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Staggering Cost of Foreclosed Homes to Investors

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By : John Cutts    99 or more times read
Each one of the millions of foreclosed homes across the country since the start of the subprime credit crisis costs investors a total of $151,000, according to a study done by the Congressional Joint Economic Committee. The investors referred to in the study are the homeowners, mortgage lenders, local governments and neighborhoods.

For every $151,000 lost for each one of the millions of foreclosed homes, the homeowner loses $7,000; the lender loses $50,000; the local government loses $19,000; and the neighborhood loses $75,000 in the form of home price declines.

The total of $151,000 even rises if other types of losses are included, such as cost of productivity lost, lost federal taxes and reduction in consumersí purchasing power. If the psychological and emotional costs of being evicted from foreclosed homes and being separated from neighbors and friends are included, then the costs are staggering.

In the study, neighborhood home values are the biggest losers. But according to the Mortgage Bankers Association, the lenders are the biggest losers when foreclosures increase. Losses by lenders vary, but several studies found that for every foreclosure property, the lender loses more than $50,000, which is about one-third to three-fifths of the loan balance just before the foreclosure.

If the losses are multiplied by about 250,000 foreclosed homes every quarter, then lenders have been losing more than $120 billion annually.

Based on RealtyTracís data, there were more than 2.3 million foreclosed homes across the nation in 2008, an increase of a record-breaking 81 percent from the previous year. In February this year, even with foreclosure moratoriums in place, reported a total of 121,756 completed foreclosures, an increase of 67 percent from January foreclosure data of 72,694 units. The February count event surpassed the highest monthly count of 104,243 posted in September 2008.

Alexis McGee, head of, said that if nothing nationwide in scope is done to mitigate the foreclosure crisis, the total number of foreclosure properties for the year 2009 could reach 1.2 million.

Considering the staggering total costs of more than $120 billion for about one million yearly foreclosed homes, the $75 billion initial budget for President Barack Obamaís program to avert further foreclosures is not too costly after all. Perhaps this cost calculation is the best argument against critics who have been attacking the administrationís Making Homes Affordable Initiative since its planning and implementation.
John Cutts has been educated in the finer points of the foreclosure market over 5 years.

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