The foreclosures are now hitting the middle class

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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