US Cities May Lose Billions From Foreclosures

Posted on November 29th, 2007 by saman

A report delivered this week at the U.S. Conference of Mayors in Detroit predicted that rising foreclosures would result in billions of dollars in economic losses next year in the country’s major metropolitan areas unless both homeowners and financial institutions work with each other to prevent it.

The report, entitled “The Mortgage Crisis: Economic & Fiscal Implications for Metro Areas” that was prepared by a forecasting and consulting organization, stated that weakening residential investments combined with reduced spending and income in construction and highly-curtailed consumer spending will act in concert to restrain the nations economy. The biggest losses are projected for the nation’s largest metro areas. New York is projected to lose $10.4-billion in 2008; with Los Angeles next at $8.3-billion, Washington and Dallas at $4-billion each and
Chicago at $3.9-billion. In other words, these five major metro areas together will suffer economic losses totaling nearly $31-billion. The same report projects that property value will decline by $1.2-trillion in 2008 as U.S. home prices drop on the average 7%. Lost property, real estate transfer and sales taxes will also hurt Cities.

There is one immediately apparent deterrent, and that will be the ability and willingness of banks, loan servicing organizations and the holders of mortgaged-backed securities to work closely together to soften the financial effects. This can be accomplished, for example, by agreeing to modify loan payments, which would reduce foreclosures and lessen the economic impact across the board.

The 2007 housing slump had made it more difficult for financially troubled home buyers to sell their homes, and thus avoid missing payments and losing their homes to foreclosure. More and more homeowners who took adjustable rate mortgages and other loans that increase markedly after a one or two year “teaser rate” has expired are finding that they can’t afford to continue making their monthly payments. The ARM rate resets can add 25-75% in additional costs to monthly house payments.

Global’s report also predicted that another 1.4-million homes would enter foreclosure next year and reduce job growth, bleed-off billions in lost tax revenues and depress consumer spending. Predictions for the overall economic impact are equally grim with a possible loss of 524,000 new jobs; the big $1.2-trillion loss from declining property values and city losses from taxes and other factors like consumer spending.

It seems logical to assume that the banks, loan servicing organizations and the holders of mortgage-backed securities would agree to work closely to help ease this situation. After all, they have a stake in the status of the economy that’s even bigger than that of most citizens. If they do, it is likely that the dire predictions for next year can be significantly softened if not eliminated. And one would hope that government officials and politicians alike would urge them to do so. The current economic meltdown is beyond serious and it’s certainly time to put business and political considerations aside and concentrate and bringing relief where it is most needed.