Battle Rising Foreclosures

May 7th, 2008 | Tags: Foreclosures

The national economy is under threat from the rising tide of foreclosures. Federal Reserve chairperson warned Congress to take immediate steps to address the problem to avoid disastrous consequences. He said the high numbers of delinquency followed by foreclosure would have negative impact on the real estate market. That will in turn cast a shadow on the general economy. He said, “Therefore doing what we can to avoid preventable foreclosures is not just in the interest of lenders and borrowers. It’s in everybody’s interest.”

During 2007 about 1.5 million houses in the country had been swallowed up by foreclosures. This is a jump of 53% from the figures of 2006. It seems that the numbers are going to be higher in the current year of 2008.

Bernanke wants the Congress to give the FHA, which insures mortgages, more maneuvering power to help the foreclosure victims. He also strongly urged the law making bodies to initiate legislation restructuring Freddie Mac and Fannie Mae – the two government entities dealing with mortgage financing. He wants them to speedily go about the task of raising fresh capital. The leaders of the house are seriously considering these and other proposals.

Bernanke wants the administration to look into the specific causes of foreclosures that vary from one region to another. It is particularly intense, for example, in certain New England localities like the Great Lakes, including in its gambit Minnesota, Michigan and Wisconsin. Here the foreclosures are accompanied by large numbers of job losses. On the other hand foreclosures are also bashing California, Florida and Colorado but here the unemployment figures decreased with a decrease in the value of properties.

The mortgage companies generally deal with failure to meet payments due to personal reasons like loss of job, illness or death. These problems were treated on a temporary basis that the passage of time would ease. The missed payments came to be included in the principal amount due. But a general fall in prices across the entire region is something absolutely new. Tackling this requires a new angle of approach.

Considering the fact that now the value of the property has become less than the loan amount, Bernanke feels that the best thing would be to reduce the amount due to the lender or seek some other long-term modification plan. Unfortunately the increasing flood of foreclosed units rushing into the market has upset all planning.