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Are Bad Credit Mortgages Holding the Housing Industry Hostage?

Housing is going to go down again in the first quarter of 2010,” said Steve Horne, chief executive of Wingspan Portfolio Advisors, a firm that facilitates loan modifications. “The real healing won’t begin until all these nonperforming home loans for bad credit start trading in earnest, until we get these borrowers back on their feet.”  The subprime market has not recovered since its collapse in 2006.

David Lowman, CEO of Chase Home Lending, also thinks the mortgage market could run into trouble early next year, especially if the Federal Reserve ends its purchases of mortgage-backed securities, a strategy that has artificially supported liquidity and kept home mortgage rates at historic lows.   “A lot does depend on how long the government keeps its buying up,” he said. “Home mortgage rates are at all-time lows, but once the buying stops we’re going to come to a pretty hard stop. We’re likely to see a much smaller mortgage market after the 2nd quarter and later in 2010.”   “We still have a crisis in the number of people who can’t pay their mortgage, and we haven’t seen the peak of that yet. It’s going to weigh on us for several years,” he said.

The official economic forecast from the MBA isn’t so gloomy. Jay Brinkmann, the trade group’s chief economist, predicts sales of both new and existing homes will rebound strongly in 2010 as mortgage rates remain relatively low, although mortgage loan originations will fall as refinancing activity falls by more than 40%. “Housing starts will be up, but they will still only be half of what they were at the peak in 2007,” he said. “And sales will be up, but they will remain concentrated in the lower end of the market. There are still strains on the McMansion market.”

Despite the uncertainty of what will happen when the Fed pulls its support from the mortgage-securities market, Brinkmann said mortgage interest rates should still be relatively low in 2010, gradually moving up to just over 5 1/2% from just under 5% today.   “There are some green shoots – fewer houses on the market, rising sales and stable prices in some markets. But the environment is fragile right now,” said Barbara Desoer, president of Bank of America Home Loans and Insurance.

Posted in Home Financing Articles, Mortgage News, Published Article, Subprime mortgage news.

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