Growing Foreclosures; Bad For Real Estate Market

A news article over MSN reads: “foreclosures of property in US rising”, caught my attention and cause me to worry on what is going on in the US real estate market. Though there have been several news articles of similar or related issues written about it everyday, it felt as restless as I go through the article more intensely. What has happened? What do the country’s expert economic planners do to contain this rising concerns? Everybody looks up to U.S. as a formidable example of economic growth and stability in all aspects including real estate.

However, figures say that the applications for foreclosures of property is now climbing at an all time high of 47% in the states in U.S. last March of this year. Typically, foreclosure activity is anticipated to plummet substantially during this period as borrowers use up their tax refund to pay for their outstanding debts. Nonetheless, this year the percentage and numbers are expected to augment some more in an unprecedented scale. The up-surge resumes despite efforts of loan consultants to provide remedial measures to keep their mortgages at a minimal proportion.

The Mortgage Bankers Association disclosed that this mortgage chaos is a result of subprime lending, where lending firms grant loans to consumers without further requiring them to show income statements. The consequence of this “easy access” to loan is a high turn out of delinquent accounts filing up every month. In year 2000, around 2.4% only of all outstanding loans are subprime, however by the end of 2006, it has escalated to 13.7% enough to send off sound warning, which cause panic relentlessly in the lending sector.

Nevada, for example, has one of the soaring foreclosure rates in March this year wherein the number of filings increased 29% in the last 3 months. Experts say this is more than triple the amount accounted for the same time last year and four times the national average. Since March this year, Las Vegas is now second to Detroit in U.S. cities with highest foreclosure rates.

According to authorities who conducted the study, the connection between subprime lending and rising number of foreclosure activity is even more obvious in California as more and more declining mortgage payments reported. Subprime lending allegedly consists the 22% in all kind of loans by the end of 2006. It is said to be the highest compared to any state in the United States. Based on the data provided by the First American Corp., foreclosures in California surged 36% from the previous month, which represented the greatest number of any state accounted for 21% of the nation’s total. Other cities in the state of California which made it to the top ten with the most foreclosure rates includes Vallejo-Fairfield, Modesto, Sacramento, Riverside-San Bernardino and Bakersfield according to real estate news.

This high-risk and speculative mortgage scheme has enormously affected the lending business sector. It has turned into a lending disaster as more end users reportedly unable to catch up with payment schedules and fall short of their amortizations. This credit crunch undoubtedly pushed lenders to take preventive action to contain the crisis and to safeguard borrowers from falling into unfair lending practices unnecessarily and to avoid losing their homes unjustly. Small lending firms now seek the help of large lending institutions such as Citigroup and Bank of America in collaboration with the National Neighborhood Assistance Corporation of America. Accordingly, they are to set aside $1 billion of mortgage money for assistance and to encourage authorities to design new policies allowing homeowners to refinance their loans by way of restructuring it with a lower rate and a more flexible term.

Massachusetts and Ohio local governments and other states such as Maryland, Virginia, and Rhode Island, where suburbs are being affected by the saturations of unoccupied and deteriorating bungalows because of foreclosures are coming up with some bail-out measures to rid themselves of this credit mess. Part of the plan is to try more effective solutions to revive both the local real estate and lending markets.

Although there have been concerted actions on the part of the finance sector and government to address this rising problem, what anxiously affected me, is the forecasts of David Shulman of the UCLA Anderson Forecast. His assessment on the current situation is that this scenario could possibly last into 2009 or 2010 as many adjustable rate mortgages from 3 years ago now resetting and the momentum of foreclosure activities continue to accelerate extending into other areas in the mortgage market. As a result, many new applications have been disapproved because of the implementation of tighter lending policies or standards, which has just been initiated.

If this trend will carry on in few more years as predicted, more and more property owners might have no other option than to migrate to other states or perhaps move to countries like Mexico and other places in Central America. Primarily, it is because the cost of living in these countries is 70% cheaper than major states in the U.S. where events of property foreclosures are high. Since everything is still affordable in these countries, the fear of losing, not just a house but as well as hard earn lifetime savings and dignity to mortgagors is among the least of their worries.

The saturation of abandoned homes in the suburbs of these cities directly impairs the local business activity as these properties inevitably turn into “non-performing assets”. That means zero income for the lending company apart from the added high maintenance costs to, at least keep these units in good appearance. The worse thing is that as these abandoned homes deteriorate they become eyesore in the community.

Home owners can only hope that authorities would enact a policy that regulates and further enhances credit or lending practices, impose reasonable interest rates as well as limits to penalties in case of default or delay in payment. These major factors, if uncontrolled, cause mortgages to swell overwhelmingly, forcing consumers to give up sadly their properties to lenders.

Article Source: http://publisherscloninghouse.com

Julius Salera Robles COsta Rica Real Estate juliusr@costaricaconsultants.com

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