Mortgage Settlement Will Lead to More Foreclosures

Yesterday’s announcement of the $26 billion settlement among state and local governments and five large US banks offered some hope for US homeowners who have struggled with mortgage payments. The other side of that coin is that the slow pace of foreclosures that followed from the year-long negotiations over the settlement is now likely to pick up.

Foreclosures dropped by -46% in December 2011 from their level in October 2010, when the settlement negotiations started. Now that governments and banks have agreed on foreclosure practices, analysts expect foreclosures to rise by 25% in 2012, putting additional pressure on home prices.

The deal announced yesterday is expected to help only about 8% of mortgage holders because it does not include loans backed by Fannie Mae or Freddie Mac. The other 92% of home owners are on their own.