Everyone feels the painForeclosures are everyone's problem, not just the unfortunate homeowners who get the official notices. Many foreclosure properties are in poor condition -- neglected or perhaps abandoned altogether -- which then affects the value of the entire neighborhood. Also affected by the foreclosure crisis are homebuyers or potential homebuyers with solid income and decent credit, who often find a loan much tougher to obtain. In a January survey conducted by the Federal Reserve Board, around 55 percent of senior loan officers said they had tightened their lending standards on prime mortgages given to borrowers considered to have a low risk of defaulting.
The crisis also affects home sellers who are not in foreclosure. The bargain prices of many foreclosure properties drag down prices in the neighborhood and surrounding areas while making it difficult for all sellers to compete. The result is more lowering of prices and homes on the market for much longer periods.
Any good news?It is tough to find any good news in the foreclosure picture. Small bright spots would be the temporary short-term relief offered to some distressed homeowners through state legislation and voluntary programs announced by the federal government, such as a pair of relief programs in Ohio that offer low-interest loans to homeowners at risk of foreclosure and a recently launched Maryland program offering loans of up to $15,000 to low- and middle-income distressed homeowners.
Generally, though, these programs will only be able to help a small percentage of the distressed homeowners in their areas.
In the long term, tightened lending standards have greatly reduced loans to high-risk buyers, so foreclosure rates should eventually level off. But most experts believe there are at least another few rough months ahead. The latest MBA projections anticipate home sales will bottom out in the third quarter of 2008, and residential home starts will be down 18 percent this year as compared to 2007. As late as spring and summer 2007, some lenders were still freely doling out credit to borrowers with shaky credit. Since many of those loans featured ARMs that have not yet reset -- and may not do so for another year or two -- their impact may not be felt for some time.
Is Uncle Sam doing enough?Is the federal government doing enough to help distressed homeowners? Is it obligated to do anything at all? It depends who you ask.
The federal government's latest move is Project Lifeline. It's a voluntary program, but six of the nation's largest mortgage lenders are already on board. It is essentially an outreach program targeting homeowners in serious risk of losing their homes. Project Lifeline provides a 30-day grace period (during which a foreclosure sale would be put on hold) to borrowers who reply to the letter and show a willingness to try to resolve the situation.
The main goal of Project Lifeline is to get homeowners to take action by contacting their lenders to discuss options, as opposed to the common strategy of living in denial, dodging the lender's letters and calls, and hoping it will all just go away.
Bobbi Dempsey is the co-author of "The Complete Idiot's Guide to Buying Foreclosures."