Earlier this week, moveyourmoneyproject.org – a website that encourages consumers to move their money from large national banks to smaller, local banks – posted a link for a study that details the foreclosure crisis in California and the effects it has on families and local communities.
Most of the data in the report is far from surprising, but to see in print will still raise an eyebrow. While the study focuses solely on California, there are likely strong parallels for many other states and unlike other reports – that tend to focus on the number of foreclosures and the percentage they represent of the overall housing market (for a given city or state) – this reports calculates the actual costs to the community and state.
Among some of the more interesting stats:
- $337,379 value loss per foreclosure to the surrounding community
- $2,058 property tax loss for every foreclosure
- $19,229 cost for every foreclosure, when factoring the municipal costs such as: maintenance of blighted properties, sheriff evictions, inspections, public safety, trash removal, etc.
Find the rest of the report here…
Saturday, March 19, 2011
Saturday, March 5, 2011
First-Time Defaulters and Future Lending Practices…
An interesting article appeared on the website dsnews.com last week, discussing a subject we’re been talking about internally here for a long time – how will all the foreclosures and short sales we’ve seen and expect to see, effect lending practices and credit ratings going forward?
Traditionally, a scarlet “F” has been attached to those who have been foreclosed on and short sales haven’t been viewed particularly favorably either. Of course, over the past 20 years, both of those practices have been the outcome of a very, very small percentage of mortgages.
Times are changing.
With a quarter of U.S. households underwater and projections that home prices will continue to drop over the next several years, what will happen to those who have been victims of the mortgage/real estate crisis – notably, those who are “first time defaulters”?
After all, lenders are in the business of lending money. They can only pay out so many executive bonuses, before they have to actually start loaning money out again with the hope of turning a profit. I mean, if for no other reason, than to keep those bonuses going!
However, it’s hard to believe that the same credit requirements – 680+ credit score, minimal blemishes – will continue to be the only measuring stick, since so many more people will find themselves lacking the traditional requirements.
If banks decide to lend to only the “perfect” candidates, will they be able to stay in business themselves?
Not likely. At least, not long term.
Enter the first-time defaulter. Someone who had fantastic credit and payment history prior to this mess, but now find themselves victims of the “great recession”.
As the article points out, “had it not been for the economic recession, many of these first-time defaulters would have remained in good credit standing, and some have the potential, indeed the propensity, to resume good financial behavior.”
Is it reasonable to think lending requirements might need to be altered, to support lending beyond those who have traditionally been a “safe bet” for banks? Not only is it reasonable, it might get to the point were lenders won’t have much of a choice.
How this unfolds is anyone’s guess, but it does bring up some interesting questions. As the crisis continues and more people find themselves facing the prospect of a short sale or foreclosure, the more likely we’ll see lending practices forced to adapt to these new realities…
Traditionally, a scarlet “F” has been attached to those who have been foreclosed on and short sales haven’t been viewed particularly favorably either. Of course, over the past 20 years, both of those practices have been the outcome of a very, very small percentage of mortgages.
Times are changing.
With a quarter of U.S. households underwater and projections that home prices will continue to drop over the next several years, what will happen to those who have been victims of the mortgage/real estate crisis – notably, those who are “first time defaulters”?
After all, lenders are in the business of lending money. They can only pay out so many executive bonuses, before they have to actually start loaning money out again with the hope of turning a profit. I mean, if for no other reason, than to keep those bonuses going!
However, it’s hard to believe that the same credit requirements – 680+ credit score, minimal blemishes – will continue to be the only measuring stick, since so many more people will find themselves lacking the traditional requirements.
If banks decide to lend to only the “perfect” candidates, will they be able to stay in business themselves?
Not likely. At least, not long term.
Enter the first-time defaulter. Someone who had fantastic credit and payment history prior to this mess, but now find themselves victims of the “great recession”.
As the article points out, “had it not been for the economic recession, many of these first-time defaulters would have remained in good credit standing, and some have the potential, indeed the propensity, to resume good financial behavior.”
Is it reasonable to think lending requirements might need to be altered, to support lending beyond those who have traditionally been a “safe bet” for banks? Not only is it reasonable, it might get to the point were lenders won’t have much of a choice.
How this unfolds is anyone’s guess, but it does bring up some interesting questions. As the crisis continues and more people find themselves facing the prospect of a short sale or foreclosure, the more likely we’ll see lending practices forced to adapt to these new realities…
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