By Mike Colpitts
The foreclosure crisis, already the harshest to hit U.S. homeowners in history is projected to drag on another five years, and will include more than a total of 15-million mortgage holders, according to a new Housing Predictor forecast.
More than 7-million homes have been foreclosed since the crisis started as a result of Wall Street manipulation and banks selling mortgages to anyone who could sign their name on a dotted line.
Since Congress and the Obama administration have made it clear that they are not going to force banks to modify mortgages for homeowners at risk of foreclosure, the crisis is forecast to drag on through 2015. Rising unemployment, which hit 9.1% nationally and real unemployment, which includes those underemployed around 20% represent the biggest problem for the housing market.
Without aggressive programs implemented by the U.S. government to take up the slack of the unemployed or at least provide financial incentives for business to hire more workers, corporations will hold on tightly to their cash instead of spending it on hiring new workers.
Corporate CEOs won’t say it, but actions are what count. Corporations holding on to millions of dollars and sometimes billions in cash such as in Microsoft’s case demonstrate their nervousness about the economy.
Without more people working, businesses will be slowed in most sectors of the economy, consumers will buy less and home sales will only be bolstered by lower prices provided by foreclosures and bank assisted short sales. The economic outlook is grim.
“The economy added 54,000 jobs in May, the fewest in eight months, and factories cut payrolls for the first time in seven months,” Freddie Mac chief economist Frank Nothaft said releasing the latest mortgage interest rate figures. The 30-year fixed rate mortgage has fallen for eight straight weeks, and averages 4.49%, the lowest since last year when rates hit the lowest level since the 1950s.
Near record low rates, however, do not trigger an increase in home sales in all markets, especially those depressed severely by the real estate collapse, and don’t allow homeowners who owe more on their mortgage than they could sell for to move unless they can either work something out with their bank to reduce the mortgage principal or decide to walk away.
For the foreclosure crisis to be halted, banks and mortgage servicing companies have to be required to work with mortgage holders at risk of foreclosure. Otherwise, the vicious economic cycle will continue to drag the U.S. economy down for years to come.
During the Great Depression a program was implemented by the government to aid homeowners at risk of losing their homes. To their credit, the Obama administration has tried a series of programs to help the housing market, but it’s arsenal of programs will either soon be aided by forcing the banks to cooperate with homeowners or home prices will continue to decline and hit levels that have not been seen in decades.