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The US is going through one of its most challenging phases. Unemployment is at its peak. As people lose jobs, they are faltering on mortgage payments. Hence foreclosures have become common. Not only the jobless but even those who have decent jobs are threatened with home loss.

Take, for instance, the case of Charles and Rose Murssal, residents of Milwaukee County. They were on the right track despite the Recession. The couple had even bought a home four years ago and they had no problems in paying the monthly installment.

However, when the adjustable mortgage went up to $1,650 per month, the couple floundered. They were on the verge of losing their home. Earlier, they had to pay $950 and two years ago, the amount they had to shell out spiked to $1,200. Rose Murssal says that it became very difficult for them to pay the increased amount.

The couple then decided to sit with the lenders and a mediator. After listening patiently to the couple as to why they fell behind on mortgage payments, the couple got a new mortgage amount that was much lower than the previous amount that they had to pay.

Residents of Dane County may have a similar advantage soon. The Dane County Circuit Court has ruled that people be given the option to pay lower mortgage after mediation.

In fact, there are many counties in the US where talks are being held between homeowners and lenders for a lower payment. This arrangement is being made after negotiations between the owner and the mediator over a table. In fact, the trend has become common throughout the US. The latest to join the bandwagon is Wisconsin.

Sen. Lena Taylor of D-Milwaukee has now come up with a foreclosure mediation bill. The bill would help homeowners who are facing foreclosure. It may be mentioned here that Taylor’s district has been particularly badly hit by foreclosures. Of course, people have conflicting opinion about how these programs should be done experts say that mediation is quicker and less expensive than the traditional court hearing. Mediation takes two months instead of a year. It is also less gut wrenching, experts observe.

Connecticut, Ohio and New Jersey have initiated the proceedings. Many states are expected to follow suit. California has also started the process. It may be noted that in California, lenders can take over the property unilaterally. Experts, however, believe that the situation will improve only when the employment scenario improves.

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The tendency to walk away from underwater mortgages facing foreclosure has increased. In underwater mortgages the value of the house has dropped below the worth of the loan.

One of the many who lost her job recently is Sharon Sakson. She used up her savings to run along with her monthly mortgage dues of $2,400 on her house But she soon saw the foolishness of continuing as her property was worth thousands of dollars less than the loan it carried.

When she refinanced in 2006 the house had been valued at $390,000 but today it is below $320,000 that she paid initially to purchase it in 2004. This prompted Sakson take the decision similar to what many others are doing – she stopped her payments and sat back allowing the bank to do whatever it wanted to do. She decided to walk away.

This move is called strategic default or voluntary foreclosure. It is fast challenging the efforts of the government to keep troubled borrowers in their homes. It is serious to walk away from a mortgage as it can erase 100 points from the person’s credit score. One becomes unqualified for a new mortgage for as long as 7 years.

Despite the gravity of taking such a move this is exactly what borrowers are doing. 588,000 borrowers took a walk from their homes in 2008 noted Oliver Wyman of Experian. Home prices are inching forward but it is insignificant compared to the fall it has endured since 2005.

Millions more are being thrown into the situation Sakson suffered. There is little chance of rebuilding of equity. If this walking away continues the housing recovery will become a remote hope. It will prompt lenders to further tighten credit and impact negatively on the entire economy.

Mark Zandy of Moody’s Economy.com said “It’s increasingly a more important factor driving the foreclosure crisis. As we move forward, the job market will stabilize, and the big thing will be strategic defaults. People are going to determin it doesn’t make financial sense to hold on to their homes. That’s going to be a significant problem. Strategic defaults mean foreclosures could be high for a long time.”

Sanjib Das the CEO of CitiMortgage observed that one out of every five borrows are defaulting intentionally. He said, “It’s a very large number, and it’s a very, very significant risk to the housing recovery.”

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Today it is no longer the sub-prime mortgage borrowers who are the victims but the latest wave of foreclosures is attacking the middle-class – those who have lost their jobs. It is a reality knocking on the doors of many as the unemployment situation continues to worsen.

Previously unemployment used to last generally up to a maximum of 6.5 months. It is apprehended that before 2009 draws to a close 3.4 million houses will slide into foreclosure. In 2007 the number was 1.2 million according to RealtyTrac. Rick Sharga its senior vice president said, “We’re not out of the woods yet.”

Speaking about the various stages of the foreclosure storm Sharga said to Newsweek’s Nancy Cook that the first wave crashed because of defective loans. The second one is being driven by unemployment. At the moment the country is seeing the initial phase of the second wave. At this point none of the foreclosures are emanating from sub-prime mortgages.

It may also be noted that the demographics of this crisis is changing and blue collar as well as middling white collar workers are affected. The foreclosures are being placed on those properties that are of higher value than before. The unemployment rate is indicating the severity of the forthcoming foreclosure attack.

The third wave will attack those with ARM loans. In the latter the borrower had the option of deciding which mode of repayment schedule they would follow. Some were interest-only repayments. These loans are poised to go into default because of ridiculous initial rates. It will start making its presence felt from the middle of 2010 and continue till 2011.

The geography of foreclosure is also shifting. Till now the top states were Arizona, California, Florida and Nevada. It will remain so as the over construction had happened mostly in these states. The properties were overpriced and sold with the help of outrageous loans.

Today Michigan and Ohio foreclosures are increasing in numbers – these two states being devastated by unemployment. Ironically although foreclosures are continuing the housing market is showing signs of stability. If the financial entities manage these properties then this trend will continue till 2012 and there will not be any substantial fall in the real market.

But that does not mean construction will pick up. It had contributed largely to the generation of jobs. For a couple of years the housing market will not be healthy – the recession will have a tendency to linger.

From henceforth people will not rush into home ownership.

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Appraisal codes of houses have come in for sharp criticism. Plans are afoot to revamp the codes so as to avoid a rerun of the foreclosures crisis in the future.

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It is becoming more and more apparent that lenders make more money from foreclosures than from mortgage loan modifications. Flipping on the television or radio there are innumerable ads of firms offering help in matters related to loan modification.

It is the same when one browses on the Internet. The snag is that it is difficult to know whether [...] Continue Reading…

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It was primarily the foreclosure crisis and the housing sector that led to recession. This in turn will about changes in American capitalism. Already the impact can be seen in talks on banking reform, undoing globalization, wealth redistribution and rise of the public sector.
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At the start of 2008 Jane Sullivan was still struggling to wipe the stains of foreclosure and bankruptcy and had no thought about purchasing a home again. In 2000 here ex-husband had decamped with all there was in her account while she was in hospital giving birth to her third child. In dire financial straits she could not manage [...] Continue Reading…

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Rampant foreclosures coupled with increasing unemployment have tried out the patience of Chicago. The cry is loud and clear – “Bust up the big banks” or “Too big to fail is too big to exist.”
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The California Bar Journal has reported last August that there has been an increasing number of accusations against attorneys and legal firms offering help to homeowners in mortgage matters. After investigating 9 of these complaints that were made in 2008 the state bar is now scrutinizing 391 complaints involving 140 lawyers. What is the cause behind so many borrowers [...] Continue Reading…

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• Foreclosure Climate has Caused Sharp Rise in Homeless Persons
• Foreclosure Winds are Changing the Economic Climate of Florida