It’s been years since rogue mortgage market collapsed causing our economy to tailspin out of control. The government promised a quick turn-around after gifting away hundreds of billions of dollars to these same mortgage lenders in hopes of bolstering the devastated financial markets. However, here we sit, as the nation’s housing prices continue to fall; and the flood of foreclosures is only getting worse.
The foreclosure crisis is said to be the “second-biggest drag on the economy after the surge in oil prices,” says Moody’s Analytics chief economist Mark Zandi. Over the last four years some 5 million homes have been lost to foreclosure. Zandi indicates that the immediate future is bleak and we may see as much as another 3 million foreclosures in the next three to four years.
These foreclosed homes have caused a serious glut of unsold homes that further serve to drag down the housing market. The end result is that falling home prices have caused an evaporation of household wealth which has only served to reduce overall consumer spending. Indeed, with each new foreclosure the ever-increasing glut of unsold properties on the market pushes market prices even lower. As the prices decrease, people are pushed underwater financially. “There’s 14 million people now underwater. Half of those are underwater by more than 30 percent”, says Zandi.
However, the response from the government has been viewed as limited and ineffective. Initially, they touted their foreclosure relief program, the Home Affordable Modification Program (HAMP) as the necessary relief to address the situation. However, their remains confusion over the Program’s terms and its overall effectiveness. This, coupled with the fact that mortgage lenders simply do not want to comply with the Program, nor do they want to forgive any loan principal , has resulted in a situation where there is little hope of immediate recovery.