Mortgage Trends This Week: Oct. 11

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The foreclosure fiasco continues to dominate the headlines, so much that you have to wonder how much damage those suspended foreclosures will have on the mortgage market.

Certainly, the problem isn’t going away anytime soon. Bank of America (Stock Quote: BAC) announced last week that it is expanding its foreclosure suspensions to all 50 states. At the crux of the problem are thousands of foreclosures that the bank can’t – at least right now – verify as legitimate.

The foreclosure process has been poisoned by “robo-signing,” or bank analysts signing off on foreclosures without reading the loan paperwork. Bank of America, JPM Morgan Chase (Stock Quote: JPM) and Ally Bank have all put foreclosures on hold until their loan processes can be reviewed and steps can be taken to ensure the veracity of all home foreclosures.

Not every major lender is shutting off the mortgage spigot, however. Wells Fargo (Stock Quote: WFC) announced on Friday that it wouldn’t suspend foreclosures, and that it was standing by its paperwork.

Still, how will all of this impact the mortgage market, especially at a time when interest rates are so low? In the short term, it shouldn’t be a major deal. Banks and lenders are doing the right thing by stepping back and taking a hard look at their foreclosure documentation practices. Once new internal procedures are plugged in, foreclosures can resume and the impact on the market will be minimal.

Yet what could complicate matters is if the foreclosure fiasco continues too far into 2011. Right now a big factor weighing on home prices is the amount of bank-owned properties. To get these homes off their books, lenders have cut prices and are attracting potential buyers. But if that pipeline is shut down for a prolonged period due to the robo-signing issue, those potential sales will remain dormant and might keep buyers on the sidelines.

Additionally, if the foreclosure scandal persists into 2011, the spring selling season, which is traditionally the most active time on the home sales calendar, will begin with fewer homes on the market. That could further damage an already fragile U.S. housing market.

That prospect may not be the first thing on home sellers' and realtors' minds. As always, prices are paramount right now. According to Zip Realty, a Calif.-based online real estate firm, homeowners with “for sale” signs on their lawns are cutting the prices of their homes nationwide. The company says that 47.8% of “for sale” homes in 26 key U.S. regions have cut their asking price. The median reduction is $19,165, the company reports, which is over 7% of the average listing price.

Consequently, if one word could sum up the mortgage market this week it would be “uncertainty.” With so many factors up in the air, buyers remain tentative, and that can’t help the housing market.

There is, however, one reliable factor impacting home sales: low interest rates.

Once again last week, rates slid for both the 15- and 30-year fixed-rate mortgages, as measured by the BankingMyWay Weekly Mortgage Rate tracker. Here’s a look:

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Description                             This Week                   Last Week

One-Year ARM                       3.891%                        3.715%
Three-Year ARM                     3.778%                        3.554%
Five-Year ARM                       3.462%                        3.473%
15-Year Mortgage                    3.886%                        3.972%
30-Year Mortgage                    4.363%                        4.534%

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If you're in the market for a new home, you still have a green light in front of you. But if you're looking at a foreclosed home, slow down at the yellow light to check which lender holds the home title, and act accordingly.

Besides that, check out BankingMyWay’s Mortgage Rate Search for the best home loan rates. Week to week, it's your best bet for finding the best mortgage rate deal possible.

—For the best rates on loans, bank accounts and credit cards, enter your ZIP code at BankingMyWay.com.

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