Foreclosures Equal To One Katrina Per Month

December 3rd, 2007

Economist Galbraith of Texas University has made this scathing comparison between foreclosures and the hurricane Katrina. Hurricane Katrina had a direct impact on the economic scene in 2005 when it hit the residents of the Gulf Coast and forced many to move to community group shelters.

Economists who have currently compiled a report for the US Conference of Mayors fear that by 2008 the number of foreclosures will rise to 1.4 million.

The foreclosure is a legal step by which the lender tries to realize dues from defaulting borrowers. With foreclosures on the rise entire neighbourhoods are being indirectly adversely affected from its fall out. When the house remains unsold the decay and stench of abandonment also remains with it. As a consequence the whole neighbourhood begins to stink from the rot of decay. This leads to a decline of house prices in the entire locality. In a chain reaction no more are loans easily available. The general decline in the purchasing power of the people inevitable leads to a national economic slump.

Another economist, Hale, puts the blame on the Federal Reserve Board for waiting as late as September to step in with cut in interest rates – the first time in four years. It was they who should have anticipated the foreclosure Katrina. The national scene is becoming as bad as the 1933. Two years ago when the first low rate time period expired the crisis began to surface. Underprivileged gullible sections of the society had been persuaded to take these sub-prime loans from 2002 to 2005 by greedy agents goaded by commissions and rake offs. It lead to the inevitable – foreclosures. It became impossible for the borrowers, considering their actual income, to continue with the phenomenal rise in monthly payments. It was only when the number of foreclosures began to run into millions that officials and politicians began to bestir themselves. The lenders too found themselves facing a bleak hostile market. The lenders have to spend time, money and energy to foreclose. With so many in the fray and without any buyers the load is becoming too heavy for them to bear. All ready heads have started rolling.

During the heyday of the sub-prime mortgage the real estate market had been ballooning to unexpected heights. But there is truth in the adage that whatever goes up has to come down!