Anyone who thought the U.S. foreclosure crisis had abated would be wrong, according to an industry analyst who predicts a doubling of real estate foreclosure rates this year.
With much of Washington already consumed with reducing a decades-high unemployment rate, the White House and Congress may soon find themselves also redoubling efforts to help Americans save their homes.
U.S. home foreclosures have soared since 2007, and the foreclosure crisis became a key spark to cause the broader 2008 financial debacle.
By September 2009, 14.4 percent of all U.S. mortgages had either become delinquent or gone in foreclosure, according to one estimate. Between August 2007 and October 2008, nearly 1 million U.S. homes had gone through foreclosure.
Where the foreclosure crisis had been largely driven by the meltdown of risky subprime mortgages, today the reasons for Americans to have their homes in jeopardy have shifted, according to industry analysts at Heavy Hammer Inc., based in Annapolis, Md.
The first and most obvious factor is the unemployment rate that continues to languish in the 10 percent range nationally, and often much higher regionally. Similar unemployment rates have historically affected 20 to 30 percent of homeowners’ ability to make their scheduled mortgage payments, the analysts say.
The second factor is the significant constriction of lending due to tightening mortgage requirements, according to Michael Urbanski, CEO of USHUD.com, an affiliate website of Heavy Hammer.
“The mortgage pendulum is now swinging too far to the opposite spectrum of what we saw at the height of the real estate market,” Urbanski says. “Lending institutions are creating hurdles so high that it will put qualified homebuyers back six to 12 months in the buying cycle.”
President Obama last year created a federal program to encourage mortgage companies to modify the loans of struggling homeowners to enable them to keep their homes.
The performance of the Making Home Affordable program has been so anemic, however, as just 66,465 homeowners had received permanent mortgage modifications under the Treasury Department-administered program, as of Dec. 31.
The four largest mortgage servicers — Bank of America, JPMorgan Chase, CitiMortgage and Wells Fargo — reportedly all continue to lag under the program. All four have converted a small percentage of the trials begun three or more months ago into permanent modifications.
“The current qualifications are so absurd they require the home owner to prove that they do not need a modification in order to get one,” says Urbanski.
The underwhelming performance of the administration program has attracted the attention of concerned lawmakers, including Sen. Sherrod Brown (D-Ohio).
Citing a National Association of Realtors study that finds the average U.S. home depreciated 12 percent year-over-year from 2008 through 2009, Urbanski says selling will become an impossible proposition for a growing number of “underwater” homeowners, those homeowners who owe more on the mortgage than their house is worth.
“Watch the horizon,” says Urbanski. “Left unchecked, the perfect storm may be only one more bad policy away.”
The publisher of the news site On The Hill, Scott Nance has covered Congress and the federal government for more than a decade.