With housing values still falling in much of nation, the rate of mortgage abandonment has reached nearly 25%. To make matters worse, delinquencies continuing to climb at alarming levels, and given the current pace, Housing Predictor is projecting that there will be more than 17 million foreclosures over the next five years. While foreclosures pose the greatest economic threat, and exert a devastating psychological toll, legislators are dragging their feet on mandating mortgage modifications and banks are tightening their stranglehold on credit. See the following article from Housing Predictor for more on this.
The record volume of foreclosures is growing as first forecast by Housing Predictor in 2006. The epidemic has become the nation’s single most important economic problem as millions of homeowners lose their homes and the crisis makes a widespread damaging impact on the U.S. economy.
The majority of homes now being foreclosed are fixed and adjustable rate conventional mortgages. Massive mortgage losses, however, are being written off slowly by bankers with recently adopted accounting changes. The federal government is incentivizing bankers financially to do short sales and cash for key programs for borrowers, who do not qualify for mortgage modifications.
An increasing number of homeowners, estimated at as many as 1 in 4 current foreclosures, are walking away from properties as a result of falling values. Two separate surveys by Housing Predictor found that nearly 1 in 3 mortgage holders said they would walk away from mortgages if housing prices continue to fall.
In its most recent survey the Mortgage Bankers Association found that 1 in 7 mortgages are now at least one month behind. Due to the rise in homeowner walk-a-ways, lack of forced bank modifications, growing unemployment figures and negative public sentiment Housing Predictor forecasts foreclosures will now top 17-million homes through 2014. More than 4.5-million homes have been foreclosed so far in the unprecedented crisis.
Housing Predictor forecast 10-million foreclosures as recently as June, but the economy and lack of powerful government involvement are worsening the crisis.
A bill in Congress could force bankers to modify mortgages, but the proposal has been bogged down in committee and public outcries have not grown to make the bill a Congressional priority. If passed, the bill could have a major impact on the volume of foreclosures in future years, but since Congress gets its most efficient work done when it operates in emergency mode the economy would have to take a major turn for the worse before lawmakers would see the need to act in an urgent fashion.
The foreclosure crisis is impacting every facet of the U.S. economy. Bankers are hesitant to make loans and holding on to their deposits more closely fearing further weakness. During the height of the real estate boom home values were rising as fast as 3 to 5% a month in some areas of the country. The booming market produced a nearly euphoric hysteria as homeowners talked like they were making more money on a daily basis even if they did not sell their property. Millions took out extended lines of credit and refinanced, essentially borrowing against their homes like piggy-banks.
Now that the asset bubble has deflated, homeowners with a deflating asset are depressed about over-burdened financial obligations. The psychological impact is known as the “wealth effect,” and now that the outlook is not promising millions are looking for a way out.
The crisis will take years to run its course and its taking bankers longer and longer to foreclosure because of moratoriums, new state laws forcing modification mediation in some instances and a back-log of defaults, which are overwhelming bankers.
Lenders have also been holding-off on some foreclosures awaiting additional government assistance or direction. On average each and every foreclosure costs the economy $225,000, which was the average mortgage made during the boom.
More than three years have now passed since Housing Predictor issued its first foreclosure epidemic forecast.
This article has been republished from Housing Predictor. You can also view this article at Housing Predictor, a real estate analysis and forecasting site.