One Million Homes Lost and Counting: How to End the Foreclosure Crisis Now
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Aug. 7th, 2008 | 12:04 am
posted by: jacksmoderator in corporatenews
Over one million U.S. homeowners have already lost their homes due to foreclosures since the mortgage crisis began last summer. Another one million homeowners are 90 days past due on their mortgages (foreclosure notices usually go out after 90 days) and two million more are 30 days past due, so three million more households may face foreclosure in the months ahead. If current policies do not change, it is estimated that up to five million homeowners would lose their homes due to foreclosure over the next few years. Five million is roughly 10% of the total number of homes with mortgages. This is clearly the worst housing crisis since the Great Depression, and will wreck havoc in the lives of millions of families unless something is done. A high foreclosure rate also has a deteriorating effect on surrounding neighborhoods, further depressing housing prices and quality of life.
Many of those facing foreclosure are low- to middle-income homeowners who were enticed into buying houses by fraudulent mortgage companies and low "teaser" interest rates that are adjusted up ("reset") after two to three years. As long as housing prices were increasing, homeowners could always refinance their mortgages and get a new teaser rate for another few years. However, now that house prices are falling, these homeowners can no longer refinance, and many of them cannot afford to pay the higher interest rates when they are reset. Falling prices also mean that many of these homeowners owe more on their mortgage than the current value of their house (i.e. they have "negative equity" in their house). The recession is also resulting in declining employment and income, meaning even more homeowners are struggling to make their monthly mortgage payments. The further housing prices decline, and the worse the recession is, the worse the foreclosures will be, in a vicious cycle.
Clearly, the federal government must take some positive actions to stop the spreading foreclosures, especially for low- and middle-income families, who would suffer the most. But what should those actions be? At a minimum, policies should apply only to owner-occupied homes, and not to "investor" or "speculative" homeowners (those who buy houses in order to sell them later at a higher price). But beyond this, various policies have been proposed, and not all of them would truly help homeowners at risk.
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