Foreclosures down slightly, but no signs of stabilization yet

Anyone hoping for a housing bottom will likely be discouraged by the RealtyTrac's foreclosure report this morning. U.S. foreclosure filings topped 300,000 for the third straight month in May and are expected to hit a record 1.8 million by the end of the first half of the year. The number of filings fell 6 percent from last month, but as foreclosures continue to mount there are clear signs that the banks aren't buying into President Obama's mortgage rescue plan.

When President Obama announced the program earlier this year with great fanfare, he promised to save the homes of 9 million people, but based on the steady flow of new foreclosure filings, the banks are not cooperating. Once the cramdown provision -- which would have given bankruptcy courts the ability to reduce the principal of mortgages underwater -- was killed by the Senate, there were no teeth in the Obama plan.
Living at ground zero of the toxic assets (my area, Orlando/Kissimmee, was eighth on the metropolitan area foreclosure list this month), the evidence is in front of me that foreclosures continue to mount. Real estate sales people tell how foreclosed homes that sold for $200,000 or more just a couple of years ago are now being sold for less than $80,000 by the banks.

If banks are willing to take that much of a loss after the expense of foreclosure, wouldn't some adjustment in the value of the home to avoid foreclosure be more cost effective? But so far banks have resisted any type of loan program that requires them to adjust the principal amount of the mortgage.

Job losses and falling property values continue to delay the housing recovery as more homeowners are unable to pay their mortgages or sell their homes. Unemployment is now up to 9.4 percent and many expect it could still climb higher.

The mortgage crisis, which at first impacted primarily subprime loans, is now hitting prime borrowers. About 29 percent of loans that entered the foreclosure process were prime, fixed-rate mortgages, according to the Mortgage Bankers Association. Homes in some stage of foreclosure totaled 3.85 percent of all loans in the first quarter, up from 2.47 percent a year earlier.

"The numbers are getting bigger and that's what is bothering me," Patrick Newport, an economist at IHS Global Insight told Bloomberg. "You have banks holding these toxic loans, which means bank balance sheets are in even worse shape with the increase in delinquencies."

Nevada, California and Florida continued to outpace the rest of the country in foreclosure filings. Nevada had the highest foreclosure rate, one in every 64 households, which is more than six times the national average. California was second at one in 144 households followed by Florida at one in 148 households. Arizona was fourth with one in 158 households and Utah was fifth with one filing per 316 households. The areas with the biggest jump in number of foreclosure filings were Michigan, Washington and New York.

The city with the highest foreclosure rate was Las Vegas, with one in every 54 households getting a notice, which is up 78 percent from a year ago. California has six cities among the top 10, and Florida has three.

Lita Epstein has written more than 25 books including The 250 Questions You Should Ask to Avoid Foreclosure.
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