Record Hit With Mortgage Foreclosures Since Prevention Program Falters

An all time high was hit by mortgage foreclosures in the first quarter 2010. Meanwhile, the federal foreclosure prevention program appears to be losing momentum. The inventory of homes in foreclosure rose to 4.63 percent from 4.58 percent in the fourth quarter, the Mortgage Bankers Association said Wednesday. The combined share of foreclosures and mortgage delinquencies was 14 percent, or about one in every 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.

Article Source: Mortgage foreclosures hit record as prevention program falters

Blaming the unemployment rate in the US

The unemployment rate is a huge cause for the mortgage foreclosure statistic being so high. Job losses make it hard for anyone to pay monthly bills without online cash loans. Jay Brinkmann of the Mortgage Bankers Association told Bloomberg that U.S. unemployment in the second half of 2009 — when people now in foreclosure would have first fallen behind on their payments — reached the highest level since 1983, according to 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 three months of 2009. Brinkmann said the states with the highest unemployment rates — Ohio, Illinois and Michigan — have the biggest mortgage foreclosure increases.

The foreclosure prevention program is failing miserably

The surge in the mortgage default rate leads some to believe that the Obama administration’s foreclosure prevention program, the Home Affordable Modification Program (HAMP) is failing to work like it is supposed to. The Treasury department announced that enrolled in the program are around 1.2 million homeowners. About a 25 percent success rate shows that more than 299,000 homeowners had received permanent loan modifications. About 277,000 homeowners, or 23 percent of those enrolled, have dropped out during a trial phase that lasts at least three months.

Methods of the Mortgage modification program

Since the $ 75 billion HAMP program was announced in March 2009, federal officials have chastised lenders for not doing more to help borrowers. By reducing interest, lengthening terms, and deferring principal payments, HAMP lowers mortgage payments to a third of borrowers’ income. The Atlantic reports that servicers are using term extension more than any of the other methods. HAMP’s April reports said that 53.4 percent of loans have increased terms. They only used principal reduction on 28.6 percent of the mortgage modifications.

Mortgage modification program flaws

As 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 in the plague of sub-prime loans. Rather than using verified income, mortgage services have relied on stated income. After verifying income, it’s discovered the borrower isn’t even eligible for the foreclosure prevention program. Many services can’t complete the transactions which is another reason why some drop out of the HAMP program. New HAMP rules that take effect June 1 require all borrowers going into a trial modification that has to be approved based on only verified income.

Find more information 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