On January 20, Barack Obama was inaugurated as the 44^th President of the United States.  Equipped with a "yes, we can" attitude the new President, working with Congress, has a massive job to do to direct the economy out of the housing slump.  He has pledged up to $100 billion in bailout funds,  as new proposals surface to approach the problem from different angles.  Housing counselors believe that if the Bush administator had devised or even backed more creative, aggressive measure to forestall foreclosures over the last few years, neither the housing industry nor the personal economy of the American family would be in the devastated state they are today.

The mortgage-to-income ratio, traditionally 30%, was cast aside during the housing boom.  As housing prices soared, many homebuyers could only afford homes with risky loans.  Some borrowers falsified information to qualify, with lenders as willing co-conspirators.  In other cases, lenders and mortgage brokers took advantage of unsophisticated buyers - often elderly, minority, or foreign - to set them up with loans that would prove unfavorable as soon as the market start started to sour.  As the market declined further, 13 million homeowners (1 in 4 or 25%) were underwater and left owing more on their homes than they were worth.  Today, at least 10% of U.S. homeowners with a mortgage are behind at least one mortgage payment or in foreclosure, up from 7.5 in 2007 and 6% in 2006.  The best the government has done so far to confront the crisis is offer those who have not yet lost their home a plan that would refinance their payment to 38% of their income if the lender would agree.  Not surprisingly, this plan has not proved to be helpful for too many troubled homeowners.

Over 9.5 million households, of 1 of every 5 of the 52 million households with a mortgage, spent over 38% of their income on their mortgage.  Associated Press analysts who have reviewed census data have uncovered some disturbing statistics that show that the financial burden of homeownership is still spread unevenly among groups least able to absorb it.  The most financially burdened are in CA, FL, NV, and the Northeast where foreclosures are at their highest, but all across America, millions of people are an unplanned car repair or medical bill away from missing a mortgage payment, the first step on the way to foreclosure.

Nearly 33% of Hispanic homeowners vs. 25% of Asian and black homeowners and 16% of white homeowners have payments in excess of 38%.  The figures vary regionally by ethnic group:

•   Over 40% of black homeowners in CA, NV, OR, and MA

•   Over 30% of Asian borrowers in CA and FL

•   50% of Hispanic homeowners in RI and 40% in AK, CA, FL, HI, MD, NJ, and NY

Hispanics are often overrepresented in the statistics because they often only qualified for loans they could get with little credit history, even though their incomes were stable.  Mortgage brokers steered them toward high interest loans that required little proof of income. 

The AP also found that borrowers with less education and senior citizens are also more likely to pay a higher percentage of income toward their mortgage.  Meanwhile, 27% of single parents nationwide spent more than 38% of their income on mortgage payments, with the figure rising as high as 40% in California.

Thirty percent is not a magic number but when more than that is committed to housing, families are considered strapped.  In normal times, there's less money available to meet expenses and little for savings; in times of crisis, such families have fewer reserves for run-of-the-mill emergencies - much less job loss or mortgage rate adjustments.

Many plans underway by banks and the government (see our previous blogs on Countrywide and Hope for Homeowners) have offered loan modification that does not succeed in lowering the payment enough to keep people in their homes long term.  It hardly makes sense to modify loans only to have people default because the payments still too high in times when people have jobs to pay them.  Some banks are already seeing a second round of foreclosures on the same homes.

In the infancy of the new administration, there are many plans under discussion and many yet to be devised.  The statistics point out a need for some plans to offer serious relief to homeowners, especially those with less resources. 

For information on beautiful homes in Las Vegas, including bank owned properties available at great prices, contact your Prudential Americana Group Realtor® Yonas Woldu at (702) 236-8997 or visit www.VegasRealProperty.com. The N&Y team, lead by partners Nebi Adhanom and Yonas Woldu, is always ready to serve you.