US Homes Facing Foreclosure In May Up 48%

Source : The Business Times, June 14, 2008

WASHINGTON - Soaring foreclosures are continuing to raise questions about the mortgage industry's claims that they are making a dent in the US housing crisis.

Foreclosure filings last month were up nearly 50 per cent compared with a year earlier. Nationwide, 261,255 homes received at least one foreclosure-related filing in May, up 48 per cent from 176,137 in the same month last year and up 7 per cent from April, foreclosure listing service RealtyTrac said on Friday.

Critics say a Bush administration-backed mortgage industry coalition, dubbed Hope Now, is falling far short

The latest grim foreclosure news comes as criticism mounts that efforts by government and the mortgage industry to stem the tide of foreclosures aren't keeping up with the rising number of troubled homeowners. Critics say a Bush administration-backed mortgage industry coalition, dubbed Hope Now, is falling far short.

'It's clear that these voluntary efforts in and of themselves cannot really make a dent,' said Allen Fishbein, director of credit and housing policy at the Consumer Federation of America.

'Government intervention is going to be necessary.' Mark Zandi, chief economist of Moody's Economy.com who also serves as an adviser to Republican John McCain's presidential campaign wrote earlier this week that 'the Bush administration's efforts to encourage loan modifications and delay foreclosures are being completely overwhelmed.'

A Credit Suisse report from this spring predicted that 6.5 million loans will fall into foreclosure over the next five years, reaching more than 8 per cent of all US homes.

Sobering statistics like these are leading to more calls for government intervention, especially from lawmakers pushing a plan for the government to guarantee as much as US$300 billion in new loans to help borrowers refinance into cheaper, fixed-rate mortgages.

A new government report released Wednesday found that among mortgages held by nine large banks, including Bank of America and Citigroup, foreclosures climbed to 1.23 per cent of all loans in March from 0.9 per cent in October.

In a speech, Comptroller of the Currency John Dugan said the federal agency conducted its own examination of foreclosures and loan modifications after finding 'significant limitations' with data collected by trade groups like Hope Now.

'Virtually none of the data had been subjected to a rigorous process to check for consistency and completeness,' Mr Dugan said.

'They were typically responses to surveys that produced aggregate, unverified results from individual firms.'

The comptroller's report found that 2.7 per cent of seriously delinquent mortgages had been modified as of March, up from 1.8 per cent in November 2007.

The industry has continued to favour repayment plans, which help borrowers get back on track after missing a few payments, rather than permanent loan modifications, such as lower interest rates.

Democratic Rep Barney Frank said this week that Dugan' analysis shows that 'much more aggressive action is needed.'

The combination of weak housing sales, falling home values, tighter mortgage lending criteria and a slowing US economy has left financially strapped homeowners with few options to avoid foreclosure. Many can't find buyers or owe more than their home is worth and can't get refinanced into an affordable loan.

Making matters worse, mortgage rates have been rising, reflecting increased concerns about what the Federal Reserve might do to battle inflation. Freddie Mac, the mortgage company, reported Thursday that 30-year fixed-rate mortgages averaged 6.32 per cent this week, the highest level in nearly eight months and up sharply from 6.09 per cent last week.

According to the RealtyTrac report, one in every 483 US households received a foreclosure filing in May, the highest number since RealtyTrac started the report in 2005 and the second-straight monthly record.

Foreclosure filings increased from a year earlier in all but 10 states. Nevada, California, Arizona, Florida and Michigan had the highest statewide foreclosure rates.

Metropolitan areas in California and Florida accounted for nine of the top 10 areas with the highest rate of foreclosure. That list was led by Stockton, California, and the Cape Coral-Fort Myers area in Florida.

Irvine, California-based RealtyTrac monitors default notices, auction sale notices and bank repossessions. Nearly 74,000 properties were repossessed by lenders nationwide in May, while more than 58,000 received default notices, the company said.

In Nevada, one in every 118 households received a foreclosure-related notice last month, more than four times the national rate. In California, one in every 183 households faced foreclosure.

Rick Sharga, RealtyTrac's vice president of marketing, said foreclosures are unlikely to peak until sometime this fall, as more loans made to borrowers with poor credit records reset at higher levels. 'I don't think we've seen the high point,' he said.

About 50 to 60 per cent of borrowers who receive foreclosure filings are likely to lose their homes, Mr Sharga said. The rest are likely to be able to sell or refinance.

As foreclosed properties pile up, they add to the inventory of homes on the market and drag down home prices. The trend is most dramatic in many parts of California, Florida, Nevada and Arizona, where prices skyrocketed during the housing boom and are now falling precipitously.

Sales of foreclosures, vacant new homes and other distressed properties now dominate some markets, causing grief for individual homeowners who need to sell for other reasons, like a job in a new city.

Nationwide, one out of every four sales between January and March was a distressed sale, and that figure jumps to more than 50 per cent in the hardest-hit areas like Las Vegas, Detroit and distant suburbs of Los Angeles, according to Moody's Economy.com.

In some neighbourhoods, lenders are slashing prices dramatically to rid themselves of an unprecedented number of foreclosed properties, sparking bidding wars and multiple offers. While that's a positive for the real estate market, buyers in other parts of the country are still holding back.

'I think a lot of people are waiting to see if we really have hit the bottom,' Mr Sharga said.

Lehman Brothers economist Michelle Meyer said in a report on Thursday that US home sales are likely to hit bottom at the end of this summer, but said a recovery in sales is likely to be 'feeble.' Home prices, she wrote, are still expected to fall another 10 per cent by the end of 2009. -- AP