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FCIC Final Report, Part 5, Chapter 22, The Aftershocks - The Foreclosure Crisis
P. 1FCIC Final Report, Part 5, Chapter 22, The Aftershocks - The Foreclosure CrisisFCIC Final Report, Part 5, Chapter 22, The Aftershocks - The Foreclosure CrisisRatings: (0)|Views: 51
|Likes: 0Published by ForeclosureG8More info:Categories:Government & Politics, Public NoticesPublished by: ForeclosureG8 on Feb 04, 2011Copyright:Attribution Non-commercialAvailability:Read on Scribd mobile: iPhone, iPad and Android.download as PDF, TXT or read online from ScribdFlag for inappropriate content|Add to collectionSee moreSee lesshttp://www.scribd.com/doc/48179746/FCIC-Final-Report-Part-5-Chapter-22-The-Aftershocks-The-Foreclosure-Crisis02/04/2011pdftextoriginal 
Foreclosures on the rise: “Hard to talk about any recovery”...............................Initiatives to stem foreclosures: “Persistently disregard”......................................Flaws in the process: “Speculation and worst-case scenarios”............................ Neighborhood effects: “I’m not leaving”..............................................................
FORECLOSURES ON THE RISE:“HARD TO TALK ABOUT ANY RECOVERY”
Since the housing bubble burst, about our million amilies have lost their homes tooreclosure
and another our and a hal million
have slipped into the oreclosureprocess or are seriously behind on their mortgage payments. When the economicdamage fnally abates, oreclosures may total between  million and more than million, according to various estimates.
The oreclosure epidemic has hurt amiliesand undermined home values in entire zip codes, strained school systems as well ascommunity support services, and depleted state coers. Even i the economy begansuddenly booming the country would need years to recover.Prior to , the oreclosure rate was historically less than . But the trendsince the housing market collapsed has been dramatic: In , . o all houses, or out o , received at least one oreclosure fling.
In the all o ,  in every outstanding residential mortgage loans in the United States was at least one paymentpast due but not yet in oreclosure—an ominous warning that this wave may not havecrested.
Distressed sales account or the majority o home sales in cities around thecountry, including Las Vegas, Phoenix, Sacramento, and Riverside, Caliornia.
Returning to the , borrowers whose loans were pooled into CMLTI -NC: by September , many had moved or refnanced their mortgages; by thatpoint, , had entered oreclosure (mostly in Florida and Caliornia), and  hadstarted loan modifcations. O the , still active loans then,  were seriously past due in their payments or currently in oreclosure.
The causes o oreclosures have been analyzed by many academics and govern-ment agencies. Two events are typically necessary or a mortgage deault. First,monthly payments become unaordable owing to unemployment or other fnancial
hardship, or because mortgage payments increase. And second (in the opinion o many, now the more important actor), the home’s value becomes less than the debtowed—in other words, the borrower has negative equity.“The evidence is irreutable,” Laurie Goodman, a senior managing director withAmherst Securities, told Congress in : “Negative equity is the most importantpredictor o deault. When the borrower has negative equity, unemployment acts asone o many possible catalysts, increasing the probability o deault.”
Ater alling  rom their peak in  to the spring o , home prices haverebounded somewhat, but improvements are uneven across regions.
Nationwide,. million households, or . o those with mortgages, owe more on their mort-gages than the market value o their house (see fgure .). In Nevada,  o homeswith mortgages are under water, the highest rate in the country; in Caliornia, therate is .
Given the extraordinary prevalence and extent o negative equity, the phenomenono “strategic deaults” has also been on the rise: homeowners purposeully walk away rom mortgage obligations when they perceive that their homes are worth less thanwhat they owe and they believe that the value will not be going up anytime soon.By the all o , three states particularly hard hit by oreclosures—Caliornia,Florida, and Nevada—reported some recent improvement in the initiation o oreclo-sures, but in November Nevada’s rate was still fve times higher than the national av-erage. Foreclosure starts climbed in  states rom their levels a year earlier, with thelargest increases in Washington State (which has . unemployment), Indiana(. unemployment), and South Carolina (. unemployment), according to theMortgage Bankers Association.In Ohio, the city o Cleveland and surrounding Cuyahoga County are bulldozingblocks o abandoned houses down to the dirt with the aim o creating a northeasternOhio “bank” o land preserved or the uture. To do this, authorities seize blightedproperties or unpaid taxes, and they take donations o homes rom the Departmento Housing and Urban Development, Fannie Mae, and some private lenders.
Now,the county fnds itsel under increasing duress, having endured , oreclosures in.
Ater years o high unemployment and a ragile economy, the fnancial crisistook vulnerable residents and “shoved them over the edge o the cli,” Jim Rokakis,Cuyahoga’s treasurer, told the Commission.
In a spring  survey,  o the responding mayors ranked the prevalence o nonprime or subprime mortgages as either frst or second on a list o actors causingoreclosures in their cities. Almost all the mayors, , said they expected the ore-closure problems to stay the same or worsen in their cities over the next year.
“There has been no meaningul decline in the inventory o distressed propertiesound in the housing market,” Guy Cecala, the chie executive and publisher o InsideMortgage Finance Publications, told a congressional panel overseeing the TroubledAsset Relie Program in October . “It is hard to talk about any recovery o thehousing market when the share o distressed property transactions remains close to percent.”
SHARE OF LOANS WITH NEGATIVE EQUITY, THIRD QUARTER 2010
>50%30–4915–290–14
MENYMACTRIPANJDEDCMDOHVASCNC TNAL GAAK TXHINDSDIAMNORWAIDUTCONMMTMOAROK KSNELAMSWYWVWIIL INKYAZNVMICAFLVTNH
U.S. average23%
Many mortgage holders find themselves underwater; that is, owing morethan their homes are worth. This is particularly true in Arizona, California, Florida, Michigan, and Nevada.
Figure .
“There was a undamental change in our fnancial services sector that really is thereason we’re in this crisis, this economic crisis, and is the reason we’re seeing and willsee in total probably beore we’re done, between  and  million oreclosure flingsin this country,” John Taylor, the president and CEO o the National Community Reinvestment Coalition, explained to the FCIC. “And by the way, a ew hundredthousand people, even a million people going into oreclosure, you can kind o blameand say, ‘Well they should have known better.’ But  [or]  million American ami-lies can’t all be wrong. They can’t all be greedy and they can’t all be stupid.”
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