The Foreclosure Wave in America

Posted on February 7th, 2008 by Samanta Parks

The US housing market is facing destabilisation due to the turmoil in financial institutions, in which $1 trillion worth of sub-prime debts are owned by them.

The not-so-secret wave of foreclosures and evictions has swept the United States into the wake of the sub-prime mortgage lending crisis.

The sub-prime capital of the US is currently Cleveland, Ohio – the industrial city on the banks of Lake Erie. In this capital, one in ten (1/10) homes are sorely vacant. Neighborhoods around the area are practically full of foreclosed and vandalized as well as boarded-up homes. These abandoned houses are mostly owned by the banks and investment firms who own the mortgage. At this rate, the cost to demolish the vacant houses alone would mount up to a whooping $100 million of Cleveland’s tax base.

Many blamed the Wall Street strategy of ‘no-money-no-deal’, which is employed by almost all mortgage owners. Even though a borrower only failed to make payment once, they will be pressured with notifications of foreclosure almost immediately. This is why many people seem to be losing their homes at an alarming rate. Therefore, it is very much understandable when residents even go as far as calling the city ‘lifeless’ because of the crisis at hand.

As we speak, sub-prime lending is spreading across the nation. One in five (1/5) US mortgages happen to fall under this category. It is no wonder that families nationwide continue to lose homes in an inexplicably short time in record numbers.

Sub-prime mortgages are known to be much more risky to the home borrowers compared to other kinds of mortgage lending. Despite the known risks, people continue to deal with sub-prime lending firms. Consequently, the wave of foreclosures grows higher and bigger as the number of foreclosed properties grew each day.

The crisis does not only affect the city. Recently, it has spread to the suburbs of Cleveland as well. In the past few months, over 200 people comprising of worried homeowners attended a church meeting to seek ESOP’s help in avoiding foreclosure. Despite financial problems, many people are also facing foreclosures due to ill practices of the lenders. As foreclosed houses continue to grow in number, it is inevitable for the property values of the people’s houses would be damaged greatly. The neighbourhood value would no doubt be sorely damaged as well, which does not bode well for the area.

Claudia Coulton of the Centre for Urban Poverty at Case Western Reserve University in Cleveland predicted that over 10,000 families will face eviction this year. The estimated number makes one in eight (1/8) of all owner occupiers in Cleveland, and the number is expected to grow with years. Coulton added that the crisis is currently threatening to “overwhelm the government agencies and community organisations that address the problem”.

Unfortunately, the situation in Cleveland is only one of the examples of many other crises around the States. Agencies all around the country continue to report a ‘tidal wave’ of foreclosure cases. According to Sarah Gerecke of New York City’s Neighborhood Housing Services, even residents of New York are not safe from the threat of foreclosures.

Thus, it is prime time for all parties to find solutions to tone down the crisis since abolishing the problem in short notice is very much impossible.