Foreclosure Crisis Trickling Down From Cities To Towns

Posted in Foreclosure Crisis, December 4th, 2007 |

The local and state governments will be gathering down for the budget session for the fiscal years 2008-09. But they are in a tizzy and huddling together over the newsbreak that foreclosures will soon seep into the smaller communities. This will worsen the situation with another 1.4 million houses being caught in the foreclosure net. Real estate prices are expected to fall further.

The worst affected are Florida and California – the two states that lapped in the luxury of escalating housing prices during the boom. The Associated Press reports that the Global Insight, an economic consulting firm, had compiled a study for the US Conference of Mayors that held a meeting in Detroit last week. The focus was on the foreclosure crisis and its related problems of crime and misery in the locality. The foreclosure net is spreading to include the general economy, according to some of the mayors. It is telling on the social fabric by breaking the backbone of society – the families.

Global Insight apprehends that property values will dip by $1.2 trillion in the coming year. California will account for half the figure. Here prices will go down by 16% whereas in the rest the drop will be by 7%.

The problem is from the drinking of a witch’s brew consisting of lending to high-risk borrowers in the sub-prime mortgage category. Now the poison is beginning to work and spreading like toxic fumes over all who made and took the drink and hapless bystanders also. With interests doubling, the borrowers just cannot manage. The inevitable result is foreclosure.

Politicians and lenders are in a scramble to help borrowers – in an attempt to save their own skins. ACORN – Association of Community Organizations for Reform Now is a consumer advocacy group operating across the county. It has recommended three suggestions to the mayors. Firstly to make the lenders agree to a 30 year fixed rate loan by modifying the existing loan so as to make the loan affordable to the borrowers. Secondly to finance counseling so that vulnerable families can be assisted and thirdly to call a moratorium on ongoing foreclosures.

Given the present scenario it is to everybody’s interest to halt the dreaded forward march of foreclosures. That includes the federal government, as overzealous lenders have been primarily responsible for this catastrophe. However the communities should be cautious about any tax-payer-subsidized plans.