Foreclosures On the Rise

Foreclosure continues to be a stubborn problem that won't go away, despite government efforts to date, new data shows. But there are some bright spots.

First the really bad news: Foreclosure filings were reported on 367,056 properties in March, according to data firm RealtyTrac. That's the most default notices, seizures, and foreclosure auctions since RealtyTrac began issuing monthly reports back in January 2005.

Foreclosures are likely to keep rising despite renewed efforts from the biggest federal foreclosure prevention program, which has approved permanent home loan modifications for a third of a million borrowers. That's a third of a million foreclosures avoided or at least made much less likely.

What's going on?
Some might argue that foreclosures are rising because foreclosure moratoriums and "prevention" programs haven't stopped foreclosures. For many borrowers, they have just delayed the inevitable.

"Foreclosure prevention programs and processing delays slowed down the normal foreclosure timeline," said James J. Saccacio, chief executive officer of RealtyTrac.

Saccacio has a point. However, the truth is more nuanced. The Feds are helping hundreds of thousands of people keep their homes - but that's simply not enough and thousands of people are falling through the cracks, or simply falling out of their foreclosure prevention programs. Many experts believe that, until banks reduce the principal owed, rather than just interest, many homeowners will continue to struggle.

There are about 6 million homeowners who are now more than 60 days late in their mortgage payments. Of those, 1.7 million borrowers are eligible for help through the federal Home Affordable Modification Program (HAMP), the biggest foreclosure prevention program. About 1.2 million of those have had their home loans modified since the program started more than a year ago. Of those, about 155,000 trial modifications had been canceled by the end of March - of those more than 60,000 were canceled in March alone.

Those 60,000 canceled loan modifications are probably now headed to foreclosure or a "short sale."

More bad news may be coming. The Home Affordable program still has two-thirds of a million borrowers with temporary modifications that may still become permanent... or may not. Over the past year, many of these borrowers have complained that banks and mortgage companies add endless new requests for information, lose paperwork, and issue contradictory threatening letters - these banks sometimes seem determined to drive borrowers out of the program and into foreclosure.

The good news? The program's remaining third of a million borrowers - 338,000 homeowners - have been approved for "permanent" modifications to their loans. That means their loans are set to be converted to long-term, fixed-rate financing and that their monthly payments have been lowered by an average of about $500 a month for at least the next five years - hopefully long enough for those with lost income to find better paying work.

The permanent modifications include 230,000 that have already begun. Another 108,000 permanent modifications have been approved by loan servicers - they should start as soon as the borrowers return their signed modification agreements. Why are so many modifications waiting to be signed? Because even though the program has been going for a year, servicers did not start approving permanent modifications at any scale until a few months ago. Those 108,000 borrowers had their modifications approved recently.

What's next? Well, there are still more than 600,000 borrowers with temporary modifications, and its seems unlikely that all of them will be saved from foreclosure.

And then there are the 4.3 million borrowers who are 60 or more days late on their mortgages but who don't qualify for the Home Affordable program. Among these ineligible loans are jumbo mortgages for McMansions, loans for vacation homes and investment properties, loans to vacant properties... in addition to 900,000 loans that simply aren't serviced by companies that participate in Home Affordable.

That's an awful lot of home loans on the edge. So, many homeowners will be saved from foreclosure through Home Affordable or other programs - but many more will not, and the rate of home loan foreclosures is likely to stay high all year.

Foreclosure Filings by Month

March, 2010: 367,056
February, 2010:
January, 2010: 315,716
December, 2009: 349,519
November, 2009: 306,627
October, 2009: 332,292
September, 2009: 343,638
August, 2009: 358,471
July, 2009: 360,149
June, 2009: 336,173
May, 2009: 321,480
April, 2009: 342,038
March, 2009: 341,180
February, 2009: 290,453

(Information from RealtyTrac.)
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