Foreclosures to Peak…in 2011

That assessment from Jay Brinkmann, chief economist for the Mortgage Bankers Association (MBA), noted by Laura here on Friday, came as MBA released a new survey showing mortgage delinquencies reached a record high in the third quarter of this year.

The New York Times reported:

Nearly one in 10 homeowners with mortgages was at least one payment behind in the third quarter, the Mortgage Bankers Association said in its survey. That translates into about five million households. The delinquency figure, and a corresponding rise in the number of those losing their homes to foreclosure, was expected to be bad. Nevertheless, the figures underlined the level of stress on a large segment of the country, a situation that could snuff out the modest recovery in home prices over the last few months and impede any economic rebound.

Unless foreclosure modification efforts begin succeeding on a permanent basis — which many analysts say they think is unlikely — millions more foreclosed homes will come to market.

More ominous yet was this line further down in The Times story:

mortgage bankers expect foreclosures to peak in 2011

In its announcement of the survey, MBA’s Brinkmann said:

Job losses continue to increase and drive up delinquencies and foreclosures because mortgages are paid with paychecks, not percentage point increases in GDP. Over the last year, we have seen the ranks of the unemployed increase by about 5.5 million people, increasing the number of seriously delinquent loans by almost 2 million loans and increasing the rate of new foreclosures from 1.07 percent to 1.42 percent.

The MBA and other bank lobbying groups helped take the teeth out of the Helping Families Save Their Homes Act earlier this year by defeating the so-called “cramdown” provision in the Senate which would have allowed bankruptcy judges to order mortgage restructuring for many struggling homeowners. Bank lobbyists also succeeded in weakening the legislation by making it more difficult to get lenders to agree to mortgage modifications.

So far many who qualify for such modifications just aren’t getting them.

RealtyTrac’s Housing Predictor now has upped their forecast to 10 million foreclosures by
end of 2012:

Housing Predictor forecasts that 10 million homeowners will be foreclosed through 2012 as more mortgage holders are unable to refinance their mortgages because of falling home values or give up at the prospect of holding on to their homes all together.

The increase to 10 million foreclosures represents 2.4 million more homeowners from the 7.6 million forecast in March. These homeowners will have the dream of home ownership taken away. Until lawmakers take more severe action to halt the epidemic it is clear the housing market will not stabilize and the economy will weaken further.

Watching the Center for Responsible Lending’s National Foreclosure Ticker it looks pretty certain that 2009 will set another new record for foreclosures in a year.

According to Bloomberg a housing market recovery has been delayed:

A recovery in U.S. housing will have to wait at least until next year.

The outlook for the home market dimmed this week as residential construction and mortgage applications fell and loan delinquencies reached a record.

“I don’t think the housing crisis is over,” Mark Zandi, chief economist with Moody’s Economy.com, said in a telephone interview. “I think we’re going to see another leg down.”

Reporting on the lag in mortgage fixes, the Center for Responsible Lending says:

Last spring when Congress considered taking stronger measures to stop foreclosures, loan servicers said they could handle the problem themselves—but they’re not delivering.

CRL is urging Congress to act to ensure that current foreclosure-prevention and loan-modification efforts are as effective as possible, and to lift the ban that now prohibits home loan modifications through the courts.

Meanwhile those struggling homeowners who don’t qualify for mortgage fixes now at least have an opportunity to stay in their homes through the expanded Deed for Lease program from Fannie Mae:

Some homeowners facing foreclosure will be able to remain in their property as renters under a new program announced Thursday by Fannie Mae.

The Deed for Lease Program allows qualified homeowners to sign a lease allowing them to remain in their homes in return for agreeing to transfer ownership of the property to the lender. Rent is capped at 31 percent of the homeowner’s gross monthly income.

Leases are signed for 12 months, with the option of renewing on a month-to-month basis afterward. Freddie Mac initiated a similar program in January that allows former homeowners to stay in their homes on a month-to-month basis.

The program is based on the Right-to-Rent proposal(pdf) offered by economist Dean Baker.

Applauding Fannie Mae’s new program as “an important step forward in dealing with the housing crisis”, Baker urged it be offered for a substantially longer period, perhaps five to ten years:

This would give former homeowners real security in their homes. This longer lease period could be made contingent on timely rent payments and proper upkeep and other factors, but families should know that they have the option to remain in their home for a substantial period of time, not just a year.