More than any other segment of the financial crisis, the foreclosure epidemic is severely impacting the U.S. economy. On average every foreclosure costs the economy $225,000, the average on home mortgages made during the real estate boom. The losses translate into trillions of dollars, and it is becoming abundantly clear U.S. taxpayers will foot the bill.
The crisis has been running its course for more than two years as government policymakers dabble with solutions. However, efforts so far have only led to piecemeal solutions for the world's most damaged financial sector rather than a plan to halt the epidemic.
An estimated 4.2 million properties have been foreclosed, keeping pace with the Housing Predictor forecast updated last March. However, since more powerful actions have not been imposed to directly deal with the crisis, the epidemic of foreclosures is increasing and is now forecast to impact a much larger number of homeowners.
Housing Predictor forecasts that 10 million homeowners will be foreclosed through 2012 as more mortgage holders are unable to refinance their mortgages because of falling home values or give up at the prospect of holding on to their homes all together.
The increase to 10 million foreclosures represents 2.4 million more homeowners from the 7.6 million forecast in March. These homeowners will have the dream of home ownership taken away. Until lawmakers take more severe action to halt the epidemic it is clear the housing market will not stabilize and the economy will weaken further.
The Obama plan offers $75 billion to incentivize lenders to modify mortgages on a volunteer basis. Without forcing bankers to modify mortgages the plan was destined to fail from the beginning, and is presently viewed as a farce by real estate economists. Without a plan requiring lenders to deal with borrowers in jeopardy of foreclosure and force banks to negotiate the amount owed on mortgages, the crisis will only expand, triggering millions of more foreclosures. A Housing Predictor analysis has determined that the foreclosure epidemic could eventually affect one in six homeowners, or 25 percent of all mortgage holders.
Only 100,000 homeowners have been offered modifications by bankers under the current program, according to the Treasury Department, and fewer have actually taken them up on the offers. Under the plan, mortgage holders who do not qualify for a loan modification will undergo foreclosure, sell the property via short sale or hand the keys to their homes over and sign a deed in lieu of foreclosure instead.
More than three years have now passed since Housing Predictor first issued its foreclosure epidemic forecast. In the meantime, the economy has worsened, foreclosures are increasing, unemployment is rising, businesses are failing in higher numbers and credit remains tight except to the best of creditworthy borrowers.
One of out three Americans surveyed say that if home values continue to fall they'll walk away from their mortgages, which could set up a worst case scenario for the U.S. economy, triggering an economic calamity. The Mortgage Bankers Association says that 5.4 million mortgages are presently delinquent or in the formal stages of foreclosure, which equates to 12 percent of all U.S. mortgages. An estimated 16 million borrowers are underwater or owe more on their homes than what they could fetch in today's market.
Mike Colpitts is the Editor of Housing Predictor, which forecasts more than 250 local housing markets in all 50 states and offers real estate news. Housing Predictor was the first real estate research firm to forecast the foreclosure epidemic. Check your market forecast at http://www.housingpredictor.com