Mortgaged future: US foreclosure leading to homelessness, disease and crime

When I was a child, I heard the grown ups telling a story about this lazy man who’d throw a brick through the window of a store when the police drove by, just to get arrested and have a roof over his head for the winter. According to some people, this economy will have a lot of people doing the same thing in the near future.

In response to an article on avoiding foreclosure, one reader said:
If we don't do something we are going to have an epidemic of homeless people who are fed up and commit crimes this winter begging to be housed in Jail. (Mortgage News Daily)

As the nation’s presidential contenders gear up for Election 2008, job loss, foreclosure and war continue to grab headlines and energize both candidates and voters. Unfortunately, many are deluding themselves that ”the worse is over” when it comes to the foreclosure crisis, when, in actuality, the really bad stuff hasn’t hit yet,

One analyst says two more waves of foreclosure and economic mayhem are just around the corner
“While the U.S is currently in the midst of the largest bout of home foreclosures in at least 30 years, at least one economist says two more 'waves' are likely on the way. Patrick Newport, a housing economist at Global Insight, said the next round of foreclosures could come over the next several months as a result of continued job losses in the U.S. (Ibid)

Newport’s comments have unleashed a cornucopia of responses. Some believe he understated the problem and see a depression-like economy roiling the nation over the next few years. Others believe that, although some mortgages have less value than roach-eaten wallpaper, many good notes are still out there, still making a profit for the institutions that hold these mortgages.

The problem with “thinking positive” is that there are so many external factors which contribute to housing market stability. In many cases, the domino seems to rule. Hence, when one or more houses on a block go into foreclosure they drag down the value of surrounding property. This spells major bad news for those who are still trying to pay their mortgage, as massive drops in home value send some homeowners packing, moving and abandoning homes which have more debt on them than they are worth..

Many, including people who unhappily reside next to foreclosed property, abandoned houses and underutilized subdivisions, are seeing their property drop by as much as 15% in value. Ad the oversaturated market to the mix and we now have millions of American homeowners whose houses are worth less than the mortgage which finances them.

For millions, the American Dream has become a toxic nightmare. Many have lost their jobs and can no longer pay the mortgage on their overvalued homes. Homelessness, domestic abuse, violence and instability are rising in many communities as hundreds of thousands of homes go on the auction block.

The problem with this growing catastrophe is that most of America is too young to remember the Depression as anything other than something they read about in a history book. The very idea that the economic system could collapse is unthinkable to this “can do” nation.

We are convinced that “we can” do anything we set out to do. Climb every mountain, win every race, clobber our enemies and defeat the forces of…what ever evil we have defined as our enemy. The sheer volume of this nation’s national debt, consumer debt and war debt are beyond most Americans to envision. Trained by generations of “we put a man on the moon and we an do anything” mentality, the concept of economic and social collapse is beyond our ken.

We just don’t foresee the economic tsunami that many say is rolling our way faster than the government can print money or deny depression. The cumulative effect of job loss in manufacturing and the domino effect of job loss and foreclosure is spreading across the country like a melting cow patty on hot blacktop.

The effect of recent job losses, added to the already tight job market have combined to generate another tier of default to the ongoing economic strain nationwide. As the economy contracts further, we can expect additional job loss, mortgage foreclosure and economic uncertainty.

Meanwhile, according several bloggers on Mortgage Weekly’s website, people have no idea what the nation is in for. Referring to the idea that “the worse is over”, one particularly pessimistic individual took the Pollyannas to task:
You silly people, you have no idea how bad it is going to get- the next wave will be worst and if there is even a 3rd wave left that will be it- depression. Alt A loans, and option arms are coming due-very soon and with declining values and the lost of loan programs will prevent most from refinancing or purchasing so they will walk - these count a lot more than the subprime loans that were out there- ripple effect throughout every aspect of the economy is about to happen…(Ibid)

Some are looking at this crisis and see only one way out—a massive contraction of the economy, followed by a Depression. With home prices falling, mortgages worth more than the house and people walking away from the mess, the loan industry is not going to be as fast and loose loans as it has been. This, in turn, will cause a cash crunch for many who want to purchase a home or invest in real estate.

According to an industry report, twenty-five percent of the homes sold recently were sold at a loss, unloaded at less than the investor paid for them. (Ibid) That is bad news for the nation’s financial institutions, investors and home owners.

A housing market with depressed prices can not sustain a healthy economy, no matter what bright eyed, lying through his teeth politician tells you. This economy runs on value, and when values are depressed, so is the economy.

Just how bad the housing sector’s problems are, is not an easy thing to measure. In the view of at least one economist, Freddie Mac and Fannie Mae’s problems with fiscal health may be worse than is actually reported. A former analyst with the Federal Reserve is saying that both housing lenders may be in some massive trouble and is far from being fiscally sound. To add insult to injury, not only are the foreclosed properties becoming eyesores, fodder for arsonists and vagrants, now one report says they may be contributing to a public health menace.

Several cable networks have reported over the last few weeks that the hundreds of foreclosed houses covering suburban neighborhoods may be contributing to the spread of the West Nile virus. This is particularly true in warmer areas such as California, Arizona, Florida, and Nevada where homeowners tend to have a lot of outdoor playthings, chiefly swimming pools. (Ibid)

The nation’s mental and physical health is getting shakier by the minute, as the side effects of economic uncertainty explode. The pressure of job loss, foreclosure and economic uncertainty are contributing to several problems, from mental health crises, stress and suicide, to a possible uptick in certain diseases created by empty houses, stagnant swimming pool water and other breeding grounds for mental and biological pestilence.

The spillover from the housing downturn hits just about every sector of the economy. Foreclosures take properties out of the tax system, decrease the amount of revenue for schools, public safety and public works and contribute to reduced services in communities nationwide. Expect to see city and county governments retrench and back off on many services which Americans have taken for granted for generations.

While housing has long been the bread and butter of the nation’s economy, to many homeowners, the bread and butter has long since become vinegar and ashes. The big question for taxpayers and homeowners is: how do we get out of this mess?

Unfortunately, there are more questions than answers, and more questionable advisors than honest consultants. America is in a terrible fix, for not only are we spending our children’s inheritance to get out of this mess, we are also jeopardizing out own retirement and “golden living years” by taking the advice of brokers and banker with major conflicts of interest and moral deficits deep enough to bury the Grand Canyon.

The special interests are creating a nasty economic environment, setting us up for the fall of the century. Welcome to the Brave, New, World of mini-mansions, matchbox houses and questionable real estate investments. More of the same, coming to a neighborhood near you.