According to a study by the Boston Federal Reserve, it's not the high interest rates that are the main cause of foreclosures across the country, its unemployment! The lowered interest rates are definitely bringing in the new home buyers, but it's the lack of work and the declining home values that homeowners are suffering from, rather than the mortgage terms.
The Obama Administration has set a plan into action for modifying mortgage loans, but studies show that the foreclosure prevention plan should focus on more effective ways of ridding the market of foreclosures. Some of the Boston Federal Reserve economists believe that replacing some of the homeowners lost income, due to a job loss, through grants and loans, should be added to the plan. Another addition that should be added to the plan, is for the homeowner that is "to far gone" to receive aid in the transition from homeownership to becoming a renter.
If the reason that these people defaulted on their loans is still in place, modifying the loan is only prolonging the inevitable. According to the Boston Federal Reserve economists, "The foreclosure-prevention policy should focus on the most important source of defaults."
