Delays in processing foreclosures are masking the true problem. James J. Saccacio, chief executive officer of RealtyTrac, said
foreclosure prevention programs, legislation and other processing delays are in effect capping monthly foreclosure activity -- albeit at a historically high level that will likely continue for an extended period.
In February, 308,524 homes received foreclosure filings, 2% less than in January but still 6% more than last year. Although this is the 12th month in a row that foreclosures have been over 300,000 a month, the trend is in the right direction.
However, it is really impossible to know what the true trend is since foreclosures are not being processed in a timely manner. The only true way to know what the rate of homeowners going into default is to measure the foreclosure pipeline. This is a difficult process, and not everyone agrees on the numbers given.
What It Means to You
Foreclosures add to housing's "shadow inventory." These are homes that are in the pipeline and will end up at auction in a year or so. This will keep housing prices down for another year or two.
Fannie Mae and Freddie Mac are working with the Treasury Department's MakingHomeAffordable. This grew out of the HOPE NOW program to offer a streamlined loan modification process.
Even borrowers who are "upside down" in their mortgage can apply, as Fannie Mae will refinance loans up to 105% of a home's value. Existing mortgages can also be modified by reducing interest rates or lengthening the payment time frame to bring monthly payments down to 31% of the borrower's income. To find out if you are eligible, go to Making Home Affordable"
Related Articles
- Understanding the Foreclosure Process
- Treasury Expands MakingHomeAffordable
- Shadow Inventory Means Home Prices Are Staying Flat
(Credit: Justin Sullivan/Getty Images)
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Comments
Kimberly,
It’s unbelievable that Fannie Mae is financing houses up to 105 percent of their value. Isn’t that what got us into the recession we’re in — putting people into homes they couldn’t afford?
Norm
Hi Norm,
This is only for people who qualify for the Making Home Affordable program to prevent them from going into foreclosure.
What got us into this trouble in the first place was the unregulated use of derivatives, such as credit default swaps and mortgage backed securities that had subprime mortgages in them.
See Role of Derivatives in Creating Mortgage Crisis.
Kimberly
Kimberly,
I agree that the lack of regulation of the derivative market allowed derivatives to be created that combined good mortgages with subprime mortgages. And, the rating agencies didn’t rate them correctly because the details were hidden from them.
But the subprime mortgages were created because congress and Fannie Mae and Freddie Mac made rules that allowed people to buy houses even though they couldn’t make the payments. If those subprime mortgages had not been issued, the derivatives wouldn’t have caused a problem. That’s why I think the original cause of the recession was that people bought houses that couldn’t afford the payments.
Norm
Hi Norm,
That’s a popular misconception. However, Fannie was created in 1938 and Freddie in 1970. The mortgage crisis didn’t occur until 2006, so that tells you right there that they couldn’t have been the only causes.
The true cause was the role of derivatives in spreading the small percentage of risky mortgages – interest-only and negative amortization loans – throughout mutual funds in mortgage-backed securities.
The misconception occurs because a portion of Fannie’s mortgages must serve low and moderate income areas.
When times were good, Fannie and Freddie guaranteed 50% of all mortgages, most of which were moderate and high income families.
Kimberly