The foreclosure problem has been spreading across the Milwaukee County for several months now. The number of home foreclosure filings has flooded the market, averaging 600 per month across the county. The unabated increase in foreclosures led to the destabilization of neighborhoods.

While foreclosure swept across the county, claiming one house after the other, the process of restoring the stability in neighborhoods is being done in a slower pace. The effort involves one home at a time, provided that new owners are found for cheap homes for sale.

To hasten the process of restoring neighborhoods and reducing the number of foreclosure properties, Milwaukee offers forgivable loans of as much as $30,000 to potential buyers of distressed properties who will rehabilitate and live in them for a long period of time.

The loan program of the city is funded under the federal stimulus program amounting to 9.2 million. The funds are geared for alleviating the effects of the foreclosure crisis. The money is also allocated to encourage potential homebuyers to take advantage of the opportunity to purchase repossessed properties at historic lower prices and interest rates.

In turn, officials of the city said that neighborhoods that are severely affected by the foreclosure crisis would be given a chance to restore and stabilize themselves through the help of more new homeowners who have the personal financial reason to take care of the area where they live.

Mayor Tom Barrett said that the program is a micro-solution to a macro-problem. He said that home ownership means giving people an opportunity.

Milwaukee’s loan initiative is part of the federal National Stabilization Program (NSP) which aims to help neighborhoods across the country alleviate the impact of the foreclosure crisis. Eligible buyers have to submit requirements. But the good thing is, a loan of $30,000 can be turned into a grant and there is no need to pay it back if the borrower agrees to live in the property for not less than 20 years.

For loans amounting to not over $15,000, its will be forgiven if the owner-occupants purchased cheap homes for sale and stay in them for at least five years.

According to industry experts, condominiums as low as $20,000 and single-family homes at less than $60,000 are generating multiple offers and overbidding. They said that despite market data showing a slow rise in home prices, it appears that foreclosure houses will prevent further improvement in the pricing trend.

Experts said that many cheap properties are located in neighborhoods severely affected by the foreclosure crisis, including Antioch, Oakland, Richmond, Pittsburg and Vallejo. These cheap properties are mostly short sales or bank foreclosed homes.

As an example, experts pointed out that a one-bedroom condominium at Lakeview complex in Pittsburg is short selling for $48,000. The owner purchased the property in 2007 for $228,000.

Meanwhile, many homeowners’ properties are worth less than the total mortgage they owed to their lenders. This is one factor that is a cause of concern to industry experts. They said that homeowners whose mortgages are higher than the values of their properties are candidates for foreclosures.

They added that these homeowners would lose interest to continue paying their mortgages and instead would walk away from their distressed properties and leave them for lenders to be foreclosed.

Meanwhile, the popularity of bargain-priced properties has helped entice more buyers, who are just waiting for the right time, to get on the bidding frenzy. Industry experts said that banks, burdened with repossessed homes on their inventory, have started to offer properties at very low prices to attract cash-rich buyers, especially first-time homebuyers who are laden with federal tax credit of $8,000.

Furthermore, banks are in a hurry to dispose of properties clogging their inventory because the longer bank repo homes remained unsold, the higher the costs they would incur.

According to industry experts, banks prefer homebuyers with cash for quick closing of sales deals and because many foreclosed homes are uninhabitable which means they could not qualify for a loan.

On the other hand, experts said that condominiums are cheap buys because of some financing issues. They said that government-supported loans which accounted for about 90 percent of loans in the current market, are not made available to owners of these complexes.

They pointed out that many condominium residents are delinquent on their homeowners’ association dues plus the fact that most of these units are not occupied by their owners.

According to industry experts, home sales in the area rose to 21 percent compared to the same month last year. But they also pointed out that the increase is brought about by the low home prices which they blamed to the unfair dumping of foreclosed homes foreclosure on the market by banks.

Data showed that home sales improved from last year’s 2,346 to 2,848 for June. Last month’s figures were the 10th consecutive month that home sales rose in the area. The highest June house sales was reported in 2005 for a total of 5,230.

When it comes to home prices, they remained steady since bottoming at $121,000 earlier this year. However, property prices are still down by 22 percent compared to last year. The median home price in June 2008 was $139,400.

Industry experts said that home prices in the area would have improved or gone higher if banks did not dump cheap foreclosed homes foreclosure on the market for almost half the price from their original value.

Data showed that sales of pre-foreclosure and foreclosure properties accounted for 37 percent of the total home sales last month.

Industry experts have blamed banks for prolonging the mortgage and housing crisis by overloading the market with cheap foreclosure properties. They said that the Obama Administration’s bailout program had only encouraged banking institutions to sell foreclosed houses at prices they want because they know that the federal government is covering their financial losses.

Experts also said that lenders are now the most influential sector in the housing market. They noted that instead of learning some lessons from the residential real estate boom and collapse and acting responsibly, lenders and banks are now selling foreclosure properties at prices below the market value that the sector is single-handedly working on the drop of Tampa Bay property values.

But industry experts conceded that these cheap foreclosed homes foreclosures are driving home sales in the area, citing the $8,000 tax credit given to first-time homebuyers as a big contributor to the sales turnaround.

