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Foreclosure Crisis: A bitter-sweet pill to swallow

by Martin Macisso

This blog is aimed at keeping Maine citizens in their homes, especially when they may be victims of predatory lenders who charged excessively high interest rates, unaffordable loan terms or flat out lied to them at closing. The list of such scumbag “pretender-lenders” is long and class-action legal suits have sprung up accross the Nation on behalf of borrowers who were victimized.

Unfortunately, 98% of foreclosures go through the foreclosure process in both Judicial and Non-Judical states, simply because the Homeowner does not challenge the allegations of these so-called “Lenders”. Typically, if a Lender/Servicer/Entity claiming lawful title of the Promissory Note begins the foreclosure process, the homeowner retreats into a pitiful submition of their rights to Due Process.

In States like Maine, the Foreclosure is an actual Civil lawsuit filed, and if a homeowner does not provide a Written Answer (a simple Admition or Denial of the allegation they defaulted on the debt) then the Court issues a Default Judgment against the homeowner and after roughly 90 days the Bank/Pretender Lender or Servicer excersies the Foreclosure clause of the Note and Mortgage and the homeowner is ultimately booted out of their home – rightly or wrongly, lawfully or illegally.

This is a tragedy of the American system of leveraged banking, there’s no arguing that fact, but is there a silver lining to this problem? Maybe. In my humble opinion, many middle-class Americans have been victims of another less talked about problem: The High Cost of Living.

Inflation is nobody’s friend, unless of course, the inflation is in the form of skyrocketing home prices such as we have seen over the latter decade. Obviously, for current homeowners, sellers and investors this inflation or “Market appreciation” was a Godsend and created Trillions of dollars for the Banking and Real Estate sector during the “Boom times”.

However, there has been one segment that has been shut out and actually has suffered in this prosperous economy of the near past: Low income Renters and Home-buyers. Basically, the cost of living in many states and especially in urban areas has ballooned out of control because of inflated real estate because the pace of inflation has outpaced the rate of increase in Wages and Salaries of the average American. Most Americans and especially those of us in Maine, live paycheck to paycheck and have no tangible savings. In fact, for the first time in history the average savings rates for Americans is negative.

So how can the Foreclosure Crisis provide any positive impact to this economy? When a property is foreclosed by a bank and it does not sell at the auction, it becomes a Bank Owned Property also known as Real Estate Owned(REO). The prices of REO’s are typically very discounted to sometimes 50% to 70% of current market value. It is estimated by many academics that over half of the 5 million home sales in the US in 2009 will be a foreclosure or short sale. As the majority of home sales become Foreclosure sales the downward pressure continues.

The prices of real estate are dropping like a rock because of this vicous cycle, leaving many house-less, many underwater on their mortgages and many investors waiting on the sidelines. The one saving grace might be the return of affordability to the renter and prospective 1st time home buyer and cash investor. Even after a decade of capitalist Wall Street leveraged banking over-exuberance, the “numbers are beginning to make sense” again when factoring in record low mortgage rates, tax incentives and the emergance of sensible and low down payment  home buyer programs.

The very familiar real estate adage, “Why rent when you can own?” might have some legitimacy once again…”when the numbers make sense”.