The Increasing Numbers of Foreclosures

January 8th, 2009 | Tags: Foreclosures

The increasing numbers of foreclosures are mainly due to the shortage of income of borrowers and the non-cooperative attitude of the lenders, mainly the banks.

The fate Cynthia Goldrick and her family is a typical example of what is going on across the country. Her daughter has to undergo brain surgery, her mother is suffering from brain cancer and her father has had to be shifted to an old age home. To make matters worse her husband Patrick was without a job right then because of an injury caused while working when the mortgage rate reset to higher rates. With income not meeting expense requirements the road was now open for foreclosure.

Perhaps the story of the Goldricks is an extreme example but the basic point is that in general the incomes of the borrowers are falling while the banks are either unable or unwilling to negotiate workouts.

In 2005 the Goldricks had taken a mortgage loan of $375,000 by refinancing on a previous one for their 167 square metre house in Hampton Bays semi-rural area about 150 km from New York city. Initially the rate of interest was 6.5% that calculated to a monthly commitment of $2,370. Within two years it increased to 9.5% shooting up the monthly payment to $3,850 – an amount well beyond their means. In 2005 the house had been valued at $605,000 but today as it stands in the middle of other foreclosed houses, the value will be much less – even less than the loan due.

This house is not just made of bricks and mortar but it is a home to the family – especially to the little girl who returns to it after regular trips to the hospital for her brain problem.

Rose Mortgage of New Jersey sanctioned the loan and Saxon Mortgage Servicers (a subsidiary of Morgan Stanley) does the servicing. Right now the mortgage is beyond the jurisdiction of either because it was mixed up with $700 million worth of other mortgages, securitized and made into a vehicle of investment – thanks to the operations of Morgan Stanley. Named as IXIS 2005-HE4 it was sold to various investors.

These pools of toxic assets are at the root of the raging foreclosure related financial crisis that has spilled over from America to engulf the world. In USA it is the worst financial hiccup since the 1930’s.