25 Million Foreclosures before Crisis Ends?

The numbers are almost unbelievable however forecasters predict that within the next two years the number of home mortgage foreclosures will reach an overwhelming figure of twenty five million. The number of foreclosures since this housing crisis started in 2007 to present is just over eight million.

The data collected shows that the number of foreclosures in 2007 was 2,203,209. The figure claims to 3,157,806 in 2008. The end of June of this year saw 1,528,364 foreclosures and claimed another 937,840 by the end of the third quarter. The means that every 10 seconds around America a homeowner is receiving a foreclosure notice. One homeowner in every one hundred thirty six is in receipt of the notice that will end their American Dream. Forecasters predict that at this current rate over twenty five million home will be in foreclosure by the end of 2011.

Bank repossession has also jumped by twenty one percent from the second to the third quarter of this year.

Bank owned property activity has increased as well from the second quarter in every state across the country with the exception of two states and the District of Columbia. The figures seem to show that lenders are work through some of the foreclosure inventory caused by the pending legislation.  REO properties still do not compete with the number of foreclosures that have been recorded across the country.

Banks are holding unto REO properties for several reasons such as title issues that need to be resolved; the properties are in total disrepair; several states have redemption period rights which prevent lenders from resale; some states have extended eviction proceedings; and the volume involved in REO activity.

The volume of foreclosure did indeed increase in the past quarter but the ray of hope was in the number of default notices being sent. The number of default notice in August of dropped by over four percent in September.

Sixty two percent of the countries foreclosures come out of six states that included Arizona, California, Florida, Illinois and Michigan. The reason these states have been hit the hardest has to do with them receiving the largest property value increase during the housing boom in 2005 through 2006. These states also have the highest percentage on financing that was nonconventional loans. Loans that were interest only or pay option arm programs. The vast majority of these pay option arm loans has yet to reset and are coming due within the next year. The interest on these loans was deferred and therefore increased the principal of the loans.

The deferred payments when added to the drop in home values can only lead to disaster. Homeowners that currently have this type of loan are likely to see their payments increase. Homeowners’ that refinance are likely to refinance at rates considerably higher and most will go into what the mortgage industry calls payment shock. Meaning their payment will more than likely triple when the arm resets.

Another element is currently in pay across the country called Strategic Foreclosure. Homeowners are allowing their properties to go into foreclosure and simply walk away because the value of the property has dropped to the point that it’s cheaper to walk away and purchase the house down the street.

The option arm reset according to forecasters will account for over four million nine hundred thousand additional foreclosures by 2010; thus making the foreclosure another overwhelming figure of 12,727,219 by the end of 2010.

Foreclosures continuing at this rate begs the question will home values continue to drop? Will home buyers get off the fence and purchase if the home values drop enough?

The home purchasing figures in 2009 suggest an increase home purchases which can be contributed to the tax credit but are there more factors at work here? The affordability factor comes into play. The affordability factor takes into account income, home price, mortgage interest rates and other factors; currently rates are at levels seen back in 2003. Homebuyers who have stability in employment and income will help to increase the affordability factor.

The Obama Administration has provided solutions to halt or stop foreclosures that included principal forgiveness. Payment forgiveness allows the principal balance to be reduced by the lending institution to adjust the balance closer to the actual value of the property. Investors who own the loans on these properties are going alone with this modification but the servicers of the loans have been fighting against the process of principal forgiveness.

The FDIC or Federal Deposit Insurance Corporation is looking at payment forbearance as a solution. Payment forbearance is a short term solution of six months that would allow homeowners who are unemployed but who were making payments as agreed up until the unemployment.

Another solution is to streamline the loan mortgage process and measures are in place to make this happen in the near future.

The administration would like to extend the buyer tax credit beyond November 30th however this measure has opposition and remains to be seen if law makers will extend the credit.

It would appear that lawmakers, lenders and investors have come to working arrangements to stabilize the mortgage crisis across the country in regards to foreclosure it remains to be seen if those measure will reduce the foreclosure rate from reaching twenty five million within the next two years.

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