The National Association of Realtors reports that both sales and prices were down in 2007, but there's another measure which has also fallen -- and this one is good news.

Interest rates are down. Freddie Mac reports that toward the end of January rates for 30-year fixed-rate financing reached 5.48 percent with .4 points. This interest level is not only ridiculously good when seen in the context of the last five decades, it may also be the key to containing the foreclosure mess.

Figures from RealtyTrac.com show that foreclosures in November were 68 percent higher than a year earlier. No less important, foreclosure numbers are expected to rise because millions of additional toxic loans remain outstanding.

In such circumstances it certainly makes sense for borrowers with exploding ARMs to refinance into stable, fixed-rate mortgages.

But many such borrowers have loans where mortgage balances have grown while home values have fallen. Such borrowers can only refinance if they bring cash to the table, cash they don't have. We also have borrowers who paid soaring mortgage costs but skipped other debts. Now with damaged credit, they no longer qualify for the best mortgage rates.

What can be done? Lenders had no trouble changing traditional underwriting standards when it meant big profits, now they're using ignored standards to lock borrowers into high-cost loans. Surely borrowers with significantly-lower monthly payments are a better risk than borrowers who are slowly drifting into bankruptcy. And certainly lenders are best served avoiding the big costs represented by foreclosures.

But what if lenders are not responsive to new marketplace realities? Then one very-real possibility is that an inflamed political process will impact the financing arena in a way that will comfort no lender.

Published: January 31, 2008

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