Lisa Simpson
Jan 14,2010
In: Foreclosures

Foreclosures are Making Government Think about Continuing with more Assistance

The government think about continuing with the assistance.

The government has already intervened considerably but despite this foreclosures are persisting. This is making many in the government think about continuing with the assistance. The mid-December meeting of Federal Open Market Committee indicated a continuing concern about how far the recovery has actually taken place considering the high unemployment figures and foreclosure numbers.

There are growing fears that the housing market that has just started to climb up would fall apart with the withdrawing of the tax credit incentives and reduction on mortgage rates. The fears increased with new figures showing that the interest rates of long term mortgages were increasing from the record breaking low levels of the last 12 years.

There were other signs that the economy was under stress although most of the economists agreed about the mild recovery progress.

But the Federal Open Market meeting opined that if the economists are proved to be wrong and the pace of recovery further slows down or foreclosures worsen then “more stimulus money” would be necessary. One member of this panel however opposed this view saying that the “quantity of planned asset purchases could be scaled back” because of the recovery being noticed in the economy.

Michael Gregory of BMO Capital Markets noticing the majority view of the committee said that definitely there has been a shift in the policy favouring further intervention. In a research note he wrote, “There emerged a definite skew towards more accommodation.”

The Federal Reserve has bought $1.25 trillion of assets backed by mortgages to help the lending sector. It has also kept the long term lending rates low. But the plan is supposed to end by the end of March 2010.

For sometime during the last year the programme had met with success by pushing down the mortgage rates to below 5% – something not seen since the fifties. But many experts say that closing down of the programme will again push up the rates making it costlier to take mortgages. This will result in reducing the number of potential house buyers.

Other emergency measures to bring stability in short term lending and other sectors are also going to be pulled back following the official closure of recession. The tax credit to home buyers will also end by 30th April.

James Bullard of the Federal Reserve Bank of St. Louis had said towards the end of last November that the Federal Reserve would not stop buying the securities.