Federal Help Needed To Combat Foreclosures

Rising foreclosures are affecting state economies and the after effects are being felt in every quarter.

Real estate analysts predict that the situation will start improving post 2009, although foreclosures will continue to take place throughout the decade. In the meantime however every kind of credit quality is experiencing delinquency in payments where earlier subprime mortgages had the most defaulters.

The Mortgage Bankers Association’s most recent quarterly survey shows that foreclosures are continuing to rise. California and Florida alone account for 93 % of the increase. With 109,000 and 77,000 foreclosures respectively in the first quarter of the year, the two states are followed by Texas, Michigan and Ohio which all had around 20,000 foreclosures.

State governments and mortgage lenders in many states have taken steps to curb the rising numbers. Where some states like Indiana, Michigan and Ohio have seen the numbers start to fall, in others the impact of the programs has not been as great.

This could be because state officials are unable to affect the terms of loans of many lenders who have a national character. Further loans are being repackaged and sold as securities to investors both in the USA and internationally.

Gov. Tim Pawlenty highlights another hurdle. He says, “One group of investors may own years one through five of the loan; another five through 10; and another, 10 through 15.” Changing the terms of the underlying mortgage then becomes very difficult.

States are hopeful that Congress will take some steps to stem the tide of foreclosures. Economist Michael Levy of the Bank of America believes that Congress can help by passing laws to clarify legal issues. States would then get an opportunity to negotiate with mortgage lenders and modify the loans accordingly.

In the meantime home prices continue to fall, adding another dimension to the situation. With an average decline of 10% nationally, several homes are now worth less on the market than what they owners owe on the mortgage. This is forcing more and more homeowners to choose foreclosure in order to cut their losses.

States also have to deal with properties that are lying vacant after being repossessed. Some states prefer to buy up these homes and put them to better use. However the process of demolition and rebuilding is prohibitive and acts is a deterrent, especially as revenue is limited due to a weakened economy. Federal funding however could help achieve this.

States are trying to cope in the best way they can but perhaps federal funding and regulation will provide the boost the system is waiting for.

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