Bank foreclosures are nothing new and have always been there as part of the mortgage contract. It is lately that one hears a lot about bank foreclosures in USA because of the sheer numbers going into bank foreclosures.
When a lender (usually banks) advances a loan, the house is kept as a security or collateral. The buyer often takes a loan to buy the house and pays back a monthly installment to the bank. If for any reason the borrower lags behind in making payments or defaults then the bank waits for some time – approximately 90 days, and then starts foreclosure proceedings against the borrower who is said to have become delinquent. Foreclosure is a judicial process that includes all the stages starting with default notices and ending with bank foreclosures and bank repossession.
The reason for the surge in bank foreclosures is because of a particular category of sub-prime loans (ARM) with floating interest that were advanced to people without verifying their credit credentials. This has led to the deluge of bank foreclosures. When the rates hiked, the borrowers could not keep pace and fell into the net of bank foreclosures. The sub-prime loans were advanced with the idea of giving people with bad credit history to get a chance to own a house. But nobody thought that the scheme would rebound into unmanageable bank foreclosures.
The bank foreclosures are running into millions and a source of embarrassment and worry for the banks. Bank foreclosures do not always successfully end up being auctioned off at court. The next step is bank repossession and with so many units to handle the banks are letting the houses lying vacant. This is causing a public outcry. Local governments are outraged unable to cope with problems arising out of vacant houses on a budget that is steadily going down due to falling revenue. With the real estate market in a tumble bank foreclosures are adding to the mayhem and worsening matters.
Many experts are blaming the bank foreclosures for the economic downturn. The banks are in such a tight corner that they are offering heavy discounts to dispose of the houses. But with the mortgage companies facing cash crunch, loan sanctions are not available. This restricts the numbers of buyers. Bus tours are being encouraged to lure in potential buyers. The government is offering many kinds of help to mitigate the crisis arising from bank foreclosures.