USA: Rise of the Foreclosure

USA is suffering highly from foreclosure in the major Cities of four prime states, Arizona, Florida, Nevada & California. 29 Places from those states captured 29 positions out of the top 30 highest foreclosure affected areas of USA. But it was noticed that some places, like the Central Valley cities in California, which was badly affected by foreclosure, had improved a lot.
But experts said that this may be only a relief before another blow of an upcoming foreclosure. It is well known that the former two reasons of foreclosure were sub prime mortgage meltdown & other economic crisis. But now it is suspected that there will be a third wave & that would be, according to Realtytec" the fallout from the option-ARM resets over the next several months."
The question is, will it be getting worse then before?
We will get the answer if we just checkout the report given below:
Many states & cities of USA where populations are larger than one million had immensely increasing rate of foreclosure during last six months of 2009. For example, Seattle had the highest increase in the rate of filings, received notices 1 in 107 homes. That is 72% increment in rate compared with the same period of time one year ago. In the second position, was Minneapolis, increased by 58.6% to 1 in 90 homes; Phoenix got 51.7% increased to 1 in 22.
Vegas, which is crowned as the king of foreclosure,1 in 13 homes having foreclosure filing during the first two quarters of 2009, is 56% more increased compared with first two quarters of 2008 & it was six times worse than the national average rate of 1 in 84 homes. Chicago has increased up 30% from 2008 to 39th place among the foreclosure affected cities.

Housing surge

Applications for building permits and initial construction of U.S. housing properties both surged in the month of June, 2009. According to the US government’s Commerce Department figures, it’s getting an adjusted annual rate of 582,000, which is 3.6% up from a revised 562,000 in May. Economists were expecting that housing construction will increase to a rate of 524,000 units per annum.
Since December 2004, Single-family housing construction was notably strong; it goes up 14.4% on a month-over-month basis. It was the biggest surge & considered the center of the housing market.
According to Mike Larson, real estate and interest rate analyst at Weiss Research, the downfall of housing market is gradually stabilizing. He added in a research report “The new home industry has done a good job of reducing supply, but the existing home market is still vastly oversupplied, and we continue to be inundated with an influx of distressed and foreclosed properties."
It is well known that applications which are submitted for building permits are an indicator of future construction activity. It was noticed that the number of those applications rose 8.7% to an amazingly adjusted annual rate of 563,000 in June, 2009. Since December 2008, it was more than the annual rate of 530,000 that experts had forecast & the highest number of applications till 2nd qtr of 2009.
June-2009 holds the second mark of the month when home market have increased after the rate( per annum) of new homes having ground fell to an all-time low of 454,000 units in April, 2009.
New housing construction activity was getting stronger in the Midwest, where the construction activities were up by 33.3% from the previous month. It was also increased in Northeast by 28.6% in June.
But the in the West and the South, declines in the number of new homes are getting down last month ,14.8% in the West and 1.4% in the South.

Increasing foreclosure: the affect of recession

During the first six months of 2009, it was a record that 1.53 million US properties & assets were in the process of foreclosure - default notices, auction sale notices and bank repossessions. This figure is 9% more than the last six months of 2008 and 15% more than 1st six months of 2008, according to the US market reviews.
According to the report, there were 1.91 million foreclosure filings which are considered as 1 single property out of every 84 U.S. properties in the first half of the year 2009. Financial institutions or banks repossessed almost 386,800 properties in last 6 months. In addition to that there was no improvement in housing recovery in June, the last month of the cycle which is a very bad sign for the economy.
In the month of June,2009 ;More than 336,000 homeowners filled foreclosure , which is over 33% from June,2008 and nearly more than 5% with May 2009.
The biggest reason which really affecting foreclosure statistics is the recession. People were losing jobs in different sectors & were unable to payoff their respective debts. As a result, the number of out-of-work borrowers or defaulters is increasing. The prices of the properties are still going downwards at a slower rate, which pushes more homeowners into uncertainty because drop down of home-prices means more homeowners owing to the bank much more than their home is worth. That discourages them fully from repaying their respective monthly loan payment because they realize that it will be a foolish financial decision to keep paying on an asset which is having decreasing money value. Reports says that homeowners are deliberately surrendered their mortgages once their asset value fall 15% below their mortgage balances.

