The Ripples of Foreclosure: From the Immediate Affected to the Macro Economy
Foreclosure was a major factor affecting US economy in 2007. A year ago, losing a house to a bank was a rarity, only happening to people struck by unfortunate circumstances like job loss, or death of a wage earner. However, in 2007, incidents of foreclosures saw an unprecedented increase, as the real estate market sloped, housing prices dropped, and more importantly, a major portion of adjustable rate mortgages stepped up to higher rates.California has been particularly hard-hit by this phenomenon.
An established newspaper, in July, reported a number of Bay Area families who faced the danger of losing their homes due to foreclosure. The stories highlighted various paradoxes: families and individuals who had been very timely in their payments saw their houses being foreclosed, while in another case, a family which had been more lax about their payments were given more favorable terms. Albeit the significant impact it has experienced in 2007, the condition at Bay Area is far better than places like Sacramento or Stockton. Lenders repossessed almost 10,000 Bay Area homes, while a further 33000 were sent notices of default (default indicating the first stage in the foreclosure process).
Foreclosure incidents are having their impact felt nationwide: prices have plummeted in the housing industry in hard-hit communities; Wall Street firms are losing multibillion-dollar business; while jobs in construction, mortgage finance and real estate are experiencing a recession; Huge tax deficits for the coming year are being forecasted throughout the country; consumer purchasing power is decreasing; and acquiring credit is becoming tougher for everyone from consumers to corporations. Many experts opine that the current crisis brought about by rampant foreclosure is leading the country towards recession. Despite these huge negativities, the downfall is said to have just begun. Even a greater number of mortgages are about to be cancelled; the number may be as high as two million over the next eighteen months, some experts say. In addition to it is the crisis created due to sub prime lending; solving it still remains a tough task at hand, with the involved parties getting a very bad light in the general public.
Some potential solutions are being implemented, such as temporarily fixing initial interest rates for some mortgages. More ideas continue to be worked upon. Prevention of harsh lending in the future is being thought over. However, such legislations can not help those currently affected. Widespread corruption is generally assumed to be present in the mortgage system. However, the legal maze it assumes means that few have been held accountable to date. While most affected people blame that fraud and misrepresentation was the case, very few are able to identify the methods.
Banks, private foundations, and some government organizations are providing foreclosure assistance. Counseling as to how to prevent future foreclosures, the taxation issues and implications, and guidance for preventing predatory lending is provided. It is in the best interest of the borrowing party, to be fully vigilant in his part, so that any such misfortune can be avoided.
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