An all time high was hit by mortgage foreclosures in the first quarter 2010. Meanwhile, the federal foreclosure prevention program seems to be losing momentum. The Mortgage Bankers Association said Wednesday that the inventory of homes in foreclosure rose to 4.63 percent from 4.58 percent in the fourth quarter. The combined share of foreclosures and mortgage delinquencies was at 14 percent, or about one in each seven mortgages. The mortgage foreclosure statistics are expected to reach a high this year with more than 2 million borrowers losing homes.
Unemployment rate in US to blame
The unemployment rate is a huge cause for the mortgage foreclosure statistic being so high. Homeowners have had a hard time paying monthly bills without online payday loans because of job losses. Jay Brinkmann of the Mortgage Bankers Association told Bloomberg that U.S. unemployment within the second half of 2009 — when individuals now in foreclosure would have first fallen behind on their payments — reached the highest level since 1983, as outlined by the Bureau of Labor Statistics. The unemployment rate declined to 9.7 percent in the first quarter of this year from 10 percent within the last three months of 2009. Brinkmann said the states with the highest unemployment rates — Ohio, Illinois and Michigan — have the biggest mortgage foreclosure increases.
Foreclosure prevention program failing
The surge within the mortgage default rate leads some to believe the Obama administration’s foreclosure prevention program, the Home Affordable Modification Program (HAMP) is failing to work as advertised. The Treasury department reported that 1.2 million homeowners are within the program. More than 299,000 homeowners had received permanent loan modifications as of last month — about a 25 percent success rate. About 277,000 homeowners, or 23 percent of those enrolled, have dropped out during a trial phase that lasts at least three months.
Methods connected to the mortgage modification program
Since the $ 75 billion HAMP program was announced, federal officials have chastised lenders for not doing a lot more to help borrowers. HAMP lowers mortgage payments to about a 3rd of borrowers’ income by reducing interest, lengthening terms and deferring principal payments. The Atlantic reports that term extension is used more than other methods. HAMP’s April reports said that 53.4 percent of loans have increased terms. 28.6 percent of mortgage modifications use principle reduction.
Mortgage modification program has flaws
As a lot more mortgage holders drop out of the HAMP program, the mortgage default rate is increasing. Ghazale Johnston, a banking executive at Accenture, told banktech.com that a major cause of the HAMP dropouts is a practice that resulted within the plague of sub-prime loans in the first place. Instead of using verified income, mortgage services have relied on stated income. Once they verify the income, it is discovered that the borrower is not eligible for the foreclosure prevention program. Some drop out of HAMP after services just can’t complete the transaction. New HAMP rules that take effect June 1 require all borrowers going into a trial modification to be approved depending on verified income.
Citations
Bloomberg
http://www.businessweek.com/news/2010-05-19/mortgage-foreclosures-hit-record-as-job-losses-strain-budgets.html
The Atlantic reports
http://www.theatlantic.com/business/archive/2010/05/government-foreclosure-prevention-program-sputters/56843/
banktech.com
http://www.banktech.com/blog/archives/2010/05/despite_homeown.html
