Foreclosure Crisis to Expand Rapidly

The news on the foreclosure crisis, which is only one expression of a global financial crisis that has decimated the ranks of lenders and well established investment institutions, continues to get worse. A growing number of American homeowners with once good credit are rapidly falling behind on their mortgage payments, amplifying a wave of foreclosures.

From CNBC: In the latest phase of the nation’s real estate disaster, the locus of trouble has shifted from subprime loans….to the far more numerous prime loans issued to those with decent financial histories.

With many economists anticipating that the unemployment rate will rise into the double digits……foreclosures are expected to accelerate. That could exacerbate bank losses, adding pressure to the financial system and the broader economy.

“We’re about to have a big problem,” said Morris A. Davis, a real estate expert at the University of Wisconsin. “Foreclosures were bad last year? It’s going to get worse.”

From November to February, the number of prime mortgages that were delinquent at least 90 days….increased more than 473,000, exceeding 1.5 million, according to a New York Times analysis of data provided by First American CoreLogic…

Those loans totaled more than $224 billion….

Over all, more than four million loans worth $717 billion were in [distress]…in February, a jump of more than 60 percent in dollar terms compared with a year earlier.

emphasis added

Lenders and services lose an estimated $50K per foreclosure, according to a study by the Federal Reserve Bank of Chicago, and municipalities up to $34K. So an additional two million foreclosures could mean an additional $100 billion in lender losses.

The negative economic impact of another wave of foreclosures across the US goes beyond the individual borrower. Each party associated with a foreclosure loses current and future revenue and incurs significant costs. Lenders lose principal and interest payments, servicers lose fee income and neighborhoods realized decreased property values.

Nationwide, an average of $5,000 in housing value is lost for each home near a foreclosure.