate of loans in the real estate sector in the last four years due to the constant increase in foreclosures. The meeting was attended by chairman Ben Bernanke along with advocates of the bank. Fed Governors Susan Bies, Frederic Mishkin and Randall Kroszner were also present.

There has been a steady increase of the Fed interest rate for two years which in turn, slowed down the housing sector and also suppressed the demands of loans. A homeowner’s situation has been quite distressing of late. Fed’s periodical “Flow of Funds” account shows that there is just a marginal gain -$793.5 billion -in mortgage borrowing from the year of 2002. This is the smallest increase in loan figures since 1989.

The benchmark rate of Fed in June was 5.25 percent. But in 2005, the net new borrowing of loans increased by $ 1 trillion, and then the prevailing rate of the Fed interest rate was 3.2%. Experts believe that the Fed will keep the rate unchanged till September 2007.

In the meeting, the condition of homeowners in Philadelphia, New York and Denver was discussed. In all these areas the homely ambiance is fading away because of the burden of loans or due to foreclosures. The delinquency rate, on the loans taken from every bank, has increased by 2.10 percent. This is highest figure since 2003.

The fact that there are 1.21 million families at stake due to foreclosures made Stella Adams, an executive director 0f the North Carolina Fair Housing Center (present in the meeting) very sad. RealtyTrac data confirms that there were around 1.19 million foreclosures reported countrywide in the previous year. This figure is 41% more than that in 2005.

Advocates present in the meeting believes that the main culprit behind this is sub-prime lending and the poor paper work of loan agreements. Also, the segment of people who fall in this bracket are from the middle class strata with scarce bank accounts. These are the people who generally avail of sub-prime loans. On 2^nd March, regulators of the bank released the proposed guidance on subprime loans.

This meeting has definitely made the chairman Ben Bernanke and the other involved people cautious about increasing foreclosures in the real estate sector. We can but hope for an improvement in foreclosure figures in the future.

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