posted 10-07-2003 04:44 PM            

Home Foreclosures Hitting Record Highs Across the United States, Poor Economy to Blame
http://www.nahrep.org/Real_Voices/Home_Foreclosures_Hitting_Reco/
home_foreclosures_hitting_reco.html

A record number of U.S. mortgage holders lost their homes to foreclosure in the third quarter of 2002. The percentage of loans 90 days or more past due increased from .78 percent to .82 percent, according to the latest survey done by the Mortgage Bankers Association. Households who are facing the harsh economic reality of unemployment have helped to drive up delinquencies and foreclosures in the first two quarters of 2002. Job cuts and a stock market suffering its third year of decline are contributing to more people
trapped in financial pitfalls.

During April, May and June, 1.23% of mortgages - about 640,000 - were in the foreclosure process. That's the highest rate in its 30 years of tracking, said the Mortgage Bankers Association. A year earlier, not even 1% of mortgages were in foreclosure.
In 2002 unemployment averaged 5.9% in the April-June quarter, a recent high. Homeowners out of work find it harder to make payments. Because the job market will most likely remain soft, it appears the proportion of borrowers under stress might stay high for six months or so.
Sources at DataQuick, a real estate information service say the high rate might also reflect greater willingness by lenders to use foreclosure to compel payment.

A report published in the November 24 edition of the New York Times, "Easy Credit and Hard Times Bring Foreclosures," reports on conditions in Indiana, the state with the highest foreclosure rate. A representative of the Marion County Sheriff's Department, which covers Indianapolis, told a Times reporter that she had listed over 5,500 foreclosed properties for sale so far this year, compared to about 1,000 per year in the mid-1990s.

The Times cites a typical foreclosure case. A husband and wife with two children own a home on three-quarters of an acre. The wife loses her job at a factory and is forced to take a position at a convenience store, which pays only half as much. The husband, who works at an aircraft parts plant, has his hours cut back. They accumulate $9,000 in debt and are forced to try to save their home by filing for Chapter 13 bankruptcy.

Another factor behind the increase in mortgage foreclosures is the rise of subprime loans. Subprime loans are made to borrowers with credit deemed insufficient to qualify for a standard home mortgage. They sometimes entail predatory practices including exorbitant interest rates, additional fees and prepayment penalties that make it virtually impossible for the borrower to escape from debt. Many studies show that subprime lending is targeted disproportionately at the poor, minorities and the elderly.

Studies in Boston and Atlanta conducted during the 1990s showed foreclosures by subprime lenders tripling, while foreclosures by other lenders remained steady or declined. During the 1990s the practice of "risk based' pricing increased. Banks began charging higher than normal interest rates to certain borrowers deemed to have lower than average credit worthiness. Lenders justify this practice on the grounds that it opens home ownership to those who would not otherwise qualify for mortgages. However, by their nature, subprime loans carry a higher risk of default because they impose an additional financial burden on those who are in many cases the least able to afford it. Additionally, subprime loans have become an arena for outright fraud and abuse. Cases of "redlining" have been documented where whole neighborhoods, usually poor or minority, are deemed to be substandard credit risks, forcing residents with otherwise excellent credit to pay subprime interest rates.

Subprime lenders also often impose interest rates far higher than anything that could conceivably be justified by factoring in costs associated with added risk. Borrowers are often unaware of provisions hidden in fine print that require additional fees, balloon payments or the payment of compulsory life insurance premiums.