Random Sub-Prime Mortgages Are Now Leading To The Foreclosure Crisis

There is 55% increase of foreclosures in suburban counties from January to September. In Long Island the increase was more than 60%. It is the same story in 19 other counties of suburban New York, Connecticut and New Jersey.

The number of foreclosures is just a fraction of the total mortgages. According to figures released borrowers previously tried to keep alive the mortgage for about five years but now the battle is over within about two years and foreclosures win the day.

The case of Jacqueline Cila is symptomatic of what is happening to many others facing foreclosure. A divorced single mother she was somehow managing to pay $2,000 for her mortgage when suddenly she was notified that the instalment had risen to $2,798. Her husband had continued to help her even after a divorce. But an accident in the Iraq war incapacitated him and Jacqueline went for refinancing. At the very start of the loan she was trapped into misunderstanding the terms. Unfortunately she had not taken the help of a lawyer.

Counselors are being over swamped with help calls from foreclosure victims. It has tripled since last year with no signs of abating. During 2005 and 2006 about 250.000 house owners refinanced or bought with sub-prime mortgages. When the real estate boom began to weaken in 2006 the prime lending declined leading to a rise in demand for sub-prime loans. The interest rate of the latter is three times more than the conventional. In Long Island these were very popular with one out of three mortgages being sub-prime. Low and middle-income groups in Hempstead, Mount Vernon, Bridgeport and Newark etc became centers of sub-prime lending.

The effect of sub-prime loans and subsequent foreclosures was a grand mess both socially and economically on many communities. Plenty of time, energy and money had been pumped in to reshape these communities but all that has now gone down the drain with the onrush of foreclosures. They are buckling under and resentful, unemployed and angry with eviction and hopelessness facing them.

The sub-prime has also touched the middle-income group as well as the rich. One out of 10 mortgages made to those earning more $3000,000 was a sub-prime loan. But here the option of refinance is more feasible because of the economic status of the borrowers. Mainly they were investors and speculators.

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