Is another round of home foreclosures on the horizon?

FINANCIAL/USA-HOUSINGIs another massive round of home foreclosures possible starting in 2010?

It just may happen, according to Thomas Shellabarger, a policy adviser for the Department of Justice, Peace and Human Development at the U.S. Conference of Catholic Bishops.

The reason can be traced back to 2005 and 2006, the peak years for home loans that offered low interest rates with little or no money down. Under the terms of such loans, interest rates usually reset automatically to higher levels after five years. That points to 2010 and beyond for potentially greater fallout in the real estate market as homeowners face higher mortgage payments they can no longer afford.

Defaults on the same kind of home loans in recent years led to the current depressed real estate market and were a key factor that led to the current economic recession.

This year alone, more than 1.4 million people have lost their homes through foreclosure and 6,600 more foreclosures occur daily, according to statistics compiled by the Center for Responsible Lending in Durham, N.C.

It’s a enough of a concern, Shellabarger told CNS, that federal officials are monitoring mortgage defaults closely, hoping to stave off the entry of another glut of homes into a still overstocked real estate market. Any significant growth in foreclosures would likely derail any hope of economic recovery in 2010 and probably beyond.

Federal legislation to keep people in their homes is being considered. Shellabarger identified one model that comes from Pennsylvania that has caught the eye of federal policymakers and economic advisers.

Under the 26-year-old Keystone State’s plan, a homeowner laid off from work can borrow money from the state to use for the monthly mortgage. The plan allows people to stay in their homes and resume mortgage payments when economic times are better.

Once a homeowner starts making mortgage payments again, the homeowner also pays off the state loan. The minimum payment is $25 a month.

Since its start in 1983, the program has been profitable for the state as well, with more than 43,000 Pennsylvanians paying back $26 million more than they’ve borrowed over the years.

CNS will keep watch on what transpires and the bishops’ role in the situation as well.

2 Responses

  1. For the sake of our people, for the sake of the economy and for the sake of our country, I hope that someone can figure out how to prevent this. The country has gotten itself into a death spiral. The more jobs that are lost, the more homes go into foreclosure. Many of these people facing forclosure are finding themselves on a treadmill that they cannot get off without some sort of intervention. Many homeowners could probably keep their homes if they could re-finance at todays lower rates. The problem is, as the jobs and income are lost, their credit takes a nose dive as they are forced to make decisions between pay on the mortgage or pay other bills like credit cards. Traditional refinancing soon becomes out of reach because they are no longer eligible for refinance because of bad credit. The only solution is for the lenders to work with these buyers through a loan modification. We have seen homes for sale decline in value due to the high number of foreclosures on the market. One would think that the banks would be better off to keep a homeowner in their house than to put another foreclosure on the market where it drives home values down and ultimately will effect the banks also.

  2. There are lots of people who are on the verge of losing their own homes because of the current economic crisis, but the bailout plan is only giving a little positive effect about it. But I’m still positive that in due time, the plan will eventually help these homeowners to save their houses from foreclosures.

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