Home foreclosures are the economies achiles heal
March 11, 2009 by admin
The stock market has lost over twenty percent of it’s value in 2009 and job losses for the first two months are above one million, yet some economists (Ben Bernanke) believe that the U.S. could navigate its way out of the recession over the next six to nine months. This believe seems to be based on the trillions that the U.S. is adding to banks and the economy through various forms of government spending. The U.S. housing market is continuing to suffer the consequences of a failed plan to fix the home foreclosure challenge last year with the hope for homeowners program and a planned tax credit of $8,000.
The government rolled out details on their lates attempt to fix the downward spiral of home foreclosures last week through various loan modication and refinance programs aimed at home owners who are upside down on their home value or have fallen behind on their mortgage. This latest government proposal has been met with mixed reviews at best as most economists do not believe the help will be broad enough to slow down foreclosures. The month of February saw the largest number of homes lost to foreclosure ever and there is little reason to believe that the month of March will be much different. The major item that the government and banks have ignored is that mortgages are non recourse loans, essentially home owners can walk away from their homes and only face the danger of damaging their credit, not losing other financial assets. This trend gained momentum in 2008 and likely will continue to grow as homeowners who are hundreds of thousand of dollars upside down (Arizona & California markets) have little reason to continue to pay on homes that could take ten years or longer to return to a level equal to their current mortgage balance and payment terms. Until the government roles out a solution that lowers the principal balance of these types of mortgages, their is not likely to be a dramatic slow down to home foreclosures in the near future.