Mortgage foreclosure statistics reached an all-time high in the first quarter of 2010. Meanwhile, the federal foreclosure prevention program appears to be losing momentum. The Mortgage Bankers Association said Wednesday the inventory of homes in foreclosure rose to 4.63 percent from 4.58 percent in the fourth quarter. The foreclosures and mortgage delinquencies was 14 percent, or about one in each seven U.S. mortgages. The mortgage foreclosure statistics are expected to go up quite a bit this year with more than 2 million borrowers losing their homes.
Unemployment rate in US to blame
One reason for the mortgage foreclosure statistics being so high is the unemployment rate. Homeowners have had a hard time paying monthly bills without online cash 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 people who are now in foreclosure would have just first had fallen behind on their payments — reached the highest level since 1983, as outlined by the Bureau of Labor Statistics. The unemployment rate went down to 9.7 percent in the first quarter of this year from 10 percent in the last 3 months of 2009. Brinkmann said the Ohio, Illinois and Michigan, the states with the highest unemployment rates, have the biggest mortgage foreclosure increases.
The foreclosure prevention program is failing miserably
The surge within the mortgage default rate leads some individuals to believe that the Obama administration’s foreclosure prevention program, the Home Affordable Modification Program (HAMP) is failing. The Treasury department announced that enrolled within the program are around 1.2 million homeowners. Of the last month, 25 percent, or 299,000 homeowners received permanent loan modifications, a success rate of 25 percent. About 277,000 homeowners, or 23 percent of those enrolled, have dropped out during a trial phase that lasts at least 3 months.
Methods of the Mortgage modification program
Given that the $ 75 billion HAMP program was announced, federal officials have chastised lenders for not doing more to help borrowers. HAMP lowers mortgage payments to about a third of borrowers’ income by reducing interest, lengthening terms and deferring principal payments. The Atlantic reports that servicers are using term extension a lot more than other methods. HAMP’s April progress report said 53.4 percent of loans have increased terms to lower the payments borrowers owe. Principal reduction is used on just 28.6 percent of mortgage modifications.
Flaws within the mortgage modification program
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 ended up resulting within the plague of sub-prime loans. Mortgage servicers have relied on stated income, rather than verified income, to put borrowers into trial modifications. After one verifies the income, one discovers that more borrowers don’t qualify for the foreclosure program at all. Other borrowers drop out of HAMP because servicers are bungling the paperwork and can’t complete the transaction. New HAMP rules that should be taking affect June 1 require all borrowers going into a trial modification to be approved depending on verified income.
A lot more details on this topic
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
