Foreclosures To Cause Further Fall In Property Values

November 6th, 2007

A congressional report states that a total of $100 billion is forecast to be lost by families and neighborhoods all along the US on real estates and property values while the state administration will lose out on about $917 million on property tax revenue incurred by the year 2009.

The Joint Economic Committee states that around 2 million homes withstanding subprime mortgages shall incur foreclosure by next year end. Senator Charles Schumer (D-N.Y.), head of the committee, has sketched up proposals to neutralize the problem which he has been trying to let the administration acknowledge for weeks.

According to the report, Long Islanders will be the most affected, as the state of New York stands to lose $9.4 billion in property values and an additional amount of $ 102 million shall be depleted through property tax revenue decline over foreclosures.

As Schumer puts it, the Long Island neighborhood shall be infected by the damage caused by the pulsating boost in the foreclosures, extending far beyond simple homeowners and borrowers. He maintains that the Nassau and Suffolk area has to be protected and further damage to these neighborhoods has to be restrained as they pay some of the highest property taxes in the state. He talked about his plan to regulate the spiraling industry to control the damage.

A loss of $71 billion nationwide and about $5.1 billion in the state of New York is to be incurred by ones facing foreclosure. A decline of $32 billion and that of $4.3 billion in the neighborhood housing and property values is to be incurred nationwide and in the New York state respectively as well.

Among the measures that Schumer advocates to neutralize the vandalism of foreclosures are encouragement such as encouraging foreclosure-prevention guidance; protecting borrowers from the foreclosure element by advising change to the bankruptcy code as well as coaxing the lenders to refinance the elements who are struggling to repay to prevent mammoth numbers of foreclosures.

Jay Brinkmann, Mortgage Bankers Association’s financial economist however differs on his view of the report. He states that the amount of decline stated in the home values is not 20 percent and the number of homeowners facing foreclosure will be around 1 million to 1.2 million, instead of the 2 million suggested by the report. He also states that the decline of property values will be restricted to and around areas with a surplus number of subprime loans.

A cluster of foreclosures in a respective area will definitely reduce property taxes and home values, admits Brinkmann. “But it will not be as high as they have assumed”, he quips.

But the problem pertaining to the negative economic impact on the families and people losing their homes is an aspect that the report has overlooked, feels Pat McPherron, an economist in Moody’s economy.com. This, he suggests, will be the real big problem for the administration to manage and solve with efficiency over a limited period of time, along with the high number of foreclosures.