In First Quarter Majority of Foreclosure Victims Has Good Credit History

June 2nd, 2009 | Tags: Foreclosure

foreclosure

There is no let down in the pace of foreclosures. What is distinctive this time is that in the first quarter majority of foreclosure victims has good credit history. It is a fall out from the loss of jobs and recession.
Nearly 12% of the borrowers of residential mortgages were defaulting in the first three months of 2009 according to the Mortgage Bankers Association.

The predictions are that the trend will continue until the end of 2010 – six months after unemployment figures reach their peak.

At the root of the recession is the risky loans given out to borrowers with dubitable credit history. Currently the sub-prime wave has passed – most of the units have either completed or are in foreclosure.

From 2006 herds of borrowers began to default causing many lenders to down shutters. There was an all round credit freeze and entrepreneurs could not avail of short term loans to continue with business. This led to shrinkage of economic production towards the close of 2007. This has led to the longest recession since World War II.

As the wave sweeps on it is engulfing even those borrowers who took loans backed by good credit history. Till lately they had been current on their mortgage dues. But in the first quarter about 6% of these prime borrowers have started to default – it being double the figure of the previous year. Housing expert Mike Larson of Weiss Research of Jupiter, Florida said, “These (borrowers) are the best of the best out there. Clearly, borrowers far and wide are getting hit by this.”

As the trouble continues apace the concentration remains focused on California, Nevada and Arizona as well as Florida. Together these states were responsible for 46% of the recent foreclosures in USA.

The majority defaulters are from the prime category. The four states have been worst hit by job losses in the housing sector. There are as yet no signs of the ice thawing.
Jay Brinkman the chief economist of MBA opines that the unemployment rate will peak in the middle of next year and after that towards the close of the year, foreclosures will taper off.

Recently there has been a drop in new requests for unemployment benefits but the number of those availing of such benefits increased to a record 6.78 million in the middle of May 2009 – it being a record mark.