Just When you Thought Foreclosures Could Not Get Any Worse
Just when you thought that the United States Government had the foreclosure problem under control, a new report shows that foreclosure filings for the first quarter of 2008 are up 53%. June is the second straight month that the U.S. has seen over 250,000 homes foreclosed on, which is down 3% from the month of May.
May was the highest ever recorded number of foreclosures in the United States, which is starting to show there has been very little impact from the government foreclosure intervention or the mortgage rate adjustments.
We still have not seen the effects of the Alt-A mortgage loans resetting yet. These loans will be resetting next year, and if the housing market is still down we can expect that the Alt-A loans will perform as poorly as the sub-prime mortgages have already. Nobody wants the government to accept responsibility for what the mortgage lending industry has done. However, without some serious intervention from the government we will probably see even more serious problems in the real estate and mortgage lending industries well into 2010.
The real estate buyers are entering back into the market due to the prices dropping in some areas as much as 30%. Even with the increase of purchasers, the mortgage lenders are not so ready to cooperate until they are able to free up some greatly needed capitol. Until the mortgage lending institutions become a little more willing to lend money again it will be extremely difficult to turn this failing real estate market around.
Most of the foreclosures and delinquencies could be tied to subprime loans where the delinquency rate (usually loan payments 60 or more days late) was up 1 percent from the third quarter to 17.31 percent of all outstanding loans. The delinquency rate for all loans was 5.82 percent, up from 4.95 percent one year earlier and the highest since 1985. In addition, 0.83 percent of loans entered the foreclosure process during the fourth quarter. This surpassed the previous record of 0.78 percent during the third quarter. One year earlier the rate was 0.54 percent.
Late payments, those 30 or more days overdue, also set a new record of 20.02 percent of all loans in the fourth quarter. The previous record was set in the third quarter at 18.81 percent.
1. Seven out of ten seriously delinquent borrowers are not on track for any loss mitigation option.
The lack of contact between servicers and debtors is a major problem. In spite of creative outreach efforts and increased staffing, there is a large gap between the numbers needing help and the number receiving it. The data suggests that a rising number of loan delinquencies are swamping the increase in loss mitigation efforts.
2. Servicers have increased their efforts to reach and work with borrowers.
For those homeowners who are in contact with their servicers 45 percent are working toward a loan modification. Servicers are also increasingly willing to work out longer-term changes to the loan rather than short-term repayments or forbearance agreements.
3. Payment resets on hybrid ARMs have not yet been a driving force in foreclosures.
The results indicate that a significant percentage of subprime adjustable rate loans go delinquent before the first rate reset indicating weak underwriting or mortgage fraud (i.e. misstating income or owner occupancy status) . That so many homeowners are already struggling before their rates reset gives increased urgency to addressing hybrid ARMs before those payment shock triggers additional foreclosures.
4. Homeowners are helping themselves.
The October data showed that most of the delinquent loans resolved that month occurred when the homeowners were able to catch up on back payments. "As of October, actions by homeowners, not servicers, have prevented the most foreclosures."
5. The refinance option has nearly evaporated.
Where what the Working Group called "serial refinancing" was the primary way that the mortgage industry and homeowners managed delinquencies in the past, the report stressed that the industry will not be able to refinance its way out of the current crisis unless there are dramatic changes in available loan products or home prices.
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