Gov’T Report Suggests Broader Losses From Foreclosures

The foreclosure crunch may eventually cost Americans from $2 trillion to $4 trillion dollars.Gov’t Report Suggests Broader Losses From ForeclosuresBy Cliff Montgomery – Oct. 26th, 2007In a new study issued yesterday, the congressional Joint Economic Committee forecasts that around two million foreclosures will occur by the end of 2008 on homes bought with subprime mortgages.That prediction is much higher than a September Bush Administration estimate of half a million foreclosures–which itself would cause a major disruption of the housing market.The Joint Economic Committee predicts that the real estate wealth lost just from subprime loan foreclosures will total around $71 billion. A further $32 billion may be lost in American neighborhoods, as foreclosed homes usually drive down the worth of other residences in the area.Such numbers would mean a loss of $917 million in the property tax revenues of local and state  governments; it also will cost them many more dollars for the added policing needed to protect neighborhoods with vacant houses.“State by state, the economic costs from the subprime debacle are shockingly high,” Joint Economic Committee Chairman Charles Schumer (D-NY) told The New York Times yesterday.“From New York to California, we are headed for billions in lost wealth, property values and tax revenues,” Senator Schumer added.An alarming National Association of Realtors report just released stated that September purchases of existing homes plummeted to their lowest levels in almost 10 years.Stocks dropped sharply early Wednesday on such news; the Standard & Poor’s 500-stock index slid 1.8 percent before bouncing back in the afternoon. Investors also bid on Treasury bills, hoping to count on the relative stability of government-backed debt.At this point, economists say the free-fall in the housing market could end up costing financial institutions around $400 billion.That high sum is far greater than the cost, after adjusting for inflation, of America’s savings and loan disaster of the late 1980s, according to a New York Times estimate. While the Times says that fiasco cost taxpayers of all stripes about $240 billion, the total financial damage from the foreclosure crunch may cost from $2 trillion to $4 trillion dollars. Several economists say everything depends on how low American home prices will plummet.Experts add that these numbers are just estimates–the final costs may prove bigger still. They also point out that this market plunge will almost surely be more damaging for the average American than a falling stock, as far more U.S. citizens have placed their wealth in homes rather than in stock.“There weren’t a lot of people living off their capital gains from stocks,” noted Dwight Asset Management chief economic strategist Jane Caron to the Times.But “there were a lot of people using their home as a piggy bank,” she added.Recent years had seen a growth in the worth of real estate, which had helped maintain consumer spending levels. Many American homeowners, who in recent years have found themselves working harder and harder but making less and ever less, made up the difference in their falling incomes by re-financing their mortgages and taking out home equity loans.But eventually, those mortgages and loans had to be repaid. Ever decreasing incomes made that a financial impossibility for many.One of the final results of this mess could be seen in Minneapolis on Saturday.  Over 700 people had jammed into a convention center hall there early Saturday, to participate in what real estate agents have called the largest-ever foreclosed properties auction in Minnesota. More than 300 homes–houses and apartments–were to be sold in just two days.Opening bids ran the gamut, from a bid of $1,000 on a three-bedroom house, to the high bid of $729,000 of a five-bedroom home on 11.9 acres. The hall could not contain all those hoping to land a quick buy.Some have proclaimed the American-wide surge in home foreclosures to be an investment opportunity; less generous individuals had declared those seeking out foreclosed properties to be parasites, or worse. Whatever the case, it doesn’t appear this problem is going away anytime soon.“It’s a symptom of the foreclosure crisis,” Minnesota Democratic state representative Jim Davnie told the Times in an interview published Monday.Davnie voiced his concern that locations already slammed by the foreclosure surge may see home owners replaced by investors renting out houses they purchased at cut-rate prices, “which makes neighborhoods less stable than owner-occupied housing.”Like what you’re reading so far? Then why not order a full year (52 issues) of thee-newsletter for only $15? A major article covering an story not being told in the Corporate Press will be delivered to your email every Monday morning for a full year, for less than 30 cents an issue. Order Now!