Another Look at Foreclosure Threat to Housing Recovery

The Obama Administration is strong-arming loan servicers to step up their loan modification programs, which so far have had little impact in slowing foreclosures. With good reason.

After a series of meetings with top banking executives, Treasury Department officials said they want lenders to modify 500,0000 mortgages by Nov. 1, the Washington Post reports. Since the program, known as Making Home Affordable, began in March, it has recorded about 200,000 loan modifications.

But more than 1 million borrowers received default notices during the first half of the year, and falling home prices and rising unemployment are pushing ever more homeowners into delinquency.

Felix Salmon at Reuters draws attention to a recent report from the Center for Responsible Lending confirming that loan modifications are not keeping pace with foreclosures.

According to Congressional testimony from CRL director Keith Ernst, the 1.5 million homes which have already been lost to foreclosure are just the tip of the iceberg compared to the 13 million total foreclosures expected over the five years from end-08 to 2014.

Mark Zandi at Mooody’s economy.com also has a worrisome chart showing the clear inverse relationship between housing prices and foreclosures as a share of housing sales. And given the historic close but lagging correlation between unemployment and foreclosures, further increases are inevitable. Zandi expects foreclosures to peak early in 2010.

CreditSights continues to believe that risks remain for the housing sector:

Any apparent stabilization that we see in the homebuilding sector at this time would most likely be challenged by persistent high unemployment and rising foreclosures.

A glimmer of hope: according to emii, Bank of America (BAC) has kicked off its foreclosure relief program for borrowers from its recently acquired Countrywide with a letter of notification regarding eligibility. BoA says up to $150 million has been allocated nationally for Countrywide borrowers in 40 states as part of a settlement with state attorneys general.

Comments

[Karen Consumer:]

"A glimmer of hope: according to emii, Bank of America (BAC) has kicked off its foreclosure relief program for borrowers from its recently acquired Countrywide with a letter of notification regarding eligibility. BoA says up to $150 million has been allocated nationally for Countrywide borrowers in 40 states as part of a settlement with state attorneys general."

Using mr. calculator here, that breaks down to 3.75 million per state for foreclosure relief. If you assume a median home price of $150,000, that's a whopping 25 houses per state. I don't think that's going to help.

Jul 29 06:21 PM

[whidbey:]

The whole economic system will be swamped by foreclosures and Obama has not got sufficient money to do anything on the scale required to stop, let along reverse, the trend. But they will try by some of the following steps.

It is not yet time for the desperation measures: We had the foreclosure moratorium, it is now time for the debt payment holiday. In this step the government tells homeowners to remain in their homes and the mortgage holder will be allowed to write off the interest lost: this buys time for "something to happen", we have no idea what but it lowers the cash flow drain on homeowners, and the addition of more foreclosed homes to the market. This will be cheaper than any alternative available.

If this fails (and it will) the administration will make out-right grants to homeowners via certificates the mortgage holder (banks) may use to pay his taxes and borrow Treasury money for further investment. If that does not work you can expect the final step will be to confiscate all homes not current on their mortgage and give them to a new housing authority which will lease them to the owners for rental payments.

It is not over and it will not be in your life time. We have an indigestible pill stuck in our throat, and we can not win by pulling it out or swallowing. It is ours and we can not live and pay for it.

Jul 29 10:27 PM

[PainfullyAware:]

Summer of 2011 is when the last of the "Stupid Loans" get done resetting - Doubt any turnaround until after that.

Unfortunately our Government is spending all our "Borrowed Money" on "Taking Over" and will not have much if any when we "Hit The Skids".

Jul 30 03:21 AM

[Research Recap:]

It's only a glimmer! There are strong factors working against loan modification (eg, loan servicers not holding the loans that need modifying, fear that modification is only putting of the inevitable) it won't have much impact without strong government intervention.
Probably requires a reduction of the principal to really work.


On Jul 29 06:21 PM Karen Consumer wrote:

> "A glimmer of hope: according to emii, Bank of America (seekingalpha.com/symbo...)
> has kicked off its foreclosure relief program for borrowers from
> its recently acquired Countrywide with a letter of notification regarding
> eligibility. BoA says up to $150 million has been allocated nationally
> for Countrywide borrowers in 40 states as part of a settlement with
> state attorneys general."
>
> Using mr. calculator here, that breaks down to 3.75 million per state
> for foreclosure relief. If you assume a median home price of $150,000,
> that's a whopping 25 houses per state. I don't think that's going
> to help.

Jul 30 12:50 PM