John Trostle, a nonprofit housing consultant, has been conducting nine-hour classes called Homestretch in Minneapolis. He has been discussing all the basic things that prospective home owners need to know. Typically, at the start of his class, he discusses income, savings and property taxes. He interjects the causes of foreclosed homes every now and then.

To inject humor and reality into his class, Trostle oftentimes ask his attenders how many of them have saved up $5,000 to start buying a house. He also asks how many have $2,500 and how many have $500. He then asks how many have some loose change that they can start to buy a home with.

As a conclusion to his joke, he advises attenders not to buy a house if they cannot really afford it and not to buy a house priced beyond their income levels.

Trostle also discusses subprime loans, predatory lending and home refinancing. He informs his listeners that most of the foreclosed homes being sold all around have been bought by borrowers who were enticed with low initial payments and who were not warned that the monthly payments will increase after several months.

After an attender completes the classes, he or she meets with a housing counselor who will look at the prospective home buyer’s financial documents and evaluate home buying capability and options.

In Minneapolis, from 2006 to 2008, most foreclosed homes in Minneapolis were formerly owned by Spanish-speaking immigrants, according to a study conducted by the University of Minnesota. The other groups most affected by foreclosed homes are African Americans.

Mark Dorshak, a mortgage counselor, said that as he talks with the attenders, he concludes that many former owners of foreclosed homes did not know much about home ownership and mortgages. He has observed that the background and surroundings of first generation homeowners do not give them opportunities to get some idea about the obligations entailed in home ownership.

Dorshak said that renters have difficulties in making the transition to home ownership and its consequent responsibilities. These first-time homebuyers need to be educated, he said, to prevent another wave of foreclosed homes in the Twin Cities.

However, most industry experts believed that mortgage delinquencies caused the financial crisis and the increase in the number of cheap houses for sale in the country.

Mortgage delinquencies resulted to foreclosures and a 26 percent slide in home prices that led to a flood of cheap houses for sale and weak consumer confidence. Also, housing-related jobs such as real estate agents, carpenters and appraisers have declined by almost 1 million, amounting to a quarter of the unemployment rate.

Industry experts contend that the housing crisis reflects a market with an abundant supply of cheap houses for sale due to mortgage delinquencies, foreclosures and lack of demand. They pointed out that high inventories of cheap houses for sale also affected the construction industry.

Meanwhile, the National Association of Realtors’ affordability index showed the estimated family income that is needed to purchase a home for a median price, provided that the buyer gave a down payment of 20 percent and the monthly mortgage payment is equal or not more than 25 percent of his pre-tax income.

Cheap houses for sale is at its peak in 2009 since the affordability index started in 1970. However, demand failed to keep up with the market affordability and the abundance of cheap houses for sale.

In January 2009, new home sales took a dive by 10.2 percent while existing home sales slid by 5.3 percent.

Industry experts agreed that despite the abundance of cheap houses for sale, buyers are hesitant to take advantage of the situation because of deflation and they would rather wait for the market to stabilize first before making any purchase.

However, they pointed out that as buyers wait, home prices will fall further. As such, to break this vicious cycle, experts suggest that the Obama Administration entice prospective buyers to take a plunge by giving them a tax reduction of 10 percent for a maximum of $15,000 for every house they purchase.

They believed that the most effective way to reduce foreclosures is to encourage economic recovery by inducing home buying.

But how about tomorrow? Will it still be a good investment if home prices continue to fall?
The current home prices have decreased to such a level that it is in line with the income of majority of homeowners.

Prices on residential properties ballooned artificially because of borrowers’ easy access to loans that offer affordable monthly payments, even for only one or two years. This has contributed to the increase in the number of homeowners facing the threat of foreclosure.

According to the Case-Shiller Home Price Index, home prices in August 2008 declined by 1 percent and 16.6 percent since August of last year. Interest rates for a 30-year fixed-rate mortgage are between 6 percent and 6.5 percent, which are still affordable.

For homeowners who have good credit standing and can offer a down payment, the current housing market condition and foreclosure rate represent an opportunity for them to purchase a home.

However, along with opportunities to buy foreclosed homes come the risks and uncertainties that may exacerbate housing problems and cause home prices to decline even further.

During its peak, the housing market saw construction of over 1.5 million houses. And with the current absorption number of nearly 1.6 million houses annually, it is expected that home prices will reach its lowest level in the second half of 2010.

It can never be denied that declining home prices is attributed to the increase in foreclosure rate. And this seems to be the right time to purchase a foreclosed property. But if the risks outweigh the benefits, why bother buying one.

Brand new statistics for April showed that Los Angeles foreclosure homes numbered just over 4,500 filing for the month, a figure that is up a staggering 460% over April of 2007. These statistics seems to be indicative of the type of growth trend in foreclosure Los Angeles has seen in recent years. With property values falling, more homeowners in distress due to unstable loans or personal finance problems cannot avoid or refinance their homes to avoid foreclosure. As this trend continues, more homeowners simply end up surrendering their homes to lenders, which has resulted in huge growth on Los Angeles bank owned homes as well.

Interested buyers are currently taking advantage of the city’s growing foreclosure rate by purchasing these properties at auction. Droves of homebuyers have come to the city to pursue homes found in Los Angeles foreclosure listings, and with the flooded market for the properties, they are finding excellent deals on real estate, a trend expected to continue well into the year, as the foreclosure rate is expected to keep growing.