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Thursday, July 16, 2009 3:56 AM


Foreclosure Filings Hit Record 1.5 Million; One in Eight Americans Delinquent; Obama's Mortgage Rescues Create ‘Confusion’


The grim but not unexpected housing data shows U.S. Foreclosure Filings Hit Record 1.5 Million in First Half.

U.S. foreclosure filings hit a record in the first half, a sign that job losses and falling property prices deepened the housing recession, according to RealtyTrac Inc.

More than 1.5 million properties received a default or auction notice or were seized by banks in the six months through June, the Irvine, California-based seller of default data said today in a statement. That’s a 15 percent increase from the year earlier. One in 84 U.S. households received a filing.

The Mortgage Bankers Association said May 28 that prime fixed-rate home loans to the most creditworthy borrowers accounted for 29 percent of new foreclosures in the first quarter, the biggest share of any type of loan.

One in eight Americans is now late on a payment or already in foreclosure, the Washington-based mortgage group said.

Twenty of the 50 U.S. counties with the highest foreclosure rates were in California and 12 were in Florida, RealtyTrac said.

“I don’t see any turning of the tide,” said Donald Haurin, an economics professor at Ohio State University in Columbus. “The effect of more foreclosures will be continued downward pressure on house prices, and lead to difficulty making mortgage payments that are continuing to reset.”

Payment-option adjustable rate mortgages will contribute to higher defaults, said Rick Sharga, executive vice president of RealtyTrac. About three quarters of those loans will adjust to require higher payments next year and in 2011, with the peak coming in August 2011 when about 54,000 loans recast, according to data from First American CoreLogic of Santa Ana, California.

More than 8.3 million U.S. mortgage holders owed more than their homes were worth and an additional 2.2 million borrowers will be “underwater” on their loans if prices decline another 5 percent, First American said March 4.
Obama Creates Confusion

Adding insult to injury, Bank of America Says Obama Mortgage Rescues Create ‘Confusion’.
The Obama administration stokes “confusion and delay” among mortgage lenders when it announces anti-foreclosure plans before completing the program details, a Bank of America Corp. executive will tell Congress.

Announcing programs without providing the rules for how borrowers and lenders should proceed, “creates immediate demand with insufficient lead time for operational readiness,” Allen Jones, a default-management policy executive at Bank of America, said in prepared testimony to be delivered before the Senate Banking Committee in Washington today.

Borrowers are still awaiting the final details of a plan announced in April that would let homeowners rework home-equity debt. Other elements of a broader plan announced in February have been slow to reach the public. The administration said last month that the program, intended to help as many as 4 million people, had only extended modification offers to about 150,000.
U.S. mulling mortgage aid for unemployed

Every program so far has failed and so new plans keep rolling out, often creating "perverse incentives that distort the housing market". Please consider U.S. mulling mortgage aid for unemployed
President Barack Obama is mulling new ways to delay foreclosure for jobless homeowners who are unable to keep up with monthly payments, an administration official said on Monday.

But the official said the idea, which is still evolving, was difficult from a policy perspective and carries potential hazards. It could help more people struggling with economic difficulty, but it also could create perverse incentives that distort the housing market, said the official, who did not want to speak on the record about internal administration debates.

"All these numbers keep going up. We are not anywhere near the bottom," said Jay Brinkmann, chief economist for the Mortgage Bankers Association.

The Treasury Department asked the largest 25 mortgage service companies last week to appoint a special liaison officer to work directly with government officials trying to stem defaults.
Voluntary And Involuntary Defaults Rise

Rising home prices are the key to fewer voluntary defaults. Voluntary defaults are characterized by someone able to pay the mortgage but stops because of negative equity or other disincentives.

For involuntary defaults, jobs are the key. Sadly, both keys are nowhere to be found.

The trend in home prices is still down and will likely be down for several more years. Please see Housing Update - How Far To The Bottom? for details.

The jobs picture is even more bleak as Bernanke Sees Chance of Jobless Recovery.

Given that the Fed's first mission is to delay, confuse, hope, and otherwise attempt to buy time while engaging in wishful thinking along the way, that Bernanke is willing to admit this may be a jobless recovery is a sign that things will likely be at least that bad. In other words, prepare for a job loss recovery.

Foreclosure prevention programs are going to continue to fail as long as home prices are sinking and unemployment is rising. Attempts to manipulate the market and/or prevent foreclosures will merely create "perverse incentives that distort the housing market".

The only real solution is time and price. Homes have to fall to the point of affordability and people have to have jobs before any house is affordable. This should be obvious but given the number of failed programs it must not be.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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