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Report: Children Exposed to Foreclosures Experience Delinquency, High Credit Use

A study by the Federal Reserve Bank of Philadelphia found young adults who experienced a foreclosure-induced tendency to seek credit at a higher rate, and delinquency and low credit scores are also more pronounced in the group of adolescents who were between the ages of 10 and 14 at the time of foreclosure.

The bank studied the long-term effects of foreclosure-induced relocations on adolescents and their subsequent use of credit. Those who experienced a foreclosure-induced move between the ages of 10 and 17 are more likely to exhibit signs of credit scarring later in life. 

A 2012 report estimates that as many as 2.3 million children had lost their homes as a result of the foreclosure crisis, and as many as 6 million more were at risk of losing their homes. 

Additionally, foreclosure can affect children through at least four different pathways, the report states. First, families are more likely to move, which can affect a child's educational and social outcomes. 

Second, homeowners experience financial and psychological distress, which can affect parenting and other interpersonal relationships. Third, foreclosure and housing instability can affect physical and mental health through new medical conditions or the delayed treatment of existing conditions. 

Last, when foreclosures are geographically concentrated, neighborhoods may experience increased crime and lower levels of public goods and social services 

An additional report by the Philadelphia Federal Reserve Bank found delinquencies and forbearance markets may have begun to flatten out as forbearances have posted about a half-million in mortgages, delinquencies posted numbers of around 2 million, and foreclosure starts hovering around 30,000 per month. 

Most of the 8.9 million borrowers who were at one point in forbearance have now exited. Remaining loans in either forbearance or delinquency will have to deal with the fact that the prospect of much less payment relief going forward. If borrowers cannot find relief, they face the bleak prospect of selling their homes or losing them to foreclosure.

Foreclosure activity stopped in March 2020 during the onset of COVID-19. But these protections expired January 1, 2022, and foreclosure starts rose sharply to 56,000. February, March, April, May, and June recorded 37,000, 36,000, 28,000, 29,000, and 30,000 foreclosure starts, respectively. 

About Author: Mike Albanese

Mike Albanese is a reporter for DS News and MReport. He is a University of Alabama graduate with a degree in journalism and a minor in communications. He has worked for publications—both print and online—covering numerous beats. A Connecticut native, Albanese currently resides in Lewisville.

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