Foreclosures and USA Economics

January 3rd, 2008

Foreclosures repainted the economic picture of the country in 2007. Not to far ago – in 2006 losing a house to the bank for repossession was a rare event. It was a fall out from personal tragedies like loss of job, divorce, medical bills or death. But 2007 painted a totally different picture. The real estate slumped and unforeseen numbers of foreclosures were listed. Foreclosures became common. In each quarter the numbers soared by leaps and bound. California became the worst hit zone.

Tracing the personal history of four families in the Bay Area it is possible to trace the close links between macro and microeconomics and the strange twists of fate.

A man from Vallejo worked over weekends for two years sure that it will see him through his mortgage dues. But he lost. Foreclosure won. Another person from Oakland who was lagging behind in foreclosure payments did overtime shifts to catch up with the loss and managed to come to an agreement with the lender to modify his loan at a lower rate. He won and kept his house. Foreclosure lost.

Two other families had two different stories to tell. Neither paid after refinancing but faced opposite results. A couple from Fairfield lost their house to foreclosure after they refinancing. They had walked away from the house. But an Oakland family even after not making payment for a full year remained in their house – although in an uncertain state of limbo.

The Bay Area is relatively in better shape than Sacramento or Stockton, although it has not been spared foreclosures. During the first eleven months lenders repossessed about 10,000 houses in Bay Area and dispatched 33,000 default notices.

The foreclosure waves are hitting international shores. Wall Street has suffered multibillion losses. With construction work slowing down jobs in this sector are dwindling. Mortgage firms are shutting down. With houses not being bought or sold state taxes have fallen. Consumers do not have spending money. Borrowing has become much harder than before for everyone – from the ordinary man in the streets to giant corporate bodies.

Experts are opining that foreclosures have brought the nation to the brink of recession. This is but the first chapter of the suffering. Many more mortgages are waiting in the wings to come onto the centre stage of foreclosures in 2008. The next 18 months will see as many as 2 million foreclosures across the country.