Foreclosures Prove Loan Modification Isn't Working

Bloomberg is reporting Foreclosures Climb 65% as Loan Workouts Fall Short.

U.S. foreclosure filings climbed 65 percent and bank seizures more than doubled in April from a year earlier as mortgage industry efforts to modify loans fell short.

More than 243,300 properties were in some stage of foreclosure, the highest monthly total since RealtyTrac Inc., a seller of default data, began in January 2005. One in every 519 households received a filing and Nevada, California and Florida had the highest rates. Filings rose 4 percent from March.

"Loan modification isn't working," Rheingold said. "It's extremely difficult for a homeowner to talk to a servicer and even if they do, it's hard to get the servicer to change the terms. You get voice-mail hell, they don't return calls, you can't get a live person on the phone."

Bank repossessions jumped 145 percent in April from a year earlier to 54,574, according to Irvine, California-based RealtyTrac. The company has database of more than 1.5 million properties and monitors foreclosure filings including defaults notices, auction sale notices and bank seizures.

Banks will seize about 60,000 properties a month through December, when about 1 million U.S. homes, or a quarter of all homes for sale, may be bank-owned, Rick Sharga, RealtyTrac's executive vice president of marketing, said in an interview.

1,000 Foreclosure Auctions Per Day

In California there are 1,000 auctions per day.

California's foreclosure crisis passed another ominous milestone in April, when more than 1,000 foreclosed homes were auctioned off every weekday at courthouses across the state, the auction tracking firm ForeclosureRadar reported today.

The April total of foreclosure sales at auction -- 22,838 for the state -- represents a jump of 44% over March totals and the highest level ever in California, ForeclosureRadar reports.

It appears the pipeline of potential foreclosures is jampacked, too: the ForeclosureRadar reported 44,101 new "Notices of Default" filings in April, a new record for California. Notices of Default are the first step in the foreclosure process.

"We expected a significant increase in auction sales based on previous default patterns," said Sean O'Toole, founder of ForeclosureRadar. "Unfortunately, the continued increases in defaults tell us that the worst is still ahead."

California foreclosures surge

Peter Viles is reporting California foreclosure "surge": Up 327% from '07 levels.

The number of California homes lost to foreclosure in the first quarter surged 327% from year-ago levels -- reaching an average of more than 500 foreclosures per day -- DataQuick said in a report, warning that the widening foreclosure problem could "spread beyond the current categories of dicey mortgages, and into mainstream home loans."

From DataQuick's report on California foreclosures in the first three months of 2008: "Trustees Deeds recorded, or the actual loss of a home to foreclosure, totaled 47,171 during the first quarter. ... Last quarter's total rose 48.9 percent from 31,676 in the previous quarter, and jumped 327.6 percent from 11,032 in first quarter 2007." That translates into 517 foreclosures every day in the first quarter of 2008.

More: "Homeowners received 113,676 default notices in the first quarter, up 143 percent from a year ago, La Jolla, California- based DataQuick said today in a statement. The level was the highest since at least 1992, when DataQuick's statistics begin."

Despite well publicized federal efforts to reach out to homeowners in default, the odds that they will ultimately lose their homes appear to be increasing. DataQuick reports that, of the homeowners in default, "an estimated 32 percent emerge from the foreclosure process by bringing their payments current, refinancing, or selling the home and paying off what they owe. A year ago it was about 52 percent.

Bottom Callers Beware

Banks are so capital impaired they are not able to take writedowns until they raise still more capital. More asset sales are coming. In the meantime, because so many problem mortgages are securitized in pools, banks cannot act even if they wanted to.

As the recession deepens, a downward spiral of foreclosures, REOs, and capital raising efforts is going to accelerate. We are nowhere near a bottom. Many banks and lending institutions are going to fail.

Comments

[Voice ofReason]

Another chicken little the sky in falling fairytale. The author is also fast and lose with his "facts" Saying "recession deepens" when we're not even officially in a recession at all yet is proof this guy is just another fear monger. I wonder what his motative is. Actaully I can make an educated guess.

[johngonole]

Hard to tell if we are in a recession yet. The data lags the facts by a few months in not half a year. Construction in Florida is slowing fast. First is was housing but now commercial and even school construction is slowing. Should be interesting going forward to see how everyone does.

I think people in areas that are slow believe we are in recession where other places where the housing bubble never took off are doing just fine.

