Slow Return of Foreclosed Borrowers Hindering Housing Recovery

Many homeowners who found themselves in foreclosure during 2008 – 2010 took a credit score hit that has made recovery of their creditworthiness a long process. An estimated 4 million foreclosures have occurred since 2007, according to the Federal Reserve Bank of San Francisco.

It is reasonable to assume that the broad spectrum of economic conditions, the unemployment rate remaining high, and house depreciation have continued to impact a borrower’s ability to obtain a mortgage, and their desire to return to the housing market.

In the past it was assumed that high pent-up demand for housing would create a market attractive to buyers, but the 4 million families rebounding from foreclosure will return very slowly and the supply of affordable mortgage money will determine the timing. The return for many families will depend on how tight the credit restrictions on mortgages are.

Many experts believe that the slow return of the group that were foreclosed upon in 2008 are facing a constricted credit supply. There was a contrary picture during the default era of 2001-2003, but the overall housing demand was much higher than during the Great Recession of 2008.

  •  The Resale Housing Market Drop In Value Is A Factor In The Housing Recovery

A typical example is the Apache Junction Arizona woman who is making payments on a $202,000 mortgage, but the value of the house has declined to $93,000, according to one area expert. This market pricing turbulence has depressed prices, and results in making it impossible for existing homeowners to trade-up. The Federal Reserve estimates that the value of many home investments has dropped 40 percent from 2007 to 2010.

  • More Than 13 Million Homeowners Owe Billions More Than Their Homes Are Worth

Realty Trac, a foreclosure tracking firm, says more than 13 million homeowners collectively owe $650 billion more than their homes are worth, and 1 in every 713 homes were in some state of foreclosure in September 2012. Zandi says “These households are struggling, homeowners are not spending, and banks are leery of them.” This does not speak well of a rapid recovery for housing, because these homeowners cannot upgrade their homes.

The Federal Reserve Bank of New York Consumer Credit Panel concluded that homeowners who were foreclosed in 2008-2010 face an uphill battle in obtaining mortgage financing. Two-thirds of borrowers who lost their homes in 2001 had not returned to the house market by 2011, according to the FRBNY.

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