A news article on MSN says “US property foreclosures on the rise” caught my attention and made me uneasy about what was happening in the US real estate market. Even though several articles have been written news about similar or related topics every day, I felt so restless as I read the article more intensely. What has happened? What are the country’s expert economic planners doing to contain these growing concerns? Everyone looks up to the US as a formidable example of economic growth and stability in all aspects, including real estate.
However, the figures state that applications for property foreclosures has increased to an all-time high of 47% in the state of Colorado last March of this year. Typically, foreclosure activity is expected to drop significantly during this period, as borrowers use their tax refunds to pay off their shortfalls. However, this year it is observed that the percentage and the numbers increase a little more in an unprecedented amount. The increase takes off despite efforts by loan servicers to provide remedial measures to keep their mortgages at a manageable stage.
This, according to the Mortgage Bankers Association, has something to do with subprime loans called “subprime loans,” which require no income statement or financial documents from consumers, giving them easy access to loans. . Consequently, the number of delinquent accounts has skyrocketed in recent years. In the year 2000, about 2.4% of all outstanding loans are subprime, however, by the end of 2006, it has risen to 13.7% enough to raise an alarm bell, causing relentless panic in the credit sector.
Nevada, for example, has one of the highest foreclosure rates in March of this year, where the number of filings increased 29% in the last 3 months. Experts say this is more than triple the number recorded at the same time last year and four times the national average. Las Vegas ranks second to Detroit for cities with the highest foreclosure rates since March 2007.
According to the authorities who conducted the study, the relationship between subprime loans and increases in foreclosure activity is even more noticeable in California as more and more falling mortgage payments are reported. Subprime loans, they say, consisted of 22% of all types of loans at the end of 2006. Said to be the highest of any state in the United States. According to data provided by First American Corp., foreclosures in California increased 36% over the prior month, the most of any state, at 21% of the nation’s total. In the state of California, cities with high foreclosure rates include Vallejo-Fairfield, Modesto, Sacramento, Riverside-San Bernardino and Bakersfield, all in the top ten.
This subprime lending scheme has hit the business lending sector terribly. It has resulted in a credit crunch as more homeowners are reportedly unable to find options to repay their loans. This credit setback certainly forced lenders to initiate proceedings to contain the crisis and safeguard borrowers from needlessly engaging in poor lending practices and unfairly losing their homes. Small business lenders are now seeking help from large lending institutions like Citigroup and Bank of America in partnership with the National Neighborhood Assistance Corporation of America. Consequently, they should set aside $1 billion of mortgage money for assistance and push authorities to propose new policies that allow homeowners to refinance their loans by restructuring with a lower rate and more flexible term.
Local governments in Massachusetts and Ohio and other states such as Maryland, Virginia and Rhode Island, where suburbs are plagued by a glut of vacant and blighted bungalows due to foreclosures, are now taking initiatives to try to pull themselves out of this credit mess. . Part of the plan is to adopt more effective programs to revive local real estate and loan markets.
Although there have been concerted actions by the financial sector and government to address this growing problem, what hit me hard were the insights of UCLA Anderson’s David Shulman. His assessment of the current situation is that this situation could last until 2009 or 2010, as many adjustable rate mortgages from 3 years ago are now reset and the pace of foreclosure activity increases steadily causing damage to other areas of the market. mortgage. As a result, many new applications have been rejected due to the implementation of stricter credit policies or standards, which has just begun.
If this trend continues for a few more years as predicted, more and more homeowners could be forced to move to other states or perhaps to countries like Mexico and other places in Central America. Mostly, it’s because the cost of living in these countries is 70% cheaper than in major US states, where foreclosure cases are high. With everything still affordable in these countries, the apprehension of losing not only valuable property, but also life savings and the dignity of mortgagors is one of the least of their worries.
The saturation of vacant homes in the suburbs of these cities directly disrupts the local economy, as these properties consequently become “non-performing assets.” That means zero revenue for the loan company, aside from the added high maintenance costs to at least keep these units in top condition. What’s worse is that as these vacant premises fall into disrepair they become an ugly sight in the community.
Homeowners can only hope that the authorities enact a policy that regulates unfair credit practices, unreasonable interest rates, hidden fees, and overwhelming penalties for default or late payment. These major factors cause mortgages to rise out of control, forcing consumers to sadly relinquish their property to lenders.