The nation’s mortgage melt down has evolved into America’s real estate crisis amid falling home prices, record foreclosures and weakening consumer confidence and threatens to produce the nation’s worst economic disaster in history, a Housing Predictor study reveals.
The catastrophic damage could be so widespread that the crisis could reach $600 billion in losses to home owners, Wall Street investors, mortgage companies and banks.
The number of adjustable rate mortgages set to adjust with higher mortgage payments for homeowners in the U.S. through 2009 is now estimated to be at least 5 million loans, which is widely expected to further damage the nation’s ailing real estate markets. The earlier estimate was just 40% of the new estimate at 2 million mortgages.
The staggering estimate was provided by the office of U.S. Congressman Brad Miller, (D) North Carolina. Miller is championing a proposal in the house to let courts alter mortgages of subprime borrowers in response to the nation’s mortgage crisis resulting in record foreclosures.
Fault In The Vaults
For years greedy lending practices and investors forged a booming housing market that appreciated in most areas of the country at or near double digit figures until the coffers, which were Wall Street Bankers shut off the flow of money. With the money stream in short supply mortgage lenders tightened lending guidelines, which in turn slowed many real estate markets down.
Real estate markets all over the country at first slowed and now more than half of the nation’s housing markets are nearly at a standstill with abysmal sales figures, according to independent surveys conducted by Housing Predictor. The rate at which prices are falling in some areas is staggering, much faster than when the Savings and Loan Fraud Scandal reached its peak in the early 1990’s.
The real estate crisis is beginning to move into markets where they have been untouched thus far. Second home, vacation markets and extremely high end properties well over $1-million are sectors of the housing market that remain less distressed than many others. California, Florida, Michigan and Nevada are the most troubled states with record high foreclosures and increasing notices of late mortgage payments being recorded. Banking officials concede by the time the fall out is over few urban markets will remain unaffected.
The concentration of fraud and misrepresentations combined with easy access to mortgages of all kinds, including subprime loans to those with poor credit histories and exotic new conventional mortgages to those with good credit has caused the worst financial disaster for lenders since the Great Depression with more than 120 mortgage companies either filing for bankruptcy or going out of business all together.
Compounding the problem are increasing estimates of more than 5 million adjustable rate mortgages that are scheduled to be reset before the end of 2009, many which are held by investors who will be unable to make higher payments. Americas Watchdog, a web site that has been warning about the forthcoming crisis for nearly three years estimates the consequences from home flippers alone will be devastating.
“The problem is we have half a million to three quarters of a million flippers (investors wishing to make a quick profit buying and selling homes) in this country and by this time next year they will have lost their homes,” said Thomas Martin, president of the organization, which offers services to help consumers.
“Worst Financial Disaster in History”
“We think this will be the worst financial disaster in the nation’s history,” said Martin. Others, including some economists are beginning to agree and at least one ex-Federal Reserve Board member says the housing crisis has reached epidemic proportions that have not been witnessed since the Great Depression. “Wall Street talks like the problem is behind us,” said Martin.” In reality the problem is just in its initial stages with more severe hardships that will effect individual homeowners as well as the over all economy.”
Critics charge the Federal Government looked the other way. Former Federal Reserve Chairman Alan Greenspan said he knew about the subprime mortgage problem a few years ago, but never expected it to evolve into such a massive problem.
The crisis is so wide ranging it extends to all levels of government.
“Best Congress That Money Can Buy”
The crisis undermines the mortgage process as we have known it for the last half century in the United States, and poses fundamental issues for society to resolve. Builders lobbyists in Washington D.C. have made many campaign contributions to Congressional candidates running for office, who were later elected. One mortgage agent ironically said, “We have the best Congress that money can buy.”
In the mean time, home sales continue to decline. Sales of existing homes depressed by the credit markets fell for a sixth straight month in August. The housing market has already dropped to its worst slow down in at least 16 years. Housing Predictor expects sales to continue to be slow for many months, perhaps even years in some urban markets. Foreclosures have already reached all time record highs nationally.
The Federal Reserve is trying to avert a worsening crisis by cutting interest rates, and Housing Predictor expects the Fed to continue on its current interest rate cutting path to assist the housing market and other U.S. financial markets in an attempt to save the overall economy from worsening.
Laws to Avert Repeat of Great Depression
Many economists are concerned about the housing market’s future. Economist Milton Friedman and Federal Reserve Chairman Ben Bernanke say that the U.S. Great Depression was caused by “monetary contraction,” which resulted from poor policy making decisions by the former Federal Reserve policymakers’ organization known as the American Federal Reserve System, which preceded the current Federal Reserve Board of Governors.
Federal laws were changed and improved since the Great Depression to allow the Fed to take additional actions to help ailing economies and avoid a similar fate from repeating, including supplying additional money into the economy and cutting interest rates more.
The panic that banks experienced with massive withdrawals by depositors during the height of fear in the Depression era has occurred only to a limited degree, mainly in areas like California, which is in a housing recession. Most banks remain solvent and continue to do business daily. Some of the nation’s largest mortgage companies are battling to stay in business.
The housing crisis, however, will take many years to overcome, according to most economists, who are leery about predicting how long it will take to recover from.
|• If a consumer suspects they are one of
the millions of consumers, who feel they
have been cheated they may contact the
National Mortgage Complaint Center.
• They will review the home owners
mortgage documents for a modest fee
and write a report highlighting issues and
make suggestions on ways to get money
back. It is the only service of its type in
the nation.• If a consumer is considering the purchase
of property thoroughly conduct market
research or have it provided by a real
estate agent or outside an unbiased
service provider before making an offer
on a property. The National Mortgage
Complaint Center offers a service to
review new mortgage documents.