Foreclosures STILL Rising. Told Ya So!

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I hate to say I told you so.... but we warned you not to believe all the rosy news. Yes, a week and a half ago, I wrote that the headlines crowing about declining foreclosure filings, suggesting a light at the end of the tunnel, were misleading because many homeowners were in limbo waiting for lenders to decide whether they would eventually get a permanent mortgage modification. I said that I thought we'd see foreclosures actually rise again once many, if not most, of these distressed homeowners got turned down by their banks. Many of my colleagues at HousingWatch have warned the same.

Well, today's Wall Street Journal headline says it all: "Supply of Foreclosed Homes on the Rise Again."

And, why is that?
For exactly the reason I laid out in my March 11th post. Or, as the WSJ concurs: "...the supply is rising again because banks are determining that many homeowners don't qualify for loan modifications and are completing more foreclosures."

Analysts over at Barclays Capital reportedly estimate that banks and other lenders now hold some 645,800 foreclosed homes as of January. That, says the Journal, is up 4.6 percent from December 2009.

The projections now call for the supply of foreclosed homes to skyrocket by April to somewhere around 733,000, before starting to decline.

But, of course, no one can really predict when foreclosures will peak, especially if the unemployment picture doesn't start to improve dramatically -- and soon. Foreclosures brought about by subprime loans were long ago supplanted by those brought about by folks who no longer have gainful employment and so can no longer afford their mortgage payments without a modification.

And, as we already know, even a loan modification doesn't mean a homeowner will end up saving his home: the vast majority of mortgage modifications lower the interest payments but leave the principal untouched. That is why so many people who do manage to get the much coveted permanent mortgage modification still end up in foreclosure somewhere down a short road.

Of course, the increased supply of foreclosed homes continues a bad cycle -- depressing home prices further in some parts of the nation, which, in turn, means more people in those areas living in homes that are now worth far less than the mortgages they owe.

In California, foreclosure starts are up some 20 percent. And, properties slated for foreclosure sale "remained near record levels" in February. Foreclosure cancellations also remained flat. The CEO of ForeclosureRadar, Sean O'Toole, tells dsnews.com: "We take this as a clear indication that the administration's drive to make trial loan modifications permanent is failing."

Another website carries the news that foreclosures in Chicago are happening at an amazing rate of one every 22 minutes, according a group called National People's Action acting in conjunction with U.S. Senator Dick Durbin (D-IL)

I wish I could give you more upbeat news about foreclosures. And, I know you'll probably see more headlines from time to time that make it sound as if the foreclosure problem is getting better. And someday it will. Right now, though, I urge you to look beyond the headlines and try and see the forest from the trees.

Charles Feldman is a journalist, media consultant and co-author of the book, "No TIme To Think-The Menace of Media Speed and the 24-hour News Cycle." He has written about real estate related issues for several years.
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