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Feb 17, 2010
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‘The 50-State Katrina’
Despite $300 billion from Washington, the nation's real estate market remains sickly.
Before the unemployment rate hit double digits and banking giants such as Lehman Brothers collapsed, the financial crisis arguably began with houses, condominiums, and gated communities in cities such as Stockton, Calif. There, Francisco Fortes worried that he would forever be priced out of a housing market in which prices would continue to soar. So, despite the salesman's self-admitted questionable credit, he took out an interest-only loan in 2006 and purchased a $398,000 three-bedroom house with a two-car garage and a landscaped backyard with bushes and trees in the tidy shape of a half-moon. Fortes put his $80,000 inheritance toward the down payment with the assumption that he would recoup that cash by refinancing in a few years. Only now, his home is worth $180,000. Two of his neighbors recently abandoned their properties after values dropped by more than half. "There are a lot of FOR SALE or FOR RENT signs in my neighborhood," Fortes says. "It makes me wonder why I should pay for this house."
Roughly two years after the Great Recession began and one year after President Obama signed the $787 billion economic-stimulus bill, the U.S. housing market remains sickly. Foreclosures that initially afflicted subprime borrowers, are now hitting the jobless middle class. It's hard for new home buyers to secure mortgages unless they have excellent credit, a sizeable down payment, and a stable job history. Entire residential neighborhoods in states such as Ohio have been reduced to empty, boarded-up homes that scavengers comb through for electrical wiring, siding, pipes, or stained glass. "We don't think we've found the bottom of the housing market yet," says Julia Gordon, senior policy counsel for the Center for Responsible Lending (CRL). "Most economic recoveries don't become robust until the housing market is involved, and most recoveries are housing led."
It's not as if the federal government has held the housing market at arms length. Within the last two years, according to the Congressional Budget Office, Washington has injected $300 billion into the housing and mortgage markets from taking over Fannie Mae and Freddie Mac to creating loan-modification programs for distressed homeowners to offering $8,000 tax credits for first-time home buyers. While economists say the housing crisis could have been much worse had the government not intervened, reviews of government-sponsored programs remain mixed and the future of the government's involvement in this sector is unclear. "The federal government is the entire mortgage market right now," says Karl Case, professor of economics at Wellesley College. "Whatever they decide to do will determine who will end up keeping their homes. It's as simple as that. It's going to be a political hot potato."
For many Americans, the fate of their homes seems up in the air. In Stockton, 33-year-old Fortes can no longer afford to pay his mortgage, which has ballooned to $2,600 per month from $2,100. His fiancée lost her job in September 2009, and Fortes spends his days wondering where his family, including this children, ages 2 and 10, will live. Despite his repeated attempts to apply for a loan modification, he has been told that he does not qualify. "It's just so stressful," he says. "I'm trying to work with my loan people, but I've been talking to them for over a year."
READ FULL STORY http://www.newsweek.com/id/233715
Feb 17, 2010
SPONSORED BY:
‘The 50-State Katrina’
Despite $300 billion from Washington, the nation's real estate market remains sickly.
Before the unemployment rate hit double digits and banking giants such as Lehman Brothers collapsed, the financial crisis arguably began with houses, condominiums, and gated communities in cities such as Stockton, Calif. There, Francisco Fortes worried that he would forever be priced out of a housing market in which prices would continue to soar. So, despite the salesman's self-admitted questionable credit, he took out an interest-only loan in 2006 and purchased a $398,000 three-bedroom house with a two-car garage and a landscaped backyard with bushes and trees in the tidy shape of a half-moon. Fortes put his $80,000 inheritance toward the down payment with the assumption that he would recoup that cash by refinancing in a few years. Only now, his home is worth $180,000. Two of his neighbors recently abandoned their properties after values dropped by more than half. "There are a lot of FOR SALE or FOR RENT signs in my neighborhood," Fortes says. "It makes me wonder why I should pay for this house."
Roughly two years after the Great Recession began and one year after President Obama signed the $787 billion economic-stimulus bill, the U.S. housing market remains sickly. Foreclosures that initially afflicted subprime borrowers, are now hitting the jobless middle class. It's hard for new home buyers to secure mortgages unless they have excellent credit, a sizeable down payment, and a stable job history. Entire residential neighborhoods in states such as Ohio have been reduced to empty, boarded-up homes that scavengers comb through for electrical wiring, siding, pipes, or stained glass. "We don't think we've found the bottom of the housing market yet," says Julia Gordon, senior policy counsel for the Center for Responsible Lending (CRL). "Most economic recoveries don't become robust until the housing market is involved, and most recoveries are housing led."
It's not as if the federal government has held the housing market at arms length. Within the last two years, according to the Congressional Budget Office, Washington has injected $300 billion into the housing and mortgage markets from taking over Fannie Mae and Freddie Mac to creating loan-modification programs for distressed homeowners to offering $8,000 tax credits for first-time home buyers. While economists say the housing crisis could have been much worse had the government not intervened, reviews of government-sponsored programs remain mixed and the future of the government's involvement in this sector is unclear. "The federal government is the entire mortgage market right now," says Karl Case, professor of economics at Wellesley College. "Whatever they decide to do will determine who will end up keeping their homes. It's as simple as that. It's going to be a political hot potato."
For many Americans, the fate of their homes seems up in the air. In Stockton, 33-year-old Fortes can no longer afford to pay his mortgage, which has ballooned to $2,600 per month from $2,100. His fiancée lost her job in September 2009, and Fortes spends his days wondering where his family, including this children, ages 2 and 10, will live. Despite his repeated attempts to apply for a loan modification, he has been told that he does not qualify. "It's just so stressful," he says. "I'm trying to work with my loan people, but I've been talking to them for over a year."
READ FULL STORY http://www.newsweek.com/id/233715
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