U.S. Housing Market Still in a Long Path to Recovery As Mortgage Failures Climbs to a Record
Although analysts expect an improvement on the economy soon, the mortgage crisis is delaying our economic recovery as more homeowners lag behind their payments. But the large number of homeowners who are in default or in danger of foreclosure will have a lasting effect on the wider economy. Last Wednesday, the Mortgage Bankers Association said that more than 10 percent of homeowners with a mortgage failed to pay in the period of January to March. That’s up from 9.1 percent a year ago and it’s a record high. They stated that what caused the increase is the large number of borrowers who missed three months of mortgage payments. As of March, almost 3.5 percent of borrowers had missed one month of mortgage payments so it’s a down from about 3.8 percent a year earlier which is an encouraging sign because it shows that the amount of homeowners just beginning to show trouble is trending downward. The trade group’s top economist stated that around 4.3 million homeowners or about 8 percent of all Americans who has a mortgage are at the risk of losing their homes. They are either in foreclosure or have missed 3 months of payments. Their home will go up for sale either as a short sale or foreclosure if the loan modification programs fail to help. A short sale is when the bank agrees to sell the property for less than the original mortgage amount.
A large number of analysts have been predicting that home prices will go down again as more of these homes go up for sale at unbelievable discounted prices. Mark Zandi, chief economist at Moody’s Analytics, predicted that home prices will go down about 5 percent and hit the bottom next spring. He said that it’s certainly a weight in the economy and nothing will work all that well in the economy when house prices are falling. The Mortgage Bankers Association also said in a separate report Wednesday that federal tax credits improved home sales this spring but they expired last month so as a result, mortgage applications to purchase homes also fell to the lowest level in 13 years this week. The latest foreclosure figures from the trade group are adjusted for seasonal factors. Take for example the holiday expenses and heating bills, they tend to push mortgage delinquencies up near the end of the year but many of those borrowers become current on their loans by spring again. The delinquency numbers dropped as they normally do from the winter to spring, without the adjusting for seasonal factors.
Also a record is the more than 4.6 percent of homeowners who are in foreclosure. But that number was up only slightly from the end of last year because it is not adjusted for seasonal factors. The trade group’s economist, Jay Brinkmann said the foreclosure crisis appears to have stabilized. He also added that seasonal adjustments may only be exaggerating the change from the previous quarter.
The Obama administration’s foreclosure prevention program which is worth $75 billion has barely touched the problem. About 25 percent of the 1.2 million homeowners who started the program over the past year had received permanent loan modifications as of last month while about 23 percent of those enrolled dropped out during a trial phase that lasts at least three months. A lot more are in a state of uncertainty. Economic woes such as reduced income or unemployment are the main agitators for foreclosures this year. Lax lending standards were initially the culprit. But homeowners with good credit who took out conventional, fixed-rate loans are now the fastest growing group of foreclosures. Those borrowers comprised of nearly 37 percent of new foreclosures in the first quarter of the year is up from 29 percent a year earlier. The uncertain subprime adjustable-rate loan that started off the foreclosure crisis are making up a smaller share of new foreclosures. Down from 27 percent earlier, it made up 14 percent of new foreclosures in the January to March period.
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