Housing experts in the Washington area are split on whether an increase in the number of mortgage defaults and foreclosures would have a significant impact on the local economy.
These experts were reacting to comments from Federal Reserve Chairman Ben Bernacke, who said on Thursday that problems in the mortgage market would not significantly harm the national economy.
“We believe the effect of the troubles in the subprime sector on the broader housing market will be limited, and we do not expect significant spillovers from the subprime market to the rest of the economy or to the financial system,” the Fed chairman said at a conference in Chicago. Subprime loans — loans given to people with limited or less than stellar credit history — have been extremely popular in the region, especially in places like Prince George’s, Fairfax and Montgomery counties and in Wards 7 and 8 in the District.
Because these loans are given to people ineligible for a traditional mortgage instrument, they are more prone to foreclosure and late payments.
Fallout from the subprime market has already been seen in the region. The number of foreclosures in Washington jumped 42 percent from March to April, according to a new survey, with foreclosure rates rising nearly 20 percent in Maryland and Virginia. These are the largest increases in the country.
Increases in foreclosures “are going to affect the housing industry in that there was a lot of money being pumped into the mortgage market in terms of the subprime market,” said Peter Tatian, a senior research associate at the Urban Institute. “In the region, we’re much more likely to see some noticeable impact.”
NorthernVirginia Association of Realtors spokeswoman Jill Landsman said while there would be pockets of problems, the overall impact of foreclosures would be negligible.
“It’s not because we have a bulletproof economy, but because we’re in the shadow of the federal government, we have a strong economy,” she said.
