October 2007 Report | The Subprime Lending Crisis – The Economic Impact on Wealth, Property Values and Tax Revenues, and How We Got Here

The Subprime Lending Crisis – The Economic Impact on Wealth, Property Values and Tax Revenues, and How We Got Here

As the losses caused by the subprime lending crisis continue to work their way through the financial markets, there is a growing awareness among policymakers and financial market
regulators that we need to prevent the continuing foreclosure wave from affecting the broader economy. A significant increase in lax (and often predatory) subprime lending during a period of rapid housing price appreciation put risky adjustable rate mortgages in the hands of vulnerable borrowers who are now facing substantial payment shocks and risk foreclosure when their loans reset this year and next.

Part I of this report shows that unless action is taken, subprime foreclosure rates are likely to increase as housing prices flatten or decline, and the effects of the subprime crisis are likely to extend beyond the housing market to the broader economy. The decline in housing wealth will negatively affect consumer spending, and the forced sale of large numbers of homes is likely to negatively impact the prices of other homes.

Part II of this report shows that, unless action is taken, the number and cost of subprime foreclosures will rise significantly. For the period beginning in the first quarter of 2007 and extending through the final quarter of 2009, if housing prices continue to decline, we estimate that subprime foreclosures alone will total approximately 2 million.

Part II also includes forward looking, state-level estimates of subprime foreclosures and associated property losses and property tax losses, covering the second half of 2007 through the end of 2009. For that shorter period, and assuming only moderate housing price declines, we estimate that:

• Approximately $71 billion in housing wealth will be directly destroyed through the process of foreclosures.
• More than $32 billion in housing wealth will be indirectly destroyed by the spillover effect of foreclosures, which reduce the value of neighboring properties.
• States and local governments will lose more than $917 million in property tax revenue as a result of the destruction of housing wealth caused by subprime foreclosures.

Part III of the report highlights the underlying causes of the subprime crisis and explains how incentive structures in the subprime market work against the interests of borrowers and have had much to do with the dimensions of this crisis.

Finally, in Part IV, policy options aimed at reducing foreclosures and preventing the crisis from reoccurring in the future are offered.

Full report below…

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4closureFraud.org

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The Subprime Lending Crisis – The Economic Impact on Wealth, Property Values and Tax Revenues, and How We Got Here

Comments
2 Responses to “October 2007 Report | The Subprime Lending Crisis – The Economic Impact on Wealth, Property Values and Tax Revenues, and How We Got Here”
  1. David Charles says:

    You are sooooo right on its happening today,to me and I have so much proof even sent docs to Wells Fargo,to the OCC,etc they could give a ..ck,so brazen and criminal but we have to come together and make it change or were screwed.

  2. Bobbi Swann says:

    Where are the authors of this piece now? This came at the end of the Bush administration….they did nothing. Obama wins the election 12 months later and he does nothing. None of the recommendations by Schumer et al were taken into consideration and the numbers predicted here were far below what has happened. Now we stand to re-elect Obama again? The numbers are still increasing….job loss is still increasing (despite what the media keeps reporting)…foreclosures are on the rise again. How much more stupid can we be to keep the same people in office to keep repeating the same ‘nothings’ over and over and over again? Really? no, Really! The gov’t has no intentions of putting a stop to this nightmare and that’s exactly why WE must stand up and be counted!

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