How U.S. diffused the impact of foreclosures

Two years ago when the Federal government investigated paperwork fraud of leading mortgage lenders, everyone thought that it will lead to a glut of foreclosed homes in the market driving the prices down and leaving years of inventory in the market.  Lenders reached a $25 billion settlement with the Federal government.  Two years later, the expected foreclosures didn’t flood the market and home prices appreciated more than five percent as of October 2012 according to data from the National Association of Realtors.

Why home prices are going up?  There are many reasons.  Five major U.S. lenders provided loan relief to more than 300,000 underwater homeowners.  More than 22,000 borrowers received principal forgiveness and another 113,000 received approvals for short sales.  Historically record low mortgage rates resulted in record mortgage refinancing and that in turn lowered the monthly mortgage payments for many homeowners.  There are many financial industry behemoths such as Blackstone Group that are purchasing foreclosed homes even before they hit the market.  Many of them are buying foreclosed homes to rent out instead of rolling them back into the market.  The slump is not yet over since more than a quarter of U.S. homes owe more than the value of the home.