The sheer scale of the misery wreaked by the United States sub-prime mortgage crisis became clear on Tuesday in research showing that more than 1% of Ameri- can households were hit with some stage of repossession proceedings last year.
About 2,2-million foreclosure docuÂments — including default notices, auction sale notices and repossession papers — were filed on 1,28-million properties last year, according to RealtyÂTrac, a company that specialises in marketing seized properties.
The figures emerged as the biggest US mortgage lender, Countrywide Financial, slumped to a $704-million loss for 2007 as its customers found themselves unable to meet repayments on high-risk mortgages. CountryÂwide, which blamed an “unprecedented worldwide financial crisis”, was accused of precipitating the crisis by making irresponsible loans to low-income households.
The total number of American homes threatened by bailiffs was up by three-quarters on 2006. The worst hit state was Nevada, where one in 29 homes entered foreclosure in 2007, followed by Florida and Michigan.
Rick Sharga, vice-president of marketing at RealtyTrac, said about half of those hit by repossession proceedings generally succeeded in wriggling out and managing to keep their homes, while the rest were forced to leave.
Many homeowners run into trouble when short-term “teaser” interest rates expire and they face a large increase in repayments. Those who try to sell their homes are struggling as liquidity problems at banks have created a credit crunch, making it hard for potential purchasers to get mortgages.
“The people who are having the hardest time getting loans are first-time buyers because they have no home to use as collateral,” said Sharga. “If you make it difficult for them to enter, it creates a ripple effect going all the way up through the market.”
He held out little expectation of an upturn until the latter half of this year: “Towards the end of the year we believe that, if everything else stays consistent, we should start to see some relief.”
The joint economic committee of Congress calculated in October that the sub-prime mortgage crisis would destroy $71-billion of housing wealth in the US by the end of next year.
The issue has become a hot topic on the presidential campaign trail, with Democratic candidates calling for an immediate freeze on foreclosures and a temporary block on scheduled rises in mortgage interest rates.
RealtyTrac found 66Â 316 foreclosure filings in Nevada, equivalent to 3,4% of households. There were 279Â 325 filings in Florida, hitting 2% of homes, while economically deprived Michigan suffered 136Â 205 filings, afflicting 1,9% of its households. Other states badly affected included California, Colorado, Ohio, Georgia, Arizona, Illinois and Indiana.
Those states worst hit tended to be regions coming off particularly explosive housing booms, such as Florida and Nevada, or those with particularly high levels of unemployment from declining manufacturing industries, such as Michigan and Ohio.
Among the most prolific providers of sub-prime mortgages was the CaliforniaÂ-based Countrywide, which funded two million new loans last year and serviced a portfolio of nine million mortgages. As it revealed its first annual loss for 30 years, Countrywide made provisions of $924-million for the final quarter to cover bad debts — adding to a $937-million write-off in the third quarter.
Angelo Mozilo, Countrywide’s chief executive, who this week agreed to surrender a personal $37,5-million severance package when his company finalises a rescue takeover by Bank of America, said: “During this unprecedented worldwide financial crisis our employees performed in an exemplary manner and I would like to express my sincere appreciation for their heroic efforts.”
Countrywide, which has made 11Â 000 staff redundant, is under investigation by prosecutors in Illinois for allegedly trapping people into unaffordable mortgages. Community groups protested outside its offices last year wearing T-shirts with slogans such as “Sharks beware”.
Bank of America also reported the effects of the credit crisis on its own business. It suffered a 95% drop in its fourth-quarter profits because of write-downs on the value of complex debt pools called collateralised debt obligations, which contained sub-prime mortgages. Ken Lewis, chief executive, said credit costs might rise by 20% this year, but that the bank could manage such an increase.
BoA decided to raise extra capital after spending $21-billion last year on buying LaSalle Bank from the Netherland’s ABN Amro as well as a wealth management unit from Charles Schwab. — Â