Foreclosures Touch an All Time High

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Residential foreclosures have touched an all time high. It’s not only the subprime borrowers whose have been foreclosed houses. The number of Alt-A loan borrowers faltering on the loans has increased too. Now even the prime loan borrowers have skipped on payments, as a result of which their homes are being foreclosed in large numbers. In fact, the foreclosures of homes of prime borrowers constitute the largest share of total foreclosures now.

At present, residences of 6 per cent prime borrowers are in some stage of foreclosure. This is twice what it was a year back. Four states lead in prime foreclosures and these are California, Florida, Arizona, and Nevada. But there are still other homes in other parts of the country which are being lost to foreclosures. The primary reason for this is not hard to understand – unemployment.

Job losses are still rampant and the number of those receiving unemployment doles is at an all time high of 6.7 million. The only silver lining is perhaps that the number of those making unemployment claims has dropped to 623,000 – registering a sharp drop of 13,000 in a week’s time.

The Federal Reserve has also made a point that the banking system has been stress tested. This test was planned to measure the performance of the USA’s 19 biggest banks. No doubt, their health is very important but they are not the only ones who are in the deep because of property loans. There are many mid-sized and small lenders who are facing losses as well.

Now the question that arises is if the Federal Reserve’s Term Asset-Backed Securities Loan Facility (TALF) will improve the prospects of the lenders? No one is quite very sure. Financial firms may benefit from the inexpensive financing and pass on the benefits to the borrowers. This will ultimately lead to the recovery of USA’s beleaguered economy. But there are fears that the government may suddenly change the program plans. If that happens, then the firms will not benefit.

Also Wall Street is not very stable – it is up one day, down the next. However, the primary concern of the government should be to create more jobs. Unless employment is created, homeowners will not be able to pay the mortgage. Foreclosures of prime properties will continue. As the trend shows, it is not only the sub-prime borrowers who are defaulting. The prime mortgage borrowers are skipping as well, and only job creation can put an end to this financial catastrophe.