Foreclosures Aren’t Slowed by Borrowing Money and Government Aid

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Foreclosures on the rise

Despite credit cards, borrowing money and government aid, many homeowners lost their homes to foreclosure. A recent survey done by the Mortgage Bankers Association showed that one in every seven home loans in the US were either past due or in foreclosure. That is the highest delinquency rate since 1972, when the survey first began. Jay Brinkman, the MBAs chief economist said, Despite the recession ending in midsummer, the decline in mortgage performance continues. Job losses continue to increase and drive up delinquencies and foreclosures, because mortgages are paid with paychecks, not percentage-point increases in GDP.

Signs of the times

It may seem contradictory to an improving market that foreclosure numbers are up, but a closer look at what is happening shows that it is appropriate. Here are some reasons why:

1) A deeper look at the economy. The MBA did research on what really started the economic downturn in terms of housing and its beginning was the subprime mortgage loan crisis. Almost everyone was able to get a loan back in 2006 and 2007. When the unemployment rate went up, that didn’t bode well for the housing industry. Brinkman stated, A job loss, after all, can prevent even borrowers with sound credit histories from paying the mortgage.” Subprime mortgages may have started the problem, but when people with good credit were losing jobs, foreclosures started happening even faster.

2) Simple geography. Some areas were obviously affected more than others by the number of foreclosures. For instance, Arizona, Nevada, Florida, and California are the states with the most depressed properties. Studies have shown that Florida for example, has a delinquency rate of 25%, which means one in every four homes is either past due or in foreclosure.

3) Huge inventories of depressed homes. Although there are signs of stability on the horizon, the National Association of Realtors still notes a huge inventory of available properties. Michelle Meyer, an economist with Barclay Capital, said, We continue to believe that nearly 6 million foreclosed homes will enter the market over the next three years, which will keep inventory of existing homes elevated. Foreclosures are still the largest obstacle to the housing industry recovering. Consumers who are borrowing money to purchase homes may be surprised at how vast their home options are for years to come.

4) Unemployment rate. The bottom line of the foreclosure crisis is that mortgage delinquencies are not expected to level off until the labor market is cured. Experts are predicting that 2010 will still be a time for high unemployment, in particular at the beginning of the year. Meyer added, The delinquency rate is going to stay up there for a while because the job market is going to be really weak for a while.” It might take until the middle or end of 2010 to see if the number of foreclosures has actually dropped.

Despite the signs

Despite signs of stabilization, experts warn that the foreclosure crisis is far from over. As far as real economic recovery goes, people have to keep an eye on the big picture. That includes everything from the number of homes on the market, new methods for borrowing money, the unemployment rate and geographic recovery of the hardest hit economies. It is going to take time for the signs of recovery to shine through.

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