US Mortgage Efforts Fail As Foreclosures Sky Rocket

There is absolutely no sign that the foreclosure problem in the US is even close to an end point.

Data from RealtyTrac shows that there were 3,957,643 foreclosure filings last year, a record. The report also shows that 2.21 percent of all U.S. housing units (one in 45) received at least one foreclosure filing during the year, up from 1.84 percent in 2008, 1.03 percent in 2007 and 0.58 percent in 2006.

Figures for the last month of the year offered little hope of improvement. Foreclosure filings were reported on 349,519 U.S. properties in December, a 14 percent jump from the previous month and a 15 percent increase from December 2008.

The Administration’s $75 billion effort to keep people in their homes is clearly a failure and one of impressive size. The modification of monthly home loan payments has fallen well short of its goals to prevent an exodus from houses which have underwater mortgages. The problem with the modifications is that they did not reset the principle of the home loans, which left people with almost no hope of having equity in their homes which might support them in their retirements.

The government has admittedly been up against insurmountable odds. As long as unemployment is above 10% and does not begin to drop very sharply people will abandon houses which they can not pay for from their modest unemployment benefits.

Homebuyers have not moved into the market with any force. Tax credits for first time buyers are set to expire. More important, many people who might normally buy a house are worried that home values are still in free fall. They do not want to be stuck with a house which has 10% less value in 2011 than it does today.

The government has two choices. It can let the market implode completely which would take prices low enough to bring buyers back or it can aggressively help banks to reset the principle of home loans. That reset process would have to hold banks harmless from write downs of home values.

The housing market is still bleeding and the bleeding is not being stanched.

Douglas A. McIntyre