Foreclosures March On Without Respite

Posted in Foreclosures, October 15th, 2007 |

A foreclosure wave has engulfed the country. Pennsylvania, Bucksand Montgomery Counties too get infected. The numbers keep rising, according to releases form Buck County Sheriff’s office. Although these regions are not so badly hit as California and others where once the ratio was 1:68, the foreclosure problem is slowly but surely creeping up. In Montgomery County and Bucks County it is up by 30% and 42% respectively as compared to the same time last year.

The gloomy prediction is that this is only the beginning. The less expensive units are taking on the first blow but others will not be spared. This is the view of a spokesperson of Consumer Protection office in Buck. In the Sheriff’s sale at Buck 125 properties were on the shelves. Of these three out of four were from Lower Buck with loans ranging from $100,000 to $200,000. Only three properties got sold to a third party. Many owners file bankruptcy or try to sell the house themselves to clear dues. Some just turn over the keys to the bank and walk off with empty pockets.

This foreclosure crisis didn’t happen overnight. The story started five years ago when lenders strayed from the traditional path of 30 year fixed mortgage with 20% down payment. The aim was to rope in more borrowers anyhow because few could avail of the conservative loans. The new category of sub-prime mortgage was lax in its rules. The borrower had to pay only the interest, the rate was floating and no income proof was asked for. It came to be termed ‘liar loans’.

The word ‘sub-prime, refers to the loan and not to the borrower. It is a kind of loan wherein the borrower can ask for more than what he or she is eligible for. The rule of thumb is not to borrow more than two and a half times the annual income. Thus a family earning $80,000 per annum should not take a loan of more than $200,000. Sub-prime loans are not totally misfits but were initiated to suit the right type of people facing specific situations. Unfortunately these sophisticated loans were sold to unsophisticated borrowers who did not understand the implications.

The issue of bailing out is hot on the lips of politicians and social activists. One should tread warily sifting the true victims of foreclosures from those who were investors and speculators.