Addressing the problem of home foreclosures is the key to unlocking the financial crisis that is raging across America and taking the world along with it.
Broadly speaking there are three types of foreclosures - residential, commercial and tax foreclosures. The crisis right now in USA centres on home foreclosures but waiting in the wings are commercial foreclosures. Experts opine that many commercial properties will soon be engulfed in foreclosures leading to worsening of the unemployment scenario. A tax foreclosure occurs when the government forecloses on a property to realize unpaid taxes.
The foreclosure is a process that may or may not be judicial, depending upon the state, by which the lender sells the property to realize from the borrower unpaid dues. Home foreclosures have been an integral part of the mortgage world but what is special this time is the sheer number of foreclosed homes that are dotting the country.
Another distinctive feature of the home foreclosure crisis of today is that previously the borrower had the option of selling the house and repaying the loan or of refinancing and keeping it. But with the real estate market having tumbled the value of the house has become less than the worth of the loan. This is tempting many to just walk away from the house by returning the keys to the lenders.
The lenders now want to avoid home foreclosures - because of the falling value of the house. Foreclosures are a costly process. Having gone through it the lender finds that the house cannot be sold because there is more supply of houses in the market, thanks to home foreclosures, than demand. Instead the lender faces the ire of the government and the locals for allowing the houses to become derelict. Vacant foreclosed houses are attracting crime and disease like magnets. The lenders are now being asked to maintain the houses or face heavy penalty.
Apart from the lenders and borrowers the government too, at all levels, is facing trouble because of home foreclosures. The revenue is not flowing in. Budgets are getting smaller and smaller. But with work increasing because of problems of crime increasing from rising number of home foreclosures the government is finding itself in a quandary.
Most of the home foreclosures have their roots in the sub-prime mortgages. Taking advantage of the great American dream of owning a house, lenders and their servicers resorted to predatory lending in the wake of withdrawal of mortgage regulations. Interest-only mortgages attracted many gullible borrowers. In some cases even down payments were waived. Another type of mortgages allowed borrowers to choose their mode of payment. The net result was that the principal remained unpaid and interest on that kept piling up. When the interest began to spike, home foreclosures began to sweep over the country like a tidal wave.
Many had taken the easy loans during the time of the housing boom hoping to sell off the house and repay the loan. But when the markets began to fall they fell into home foreclosure.
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