Property foreclosures have become a now major problem in the US, and even more worryingly, they now involve high-quality housing loans rather than just sub-prime mortgages. According to the latest National Delinquency Survey, the delinquency rate reached 9.12% in the first quarter of 2009. This means that 12% of all mortgages are now delinquent by at least one payment. Even worse, 56% of total mortgages involved in the foreclosure process are prime, fixed-term mortgages, indicating the housing problem has become more widespread. The Mortgage Bankers Association, which sponsors the survey, has indicated that they do not expect any improvement in the property market until 2011.
A property foreclosure is a legal proceeding in which a bank or other creditor repossesses a parcel of property from a lender after the lender has failed to comply with the terms of an agreement, which is commonly called a mortgage. The most common violation usually involves the borrower defaulting on the payment of a promissory note secured by a lien on the property. After foreclosure proceedings are concluded, the lender can sell off the property, with the proceeds going toward repayment of the loan and other costs he has incurred. In some states, if the proceeds of the sale are not enough to cover the entire amount of the loan, the lender can file a claim for deficiency, in which the borrower still has to pay for the amount of the loan not covered by the sale.
The increase in property foreclosures is part of the housing bubble currently afflicting many US states, including California, Florida and Nevada, in which increases in house prices are followed by property price crashes.
Fortunately, there are some actions being undertaken by legislators and special interest groups to stem the tide of property foreclosures and help troubled homeowners. For example, a coalition of national civil rights groups, in April 2007, asked the sub-prime industry for a six-month moratorium on sub-prime mortgage foreclosures. In the same year, the Joint Economic Committee of the US Congress released recommendations that included: increased federal funding for local foreclosure prevention programs; the drafting of a federal anti-predatory lending law; and the strengthening of mortgage regulation at the federal level.
More encouragingly, some sub-prime lenders have taken it on themselves to help their distressed clients. A Kansas-based subprime lender created a program to help their customers find jobs by providing free services such as helping them craft resumes, practice for job interviews and find job openings. The program cost the company millions but also likely prevented much more in foreclosure losses.
The tide of property foreclosures, unfortunately, is unlikely to be stemmed any time soon. But with the many actions taken to address the problem, the future may look a little brighter for homeowners who face the looming specter of homelessness.