Report: Foreclosures Led to Loss of $192B in Wealth in 2012

While the worst of the foreclosure crisis appears to be over, foreclosures led to the loss of $192.6 billion in wealth for Americans in 2012, according to a ""report"":http://allianceforajustsociety.org/wp-content/uploads/2013/05/Wasted.Wealth_NATIONAL.pdf from the ""Alliance for a Just Society"":http://allianceforajustsociety.org/, a national coalition of eight state-based grassroots community organizations.

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On average, the estimated loss in wealth last year comes out to about $1,700 per household for 114.7 million households in the nation, according to the coalition.

The report, which explored how the foreclosure crisis impacted the country as a whole and people of color last year, also suggested the crisis is not yet over.

To illustrate the disproportionate impact of foreclosures on people of color, the coalition noted that in ZIP codes where the majority of the population included people of color, there were 17 foreclosures per thousand households, with an average loss of $2,200. In segregated white communities, the group found the rate of foreclosures was much lower, with 10 foreclosures per thousand households, and an average loss of $1,300 in each household.

Even though foreclosure activity has been on the ""decline"":http://dsnews.comarticles/foreclosure-auctions-in-judicial-states-hit-30-month-peak-2013-05-09, the coalition says there is evidence that the crisis is still here.

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Currently, there are still millions of borrowers in negative equity, with estimates ranging from ""9 million"":http://dsnews.comarticles/lps-new-problem-loans-approaching-pre-crisis-levels-2013-05-06 to around 13 million, and the Congressional Budget Office estimates 13 percent of underwater homeowners are seriously delinquent, which translates into a ""foreclosure-in-waiting,"" according to the report.

As the industry faces the threat of foreclosure from these delinquent, underwater borrowers, the report estimates nearly $221 billion in additional wealth could be lost if no action is taken to prevent foreclosures.

""America is not only still in the midst of a crisis, but faces the prospect of this crisis stalling an already uneven and uncertain economic recovery,"" the report stated.

The group recommended the use of principal reduction to prevent underwater borrowers from going into foreclosure and to improve the overall economy.

""Writing down underwater mortgages to 30-year, fixed-rate loans at current market value and current interest rates would not only preserve much of the wealth that would otherwise be lost by homeowners, their neighbors, and government, but provide a significant economic stimulus by returning wealth,"" the report stated.

By allowing homeowners to spend money on other needs, goods, and services, the coalition asserted local economies will receive an added boost and more jobs will be created.

According to the report, 2012 data shows that a principal reduction program could lead to an average savings of $7,710 per year ($640 a month) for underwater homeowners, provide $101.7 billion to the economy, and create 1.5 million jobs.

Although there has been a push for the ""use"":http://dsnews.comarticles/forty-five-reps-send-letter-to-obama-urging-for-demarco-be-replaced-2013-02-07 of principal reduction on Fannie Mae and Freddie Mac loans, Edward DeMarco, acting director of the Federal Housing Finance Agency--the GSEs' conservator and regulator--opposes the use of principal reduction, ""arguing"":http://dsnews.comarticles/demarco-reiterates-stance-against-principal-forgiveness-program-for-gses-2012-07-31 it is not in the best interest of taxpayers and would lead to a moral hazard issue, or to more strategic defaults.