Foreclosures Resume

Articles posted in both the Wall Street Journal and the Washington Post confirmed that, despite government efforts to keep people in their homes, banks have resumed their ramp up in foreclosures. The spike in foreclosures hit hardest in March as banks let moratoriums on foreclosures expire. According to RealityTrac, an Irvine, Ca. company that compiles statistics on and lists foreclosed properties, there were 341,180 filings across the country, an increase of 46 percent from March and 17% from April of 2008. The numbers represent the highest monthly total since RealityTrac began collecting foreclosure data in 2005. The filings can range in severity from default notices being sent to families being removed from their homes due to bank repossessions.
Foreclosures in the first quarter of 2009 increased by 9% over the last quarter of 2008 and by 24% over the same January through March period of 2008. Daren Blomquist, a RealtyTrac spokesman confirmed that "many of the latest filings represented lenders starting the foreclosure process on delinquent homeowners". Many banks let their self-imposed foreclosure moratoriums expire once the details from the Obama administration's "Homeowner Affordability and Stability Program" (HASP) were announced. With the details of the program in hand, the lenders could accurately calculate the foreclosure risks and determine whether struggling borrowers would be able to consistently make their mortgage payments after modifying their loans according to the guidelines of the HASP initiative. It's likely that a high percentage of the most recent foreclosures were targeted at the homeowners perceived as the highest foreclosure risks, even under best case scenarios of a potential modification or refinance.
J.P. Morgan Chase & Co., Wells Fargo, Fannie Mae and Freddie Mac all said that they have increased foreclosure activity in recent weeks but declined to go into the specifics of their decision making processes. It is very likely that the recent studies showing default rates approaching 50% on modified loans after just six months are a major consideration when lenders do decide to start the process to repossess a home.
The jump in foreclosures comes just as the implementation of the Obama administration's foreclosure prevention program is gaining some traction. Several of the major banking institutions across the country, including J.P. Morgan Chase & Co., Wells Fargo, and CitiMortgage, announced today that they will start offering refi's and loan modifications that adhere to the HASP guidelines. Generally speaking, lenders' participation in the HASP initiative is voluntary. These announcements of participation, however, come as no surprise because as recipients of FSA/TARP (bank bailout) funds the listed banks would have been forced in to the federal program whether they liked it or not.
The administration has said it expects HASP to be able to help between 4 and 5 million homeowners under the new initiative but the steep spike in new foreclosure activity, if it continues at this kind of pace, could reduce their estimates drastically. It could still take months for the program to have a significant impact while banks study their options. If current trends persist, the number of homeowners facing foreclosure will continue to rise. Like the banks, it would be wise for these homeowners to start learning about their options as well.