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America's Foreclosure Crisis is Far From Over


In our previous blog, we talked about the $5.1 billion settlement that Goldman Sachs is responsible for paying as recompense for its part in the 2008 mortgage scandal. As part of this settlement, $1.8 billion is to be earmarked to help struggling homeowners who are still trying to avoid foreclosure of their homes.

It has been seven years since the Recession ended, but how effective have anti-foreclosure programs actually been? The answer depends largely on who you ask and where they live.

Out of the $475 billion set aside by Congress for the Troubled Asset Relief Program (TARP), $46 billion was supposed to go towards helping struggling homeowners avoid foreclosure. Additional funds were collected in settlements from Wall Street banks. Between these pools of money and programs administered through the Department of the Treasury, tens of billions of dollars have been set aside for aid.

Foreclosures are now down on a national level, and the number of homeowners with “underwater” mortgages was down to 4.3 million in the third quarter of 2015 (compared to 5.2 million in 2014).

While assistance programs have greatly benefited a number of Americans, the Treasury Department’s deputy assistant secretary for financial stability admits that efforts are not complete, acknowledging that several areas and states are still struggling. Towns heavily involved in oil and gas production, for example, are experiencing high rates of foreclosure after a slew of industry layoffs.

Recession Effects Still Lingering in Some Areas

Critics of the government’s anti-foreclosure strategy are quick to point out that the very same banks involved in creating the crisis in the first place are the same banks servicing mortgage modifications using billions of dollars of incentive payments funded by taxpayers.

Even with the relief programs in place, rates of redefault have been alarming. For example, in 2009, borrowers who sought relief under HAMP redefaulted at a rate of 53 percent. Over the lifetime of the program, more than one-third of participants have defaulted on their modified loans, costing taxpayers billions of dollars. Mississippi, Louisiana, and Nevada are the three states with the highest rates of redefault, at 44 percent, 42 percent, and 40 percent, respectively.

Adding to the problem is the inefficiency of the programs. Complaints about clerical errors, lost paperwork, and dual-tracking are not uncommon. Furthermore, many of these mortgage modifications are not affordable in the long term, increasing a homeowner’s chances of redefault.

More than 10 million Americans live in ZIP codes where between 43 and 76 percent of homeowners are stuck in underwater mortgages. In the top 25 hardest hit American cities, there are 2.5 million vacant homes. Many are saying that this is proof that federal response has not been aggressive enough to repair the damage from the 2008 recession.

Homeowners facing foreclosure should seek legal counsel immediately.Contact Atlas Consumer Law to speak with a Chicago foreclosure attorney: (312) 313-1613.