The Motor City can’t turn on its real estate engine anymore.
Detroit is out of fuel. After the Senate recently trashed the automakers’ plea for a bailout in the hopes of salvaging the automobile industry, a more pressing problem has been overshadowed by The Big Three’s lobbying efforts. In 2007, RealtyTrac reported that the areas of Detroit, Livonia and Dearborn had the highest foreclosure rate at 4.198 percent among the 100 sites surveyed. It was up by 68.15 percent from the previous year. Much of the reason is attributed to the slowdown of the economy and rising oil prices. Last month, the situation hadn’t changed much according to the foreclosure website’s report,
Michigan foreclosure activity in November increased 28 percent from the previous month, giving the state 14,594 properties with foreclosure filings during the month — the nation’s third highest state total. Michigan’s foreclosure activity was up 27 percent from November 2007, and the state’s foreclosure rate ranked fifth highest in the nation for the month.
The presence of subprime loans among middle-income homeowners who had to pay higher rates was a critical factor in the current property market debacle of the city. While they were successful at getting a mortgage, the repercussions hit hard when most borrowers went delinquent with their monthly payments. It started when mortgage lenders took advantage of Detroit residents’ financial state, unmindful whether they were qualified or not. It was too easy for troubled homeowners to say yes and instead of letting them scramble for documents to include in the application and processing, the lenders gave the most lenient marketing schemes that included low principals amidst soaring interest rates and hidden fees. Even brokers were ecstatic with the commissions that they received for every approved loan. As early as 2006, residents were starting to move out of their abodes and the foreclosure rate hasn’t gone down ever since. Detroit has long been grappling with financial setbacks and this has been a drastic result in the property market indeed.
Along with thousands of lenders in the country, local mortgage lenders are now requiring higher credit scores to qualify for a loan. Recent developments have been devoted to stemming foreclosures through financial aid like the city’s Neighborhood Stabilization Program. The plan has earmarked $3.92 billion to redevelop foreclosed properties and begin short-term rehabilitation.