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Low 2011 Mortgage Rates Won't Stop 2012 Foreclosure Wave (Update1)

Updated with additional information on bank foreclosures.

NEW YORK (TheStreet) -- Mortgage rates remained amazingly low for 2011, but that won't stop a coming wave of foreclosures in 2012.

Mortgage rates finished near all-time historic lows in 2011. Freddie Mac (FMCC.OB) on Thursday released the results of its Primary Mortgage Market Survey. The 30-year fixed rate mortgage rate ended 2011 with an average 3.95% for the week ending Dec.29, 2011, up from the previous week's rate of 3.91 % but significantly lower than the 4.86% averaged in the year-ago period.

The 15-year fixed-rate mortgage averaged 3.24%, up from 3.21%, but lower than the 4.20% averaged a year earlier.

Looking ahead, Freddie Mac economist Frank Nothaft expects mortgage rates to remain very low at least through mid-2012, as the Federal Reserve has indicated that it will keep the federal funds rate near zero till as late as mid-2013.

He does expect housing prices to bottom in the later part of 2012. " Low mortgage rates and existing house prices could lead to a bump-up in sales by 3 to 5 percent in 2012 over the 2011 level," he wrote in his commentary. "While encouraging, sales volume is still low, given the strong current affordability of housing. And ample distressed sales and sluggish home-buying demand will continue to keep prices soft in many markets: We expect U.S. house-price indexes to move lower before bottoming out in 2012, with modest appreciation forestalled until 2013."

With rents climbing and housing affordability remaining at its best level in years, some economists are predicting that buyers who have stayed on the sidelines will return to the market in 2012. Hedge funds are beginning to bet on a recovery in the housing market, the Wall Street Journal reported on Thursday.

Recent housing data has sent confusing signals about the direction of the housing market. The S&P Case-Shiller Housing Price Index showed home values in the 20-city composite falling 3.4% in October on a year-on-year basis and 1.2% over September.

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