Experts added that at least 25% of all mortgage defaults may be "strategic”, because borrowers have lost so much value of their respective assets that they walking away from their homes. It was found that the areas which mostly affected by foreclosure, home prices have fallen by 40% or more.
However, parts of the borrowers are negotiating with their lenders, constantly trying to soften the terms of their debt so they can payback their loans & stay in their homes. But that process has been slow and infuriating to many borrowers. As a result, foreclosure rate is massively increasing.
California was recorded foreclosure more than any other state with 391,611 filings, one for every 34 households. Nevada had the highest foreclosure rate with one for every 16 households. Arizona, one for every 30, and Florida, one for every 33. Georgia, at one for every 70 households, is sixth,Michigan recorded one for every 74 households,holds the seventh place. Illinois came in eighth with one for every 76; and Idaho, one for every 79, holds ninth position .Colorado, with one for every 80, secured the tenth position and Ohio, with one for every 86, was twelfth.

The "Credit Crunch"

In the winter of 2007, the "credit crunch" started , creating huge effect at that time in the housing markets & the value of mortgage-backed securities, which is controlled by maximum banks, began to tumble. Financial institutions or banks suffered a sudden loss that was beyond expectations, as a result financial institutions strictly controlled & tightened their credit-lending policies and offered more conservative credit opportunities to their consumers.

The crunch transformed into a "liquidity crisis"in September-2008. The banks were losing their liquid cash caused by the crunch worrying that other financial partners might not be able to help when the time comes to repay their internal debts. So, banks began to control their reserves, stopped or gradually reduces interbank lending, and the premium on short-term loans went much more higher than before.

The given video will be useful :

In the beginning of October, the Treasury Department of US government gave financial support to the banks. This efforts was aimed at getting over from the "Credit Crunch" & getting financial agencies or banks to support to each other again.

Experts say the programs have largely worked. Banks have started repaying their internal debts & interbank lending has also increased. It is assumed that the critical situation has passed. But the crunch is here to stay for awhile.

Why?If banks are healthier, then what is the reason for such delay?

Mostly, because the economy is still tumbling from the mass effect of "Credit Crunch". Unemployment level is increased by 10% than before , the value of household wealth & assets are decreasing, foreclosures still rising. Banks aren't quite ready to invest their liquid cash to the incoming customers without being totally assured that the money will be paid back with the interest in the confirmed period of time.

It is certain that whether liquidity is gradually getting back to normal, that doesn't mean that financial institutions or banks are healthy enough to lending money to the borrowers. If we have a close look , it can be noticed that losses , caused by the previous lendings & mortgage-backed securities, are still increasing. Markets are still tumbling by the affect and banks are still remaining in their internal debts.

Experts predicts that the credit crunch will come to an end in about a year. It can be said that low rates of assets & household wealth will probably spur inflation at some point, and financial institutions or banks will make more liquid cash to balance the total situation.

Big changes to the CREDITCARD industry

The recession had a immense effect on the credit card industry, which has caused billions of dollars in losses with a huge increase in the number of people who can’t pay their bills because of a sudden job loss or other money crisis. That causes another ripple effect even on a large group of credit card customers who have always paid their bills on time.

Bill Hardekopf(chief executive officer of lowcards.com) has added “The game has changed dramatically. If you do anything — and I mean anything — to show that you’re a higher financial risk right now, you will, the next month, get an increase in your (annual percentage rate) or a decrease in your credit limit.”

In the period from 2007 - 2008, credit card service providers increases their interest rates on nearly 1/3 of all their existing cardholder accounts- according to the Pew Safe Credit Cards Project, which collects data the banks provided about new credit card regulations.

Within the first three months, the rate of interest for bank-issued credit cards increased to 1.32 percent, from 1.19 percent a year ago-added TransUnion,from 27 million-credit card transaction database.

A new set of regulations, known as the Credit Card Bill of Rights, will get into effect from next year , which will make a number of changes particularly protecting customers from sudden unexpected deductions, and risinge interest rates without proper notification.

The techniques credit card providers using to compute risk depends upon various things, but experts say a minor change of your payment-pattern can be causing a sudden increase of interest rates, or decrease in your creditlimit . Only making the minimum payments can also be a red flag to credit card companies .Using your credit card to buy second-hand commodities or for gambling/betting can also be harmful for your credit score.so think wisely, do well.