The Joint Economic Committee released a report on the subprime mortgage crisis that reiterates what the Center for American Progress has been saying: subprime mortgage foreclosures are a looming threat for the housing market, the mortgage lending industry, homeowners, and the U.S. economy that demands immediate attention.
The Center for American Progress report, “From Boom to Bust: Helping Families Prepare for the Rise in Subprime Mortgage Foreclosures” cites a 42 percent increase in foreclosure filings, which jumped to 1.2 million in 2006, up from only about 845,000 in 2005.
The Joint Economic Committee report confirms that this number will only continue to rise when 1.8 million adjustable-rate mortgages—many of which were sold to borrowers who cannot afford the higher payments that typically are associated with these loans later on—reset during 2007 and 2008 in a housing market that will likely still be weakened or in a downturn. The report also finds that the regions experiencing the highest foreclosure rates are also the same regions with a disproportionate share of foreclosures occurring in the subprime market. Certain areas in the south- and mid-west have nearly 60 percent of foreclosures coming from subprime loans, even though subprime loans comprise only 14 percent of foreclosures on a national level.
Action is clearly needed now to help the 2.2 million families that will likely lose their homes and up to $164 billion of accumulated wealth due to foreclosure. “From Boom to Bust” outlines key avenues for effective policy action, including:
- Providing federal grants to expand and enhance current mortgage assistance and foreclosure prevention programs and low-interest mortgage assistance to eligible borrowers.
- Allotting federal funds to target key cities and states facing the highest risk of mass foreclosure.
- Including provisions to ensure federal agencies assess the effectiveness of each program every three years.
- Strengthening programs that aid families while their mortgage contracts are renegotiated or the property is sold on the market so that the homeowners’ credit ratings are salvaged, allowing for the possibility of future homeownership.
These solutions would put federal money to work directly in the worst-hit communities, addressing the crisis across the country, but would also focus efforts on the communities that need help most.
What’s more, when you consider the great financial burden placed on lenders, borrowers, and communities when homes foreclose, these are exceedingly cost-effective solutions. The Joint Economic Committee report found that foreclosure costs can reach as high as $80,000—families pay an average of $7,200 in administrative fees, lenders as much as $50,000, and local governments up to $20,000 in lost property taxes, unpaid utility bills, and property upkeep.
While it is a sad reality that foreclosures are sometimes unavoidable, it is in the best interests of our communities and our overall economy to support those who have embraced homeownership and work with them to prevent foreclosure. These measures are a good start.
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