The recession may be winding down in the minds of economists, but tell that to someone who is unemployed or in the throes of foreclosure. Even tell that to someone scanning the news, and it’s a hard sell? Why? The foreclosures keep on coming. At the end of the third quarter of 2009, one in three homes was in foreclosure or delinquent, often the first step to worse things to come. Why does the mortgage crisis continue?
New groups of people are affected. The mortgage crisis started when sub-prime mortgages crashed, but now prime borrowers are increasing as unemployment spreads. Currently, unemployment is at 10% nationwide.
There are regional differences. Nevada, Florida, Arizona, and California, where the real estate boom was the greatest, still have skyrocketing foreclosure rates, and represent 42% of all foreclosures. Florida alone has a 25% rate.
There is a Shadow Inventory. Large stocks of foreclosed homes – up to six million of them -have yet to be put on the market by banks. Considering that foreclosures are still adding to the numbers, it will be several years before housing inventories are stable.
Some rescue programs are mis-targeted. Nearly 700,000 borrowers are in trial loan modification programs as a result of the Making Home Affordable program, but many thousands who are unemployed or are in negative situations don’t qualify. The programs require that you have enough income to pay a modified mortgage and apply only to people whose “under water status “ does not exceed 125% of the loan value.
Some programs fail (and may be doomed to). The rescue programs don’t go far enough. The payments after modification are still too high for many people, so they default later rather than sooner. Also, the modification programs often lower interest and lengthen the time but do not decrease the principle. People are left with the sense they are paying longer for an overpriced house.
Some well-intentioned programs may elongate the problem. Current programs that keep homeowners in their homes as renters once they surrender their deeds may be creative and compassionate, but also may delay the inevitable: the home must be sold at a later date.