Foreclosure Crisis

Posted on October 14th, 2008 by saman

Foreclosure crisis in the USA has just started to make victims among social categories considered in the past immune to such problems. When people have noticed that any monthly rate of mortgage will increase with 30%, has realized how serious the situation can be. For example, they would have had to pay 1,500 dollars more than the previous month. Under such circumstances, people are worried over their future. Imagine that their children must go to school and they have as well taxes to pay there. If you manage to revamp your credit talking to the bank, your situation can temporarily improve.

However, future is not so bright for other Americans. Every month, millions of monthly adjustable rates are revamped at a higher interest level. This means that more and more homeowners risk foreclosure, as they are not able to pay mortgages. Higher and higher interest rates and a huge number of bank customers who are not able to pay their loans have influenced important financial companies and the effects of their failure may extend to other areas of America’s economy.

Actually, the USA has not faced such a crisis since the Great Depression in 1929. The effects of this crisis upon consumers, upon future foreclosure conditions can lead American economy to recession. This aspect can cause nightmares to investment managers as well.

According to statistics, about two million homeowners are about to face foreclosure and the value of the loans they have to cover is about 600 billion dollars and this value can increase during the following eight months.

Homeowners who are late with their mortgage payment or who cannot pay it can cause an overwhelming economic shock. Some of the most important American economists anticipate a frightening scenario. They say that the new foreclosure crisis will also influence negatively the USA economy, not only those people who will have foreclosed homes.

Foreclosures crisis can be solved if new properties enter the market, which will lead to a drop of about 40% of the properties in California, Nevada, and Florida. Companies like Neumann Homes, which have recently required bankruptcy protection, can fail. Workforce decrease can reduce consumption expenses, which generate two thirds of the American economy. Work Department has estimated that approximately 100,000 people have lost their job because of the foreclosure crisis. The same can happen to other thousands of Americans who work in the real estate area, but also in the case of the dealers and of the retailers too.

According to the current data, a 0% increase of Internal Brute Product in the USA can reduce unemployment to 6.4%. This would mean that about three million Americans could lose their jobs, reported to the American economy, according to data taken from the Economic Policy Institute.

Comparatively, during the last recession that took place between 2001 and 2003, approximately 2 billion people lost their jobs, according to data taken from the Work Department. The crisis at the beginning of this decade has influenced negatively technology, whereas the 11 September 2001 terrorist attacks have affected transport industry. However, things can change if this situation is approached smartly enough.