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Paul Kiesel
Paul Kiesel
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Foreclosure Crisis: Before a Subprime Problem, Now an Everybody Problem

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August foreclosures hit an all-time high: 304,000 homes were in some stage of default and 91,000 families lost their homes. The hardest hit housing markets continue to be in Arizona, California, and Nevada.

Nevada once again had the highest rate of filings in the nation (one in every 91 households), as more than 101,000 Californians received foreclosure notices (one in every 130 households), and another 35,000 people lost their homes.

Fannie Mae chief economist Doug Duncan said, “It’s been my view for a long time that foreclosures won’t peak until the last three months of 2008,” (CNNMoney.com, 9/12/08). And that might even be an optimistic outlook.

Take into account that foreclosures or default notices continue to rise steadily at a monthly rate that’s 10% greater from the previous month, throughout all of 2008. Even if you compare August 2008 numbers from August 2007, when the foreclosure crisis was already underway, the numbers from last month are still 27% higher than August of last year. The two variables that weren’t present last year that are now a growing concern for economists: the unemployment rate and option ARM loan resets. The latter will increase sharply towards the end of this year, into early next year. There are too many of those teaser rate payment loans out in the market that are about to reset to ballooned monthly payments, and too many filled with several TILA violations (which allowed this subsequent problem to occur), to not have a dramatic impact on the recovery of the economy in the short term.

Since last August, over 3/4 of a million homes have been repossessed and we’re not even halfway through the meltdown yet. Lehman Brothers is going to be bought by another bank (with or without the help of the government; it expects to post $3.9 billion in losses for the third quarter), and Washington Mutual has been contacted by (or is contacting, according to some reports) JPMorgan Chase to broker some type of deal.

As the presidential candidates discuss fixing the economy and a couple touch upon restoring “small town values,” ultimately, the former has to be the more pressing issue for the next president and vice president when it comes to dealing with and pulling us out of this financial quagmire. “Small town values” might sound like a good talking point on the campaign stump, but in order to compete in a global economy and allow Americans to bounce back from cash-strapped times and a Wall Street that was negligent and running wild with mortgage-backed securities, we need the next president to absorb this dilemma and consider the urgency and value of restoring order, regulation and confidence back into the financial markets. It’ll help small towns and big cities alike.