Foreclosure Continue to Rise

Home foreclosures continue to rise and are expected to keep rising next year no matter who is elected into office this year. Home values cannot be resurrected overnight and presidents have no direct ability to reduce mortgage interest rates.

Obama supports a broader role for government than does McCain, but both agree by envisioning the Federal Housing Administration (FHA) to provide new, cheaper mortgages to distressed homeowners who would otherwise have difficulty refinancing into a more secure government-insured loans with lower monthly payments.

For the plans to work, lenders have to be more willing to take a substantial loss by reducing the amount owed on the outstanding loan. A refinancing deal would be great for the lender, so that they could recover far more money than they would get from foreclosing on a property or reselling it.

Obama supports legislation that would help about 400,000 homeowners and McCain’s plan would provide relief to 200,000 to 400,000 homeowners. For both legislations, people would have to show that they can afford the new payments.

Experts predict that foreclosures will continue to climb into 2009. A long term solution is tied to the turnaround in housing prices. Decreased home values are blamed for the many increasing foreclosures and troubled borrowers are left with owing more to the bank than the home is worth. Adding more empty homes to the market, adds a pile of unsold home and further drives down prices.

Some analysts predict that house price will not climb until the spring selling season of 2010…at the very earliest. Lawrence Summers, a treasury secretary in the Clinton administration, predicts that more than 2 million foreclosures are coming over the next 2 years and that as many as 15 million homeowners will owe more than what their house is worth.

There isn’t a quick fix for home prices, because it’ll take a slow rebuilding of people’s confidence to help increase home values once again.

Additionally, if the central bank continues to raise interest rates to fend off inflation, it would could further push up the number of foreclosures.

Congress is working on legislation to allow the FHA to help struggling homeowners. Although, the solution isn’t a cure-all, long-term strategies need to be put in place to prevent a repeat of the foreclosure crisis and to improve oversight of the players and mortgage borrowers in the mortgage finance system.