Foreclosures Triggering A Domino Effect Of Problems

The foreclosure plague has impacted 20 million mortgage holders, and is sending ripples across every economic sector, crippling broader recovery. Nationwide, total home equity has fallen to nearly …

The foreclosure plague has impacted 20 million mortgage holders, and is sending ripples across every economic sector, crippling broader recovery. Nationwide, total home equity has fallen to nearly a third of its peak, while lenders like Bank of America are repossessing tens of thousands of properties each month. See the following article from Housing Predictor for more on this.

The foreclosure crisis poses the biggest threat to U.S. economic security in the nation’s history, and is now forecast by Housing Predictor to impact more than 20-million mortgage holders. The crisis is a clear danger to the U.S.

The epidemic of foreclosures has broadened to include consumers at every level of the economy, triggered a domino effect of problems, including higher crime, a drop in city, county and state revenues, increased homelessness and left more than 2-million residential properties vacant in the U.S.

The American Dream of Homeownership has transformed into a nightmare for millions of Americans, who are either at the risk of being foreclosed or have already undergone foreclosure. An estimated 3.5-million mortgage holders are forecast to be foreclosed in 2010 alone.

The new wave of foreclosures is already impacting markets in Southern California, Arizona and Nevada where the crisis triggered some of the worst housing deflation in the country. A new crop of ALT-A loans backed by Fannie Mae, Freddie Mac and the FHA are showing high levels of default. Nearly 4-million other mortgages are at risk of foreclosure in 2010 from subprime and what were newly created mortgage products developed by bankers that helped trigger the crisis.

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One of the most heavily affected lenders is Bank of America, which is taking back an estimated 29,000 to 35,000 properties a month, according to John Ciresi, vice president and portfolio manager for B of A. As the nation’s largest bank, the company took over pummeled Countrywide Mortgage before its collapse. Ciresi expects foreclosures to rise in 2010 because of the failure of the home loan modification program implemented by the Obama administration.

As a direct result of the foreclosure crisis, home equity has been slashed in less than half. Equity reached $13-trillion at its peak, but has dropped to less than $4.5-trillion. Retirement assets, which account for being the second highest asset class have dropped by at least a third, according to government figures.

Two Housing Predictor surveys found nearly identical findings nine months apart. One in three mortgage holders said they would walk away or strategically default on their mortgage if housing prices continue to fall. Growing evidence gathered from bankers at the largest U.S. institutions shows that more and more homeowners are keeping their word and walking away. Walk aways currently account for 1 in 4 foreclosures.

The foreclosure epidemic, first forecast by Housing Predictor more than two and a half years ago is a key factor in the global financial crisis as it drains wealth, diminishes the way people look at their standard of living and weakens the financial strength of banks and the government. It also causes bankers to keep a tight rein on their money supply, approving loans and mortgages of only the highest credit worthy individuals and businesses.

The total number of homes already foreclosed is difficult to determine since bankers provide little transparency in their record keeping, and new accounting changes enable them to keep losses off their public statements until a home is sold to a new buyer. But best estimates show that between 4.5-million and 5-million properties have already been foreclosed in the crisis. Another 15-million are forecast to be foreclosed through 2015.

Government efforts to lessen the impact of the crisis have been criticized for being piece-meal. The Obama administration’s modification program has only helped 66,000 homeowners modify their mortgages, although many more have seen mortgage payments reduced through refinancing.

However, it’s become clear that the administration does not have a clear plan to deal with the foreclosure crisis, which is a major danger to the economy. A bill in Congress is bogged down in committee to force bankers to modify mortgages, but the average bill presently takes seven years to become a law.

This article has been republished from Housing Predictor. You can also view this article at
Housing Predictor, a mortgage and real estate news site.

 

 

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