Rising defaults and interest rates hamper Bernanke's rescue plans

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The mini boom in refinances fizzled quickly as interest rates crept back over five percent. At the same time, rising unemployment helped push homeowners into delinquency or foreclosure, setting a record for the number of homes in some stage of foreclosure during the first quarter of 2009. About 12.07 percent of mortgages were delinquent or in the foreclosures process in the first quarter.

All this bad news means Federal Reserve Chairman Ben Bernanke's efforts to lower the costs of mortgages and revive the housing market are stalling. Now that mortgage rates are over five percent, refinancings have stalled. "Housing is not going to be the engine to get us out of this recession," Robert Eisenbels, Chief monetary economist for Cumberland Advisers, told Bloomberg. "They've squeezed a lemon and now they're trying to squeeze some more, but you can only get so much juice out of a lemon."

Refinancing applications fell 19 percent to the lowest since early March, before the Obama administration announced the loosening of rules for Fannie Mae and Freddie Mac. The Fed also hoped to keep mortgage rates down with its aggressive program of purchasing mortgage-backed securities and Treasurys. When first announced, 30-year mortgage rates fell to 4.78 percent, but by May 27 Bankrate.com reported the average rate was back over 5.08 percent.

The 12.07 percent of mortgages delinquent or in the foreclosure process during the first quarter of 2009 is the highest since the Mortgage Bankers Association started the survey in 1972 and up from 8 percent in the first quarter of 2008. The really bad news is that during the first quarter more prime mortgages went into foreclosure than subprime mortgages -- 49.8 percent were prime loans and 43.2 were subprime loans.

That means the impact of rising unemployment is now being seen in the default and foreclosure numbers. "More than anything else, this points to the impact of the recession and drops in employment on mortgage defaults," Jay Brinkmann, the chief economist for the Mortgage Bankers Association told The Washington Post. "Looking forward, it does not appear the level of mortgage defaults will begin to fall until after the employment situation begins to improve."

The majority of foreclosure problems remain centered in four states: California, Nevada, Arizona and Florida. These four states account for 56 percent of the increase in foreclosure starts. The first quarter housing sales market was weakest in the West, where sales fell 3.8 percent. Sales were flat in the Midwest and Northeast. The South saw an increase of 1.9 percent in sales.

Lita Epstein has written more than 25 books, including The 250 Questions You Should Ask About Buying Foreclosures.

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