Plunging Prices Tell On Foreclosure Victims

October 29th, 2008 | Tags: Foreclosure Victims

Plunging prices are telling on foreclosure victims. When the value of the house drops below the amount of the loan there is no incentive for the borrower to carry on with the mortgage. But if the borrower is the house owner there is an emotional attachment towards the house that is the home. It is not so with the investor who had tried to make money out of the property. It does not cost the investor much emotional strain to walk away without suffering the hassles of fighting foreclosure.

One out of every five houses were bought by investors in 2007 and as high as one out of three in 2005 when the housing crisis had reached its peak. Investors swarmed to California, Florida, Nevada and Arizona when the market was sizzling hot. There was easy money flowing in by buying and selling property. This made them take risky loans that did not require down payments or income proof. The owners do not occupy over 30% of the foreclosed houses. The latter have different addresses.

The government assistance programmes for foreclosure victims are only for those who reside in their houses – that is their houses are the primary residences. In this way it is hoped to weed out the investors and deny them government help.

Deregulation led to packaging and slicing of mortgaged loans into securities and selling them to investors across the world. These offered more attractive returns than government bonds.

At the turn of the twenty first century when the feds began to cut interest rates to record low levels investors poured in money into the mortgage market mainly in securities. The latter consisted of high interest mortgages contracted with those with poor credit. The anticipation was that the property would fall into the hands of the banks when the shaky borrowers defaulted. This is exactly what happened but the sheer volume created disastrous consequences.

These sub-prime loans zoomed from $160 billion in 2001 to $600 billion in 2005 and 2006 according to Inside Mortgage Finance. The brokers played around with gullible borrowers goaded on by heavy commissions. The attitude was that by the time it went into default the problem would be somebody else’s.

The net result is that the packaging and slicing of mortgage loans have caused there to be many owners of one mortgage. Today it is difficult to locate them as to effectively help the lone foreclosure victim.