There was good news and bad news for foreclosures in October. The bad news is that more than 332,000 homes, or one out of every 385 homes across the country, received a notice related to foreclosure in October. The good news is that for the third straight month, this number represented an improvement from the previous month. Another piece of bad news is that 77,000 homes were seized by banks last month. However, the number of homes repossessed in September was just under 90,000, so the tide could be turning.
Still, foreclosures have increased 19% in the past year and continuing negative forces in the economy are likely to cause this trend to continue. There are a few factors at work that are helping to slow the flood of foreclosures.
- Loan Modification Programs: Banks and lenders would love to stop taking losses on loans and they’ve figured out that collecting a portion of a struggling homeowner’s payment is better than collecting nothing at all and being stuck with a house that’s difficult to sell in this market. Loan modification programs change the terms on mortgage loans for borrowers, reducing monthly payments by as much as 60 percent in many cases. Many modifications are good for a set period of time after which the borrower returns to the original terms of the loan or renegotiates with the lender. The government has offered financial incentives to financial institutions who offer loan modifications to their customers to help them make up for some of the lost revenue.
- Paperwork Delays: Some states and regulatory agencies have stepped in to make foreclosures more cumbersome to file. For example, in Nevada, the state is requiring a mediation hearing with the bank and the homeowner to determine whether that homeowner is likely to qualify for some type of modification program. Even with government efforts to slow foreclosures in the state though, foreclosures there exceeded those in any other state for the 34th month in a row. In addition to government intervention delaying foreclosure filings, there is just a huge glut of paperwork that has accumulated over the last several months as foreclosures have climbed and processing that paperwork is labor-intensive and time consuming.
- Home Prices Stabilizing: Since June, home prices nationally have been increasing again. This is a phenomenon that isn’t happening everywhere, but in a growing number of places the number of homeowners who owe the bank more than their home is worth is falling. With a little equity, lenders have more options when dealing with borrowers struggling to make their payments. One of the keys to ending the rash of foreclosures will be rising home prices
In spite of the declining foreclosure rate, there is still plenty of pressure on homeowners in default on their payments. The job market is not looking any brighter as unemployment jumped to 10.2% in October. The recession might be ending but usually the job market is one of the last areas of the economy to recover and until struggling homeowners can find work again, defaults and foreclosures will continue to be a problem. The above factors will offset some of the damage from the job market but are likely to fall short of being a cure for the housing market.
