How Low Can It Go? A New Housing Crisis Emerges

Gov. Bill Ritter today announced a $1.5 million grant to provide free foreclosure prevention counseling services to at-risk homeowners. At the same time, Washington Independent’s Mary Kane reports on a new mortgage catastrophe on the horizon — “liar” loans.The joint statement from the governor’s office and the Colorado Housing and Finance Authority (CHFA) noting the new grant puts a sobering face on the local home loan crisis that’s gripping the nation.

Data show nearly 117,255 sub-prime loans are still outstanding in Colorado. These loans represent a $15 billion risk to Colorado.

With an unusually single-minded focus on the growing housing bubble, Congress appropriated $180 million in December for the National Foreclosure Mitigation Counseling program to help homeowners thwart foreclosures. Colorado was one of 130 grantees to provide direct pre-foreclosure counseling, train local housing experts on foreclosure mitigation and research effective intervention strategies. 

Colorado’s grant will increase face-to-face counseling services and expand a statewide foreclosure hotline that fields 100 calls per day from desperate homeowners. According to CHFA, four out of five callers who met with counselors avoided losing their homes.

Yesterday, Federal Reserve Chair Ben Bernanke urged the home finance sector to cut the principal owed by borrowers of over-valued properties who risk being unable to keep up with their mortgage payments.

“Although lenders and servicers have scaled up their efforts and adopted a wider variety of loss-mitigation techniques, more can, and should be, done,” Bernanke said in news reports on the Fed chair’s ongoing scramble to stem the widening home loan crisis.

Bernanke also recommended expanding the powers of the Federal Housing Administration and Department of Housing and Urban Development to more flexibly respond to mounting needs, including providing government-backed refinancing of loans going south.

When homeowners, lenders and economists thought it couldn’t get any worse, Washington Independent’s Mary Kane exposes another crack in the American Dream armor:

So called Alt-A or “liar” loans that allowed buyers to skip down payments are tumbling and expected to get worse. Maybe there isn’t much sympathy for a house-flipper, but what about the neighbor next door?

That’s a reasonable question to ask about the housing crisis, given the recent divebombing of the market for Alt-A loans. Though the meltdown of the subprime market has grabbed headlines, the Alt-A loans — which are just a step below prime loans and include borrowers with decent credit — are in big trouble, too.

The Alt-A market began sliding a year ago as a surprising number of borrowers began to default, but it fell even more dramatically in the fourth quarter of last year. The default rate on these loans has doubled every month for the past 12 months. And as bad as all that sounds, it’s only expected to get worse.

Read Kane’s story here.

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