Ripple Effects of Repo Homes for Sale

The Center for Responsible Lending has released a report about the ripple effects of repo homes for sale. The report stated that this year, the foreclosure crisis will affect about 69.5 million neighboring houses as price drops will continue and would average $7,200 each home.

The report said that the estimated loss in home value could reach $500 billion. It suggested that homeowners who want to protect the value of their properties should be vigilant of any sign of trouble among their neighbors.

The loss of a person’s financial flexibility will significantly affect his life, according to the report. It added that homeowners who are planning to use their home equities to pay tuition, finance their retirement, pay medical bills or capital for small business may no longer have these options if they lost their financial flexibility.

Center for Responsible Learning (CRL) executive vice president Ellen Schloemer predicted that repo homes for sale would affect about 91.5 million nearby houses in neighborhoods. She pointed out that as the number of foreclosed properties continues to rise, its effect will spread far and wide.

Since 2007, the foreclosure rate has been increasing steadily. The foreclosure crisis started when the resetting of subprime adjustable-rate loans resulted to higher rates. However, as the economic crisis worsen which subsequently resulted to the collapse of the housing market, even good paying borrowers have started to feel the pinch and many are now in danger of defaulting on their mortgages.

Industry trade group Mortgage Bankers Association said that nearly 1.4 percent of first subprime mortgages resulted to repo homes for sale in the first three months of this year, representing a 20 percent from the previous quarter.

Meanwhile, professor at the Center for Real Estate and Urban Economic Studies at the University of Connecticut, John P. Harding said that houses close to the repossessed property are the most likely to be severely affected by foreclosure.

He said that the worst time for neighbors to refinance, cash out their home equity or sell their properties is right after the banks take ownership of the delinquent home and include it on repo homes for sale, adding that it is the period that the greatest neglect occurs.

On the other hand, Harding said that the best time to sell is when neighboring homes are not having any financial problem.