Search:

Rising Forclosures, Rising Concerns

In a news article over the internet reads; “foreclosures of property in the U.S. still rising”. It caught my attention anxiously and I begin to wonder about what is going on. 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.

Nevertheless, news sources declares that the filing for foreclosures of property shoots up to an all time high of 47% in the states in U.S. last March of this year. On the average, foreclosure activity is predicted to jump down substantially during this time of year as borrowers use their tax refund to pay for their outstanding debts. Nonetheless, this year the percentage and numbers are calculated to climb some more in an unprecedented stage. The up-surge picks up despite efforts of loan managers to provide remedial measures to keep their mortgages at a manageable 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 submit 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 a distress signal, which cause panic relentlessly in the lending sector.

Nevada for instance, has one of the soaring foreclosure rates in March this year wherein the number of claims 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. Las Vegas, which is second to Detroit, is among the cities, which have the highest foreclosure rates since March 2007.

According to authorities who conducted the study, the link between subprime lending and increases in foreclosure activity is even more evident 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. According to 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. In the state of California, cities with high foreclosure activity rates includes Vallejo-Fairfield, Modesto, Sacramento, Riverside-San Bernardino and Bakersfield, all in the top ten.

This high-risk and speculative mortgage scheme has enormously affected the lending business sector. It has turned into a bad credit collection as more consumers reportedly fail to come up with alternatives to finance their shortfalls. This credit crunch undoubtedly pressed lenders to adapt some measures to contain the crisis and to protect borrowers from falling into abusive 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 make 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 vacant and dilapidating residential structures 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 rate of foreclosure activities constantly file-up inflicting damages into other areas in the mortgage market. As a result, many new applications have been turned down because of the implementation of tighter lending policies or standards, which has just begun.

If this trend continues in few more years as predicted, more and more American families might have no other option than to move out to other states or perhaps go 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 apprehension of losing, not just a house but as well as hard earn lifetime savings and dignity to mortgagors is among the least of their concerns.

An impending problem likely to impair the local economy in these cities is the saturations of vacant houses in the suburbs, which continued to spread in some areas in the United States. Its adverse effect is hurting the lending sector and feared to create a more chronic problem as these properties consequentially 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 superior condition. The worse thing is that as these vacant premises deteriorate they become eyesore in the community.

Property 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.