Technically however we are not in a recession nation wide. At the same time our currency is paying a terrible price to fend off this recession.

[ArnoldCountry]

As much as it paints a gloomy picture, this article is right on. The Option ARM modifications give a 2% reduction in margin for a while and the borrower still has to make the higher payment with loan amounts exceeding 100% LTV. Makes no sense. Couple that with a very painful process as described above, and people just give up. Its just about showing regulators and legislators statistics that they are providing modifications to "help". Meanwhile... the housing market continues it spiral freefall to the ground. Corrections are always painful, this one will incur many dead patients.

[lindlou]

Come to Michigan, especially the Detroit Metro area, if you don't believe we're in a recession. To comment on the article, I think the reason that loan modification isn't working is that alot of people who have the loans out are investors/speculators and modification isn't an option for them. Check out this article www.reuters.com/articl... from Reuters ("California Man Losing Nine Homes In Mortgage Mess" 5/11/2008)--this nitwit is skipping away from 9 properties in 3 States and is only bummed that he won't be able to keep his beach house. Time to bring back debter's prisons!

[TommyG]

Banks are cutting their noses to spite their faces if they don't work with people seeking help. But I'd rather see a forclosure than some gov. bailout that comes out of our pockets. Who were the idiots who lent to the guy in N Cal the money? Boo Hoo Hoo.

[LiquidSoapDispenser]

REASON: Can't we agree there is a housing recession? Maybe that's what the author meant?

[Pent updemand]

Funny you bring up chicken, VoR. Because that is exactly the game the banks are playing. Can they pick up enough coins off the railroad track (raise capital) before the 5:09 comes through (and they have to write down their books).

[Tom Lindmark]

I'm all in with those of you who see this as just another chicken little article. Need more data and fewer quotations and anecdotal sidebars.

[Snuggles]

"...In the meantime, because so many problem mortgages are securitized in pools, banks cannot act even if they wanted to..."

I don't understand why more hasn't been made of this fact. Securitization has made it infinitely more difficult to conduct work-outs with borrowers. I find it highly ironic that a tool that was supposed to mitigate risk is actually going to help accelerate losses.

[cfish]

I totally agree that banks are impaired from doing thier best to clear out the inventory, but I didn't realize that they needed more cash infusion to do it. This depression could to be long. I don't think it will be as long as Japan's bubble crash because Americans are much more willing to clean up the mess, but if they have little power to do that, we have a lot more trouble ahead.

[iThinkBig]

And the end of the tracks for those banks Negative carry are the overleveraged, pinched consumer whom is 70% of our nation's GDP. The real question is, can the consumer recover in time before the banks can fix the balance sheets? So the consumer continues to buy less non-essentials and GDP shrinks, what jobs will American's have to recover?

I guess a hefty portion of Americans will have to prepare to go from service jobs to farming or perhaps we will declare energy independence and create millions of jobs. Don't I wish that would happen, but no, that would create a competing product and force some wealth from global oligarchs!

I assume the government will offer job retraining programs in 2009 which is why I like a stock like Apollo Group, but without major innovation into something the global consumer needs more of (like affordable energy and food) I am not encouraged.

I guess a side benefit of the California courts being so clogged (and other courts) is perhaps they will stop activism of there liberal, no justice except for deadbeats, theives and perverts agenda. That is getting pretty sickening to me these days as well.

[richjoy]

What?...an article on home forclosures with 11 responses...and no one has mentioned the obvious solution?

All we need to do is give courts the authority to change mortgage contracts (that's right, lower the rates to whatever the borrower thinks he can afford...presto! problem solved!)

Of course, there will be consequences. First, mortgage rates will go up several percentage points; second, qualifications (credit histories, down payments, etc.) will be tightened so fewer people will qualify; third, there will be vastly more people signing rental contracts where rent payments apply to the eventual purchase; fourth, (what the hell, does it matter?)

I absolutely assure you, those who think they will lower the price of gasoline by adding more taxes to the oil companies, are just the people who will be pushing legislation to give courts authority to modify mortgate contracts.

[sbenard]

Richjoy, your solution may sound simple, but you'd have to eliminate the Constitution, which, at its foundation, protects private contracts. Without the sacred nature of contracts, NOTHING is safe from the unlimited power of government. Kiss private property good-bye! Be careful what you wish for...