Record Hit With Mortgage Foreclosures Since Prevention Program Falters

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In the first quarter 2010, mortgage foreclosure statistics reached an all time high. Momentum is being lost by the federal foreclosure prevention program in the meantime. The inventory of homes in foreclosure rose to 4.63 percent from 4.58 percent in the fourth quarter, the Mortgage Bankers Association said Wednesday. The combined share of foreclosures and mortgage delinquencies was 14 percent, or about one in every seven U.S. mortgages. The mortgage foreclosure statistics are expected to go up quite a bit this year with more than 2 million borrowers losing their homes.

 

U.S. unemployment rate to blame

One cause of the mortgage foreclosure statistics being so high is the unemployment rate. Job losses have made it hard for homeowners to pay monthly bills without online cash loans. Jay Brinkmann of the Mortgage Bankers Association told Bloomberg that U.S. unemployment in the second half of 2009 — when people who are now in foreclosure would have just first had fallen behind on their payments — reached the highest level since 1983, according to the Bureau of Labor Statistics. The unemployment rate actually ended up declining to 9.7 percent in the first quarter of this year from 10 percent in the last three months of 2009. Brinkmann said the states with the highest unemployment rates – which are Ohio, Illinois and Michigan — have the biggest mortgage foreclosure increases.

The foreclosure prevention program is failing miserably

The surge in the mortgage default rate leads some to believe that the Obama administration’s foreclosure prevention program, the Home Affordable Modification Program (HAMP) is failing to work as advertised. The Treasury department said about 1.2 million homeowners have enrolled in the mortgage modification program. Of the last month, 25 percent, or 299,000 homeowners received permanent loan modifications, a success rate of 25 percent. About 277,000 homeowners, or 23 percent of those enrolled, have dropped out during a trial phase that lasts at least three months.

Mortgage modification program methods

Since the $ 75 billion HAMP program was announced, federal officials have chastised lenders for not doing more to help borrowers. HAMP lowers mortgage payments to around a third of borrowers’ income by lengthening terms, deferring principal payments, and reducing interest. The Atlantic reports that servicers are using term extension more than other methods. HAMP’s April progress report says that loans have increased terms in 53.4 percent of loans. Principal reduction is used on just 28.6 percent of mortgage modifications.

Mortgage modification program flaws

The mortgage default rate is increasing as more mortgage holders drop out of the HAMP program. A banking executive at Accenture, Ghazale Johnston, told banktech.com that a major cause of the HAMP dropouts is a practice that resulted in the plague of sub-prime loans in the first place. Rather than using verified income, mortgage services have relied on stated income. Once they verify the income, it’s discovered that the borrower isn’t eligible for the foreclosure prevention program. Some drop out of HAMP after services just can’t complete the transaction. New HAMP rules that take effect June 1 require all borrowers going into a trial modification that has to be approved based on only verified income.

Citations

Bloomberg

http://www.businessweek.com/news/2010-05-19/mortgage-foreclosures-hit-record-as-job-losses-strain-budgets.html

The Atlantic reports

http://www.theatlantic.com/business/archive/2010/05/government-foreclosure-prevention-program-sputters/56843/

banktech.com

http://www.banktech.com/blog/archives/2010/05/despite_homeown.html

Article Resource: Mortgage foreclosures hit record as prevention program falters

 

2 Comments For This Post

  1. admin Says:

    That sounds very good but whats the solution to this ?

  2. foreclosure on mortgage Says:

    Interesting blog. Enjoyed reading.

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