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Us Treasury: Millions More Foreclosures Coming

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From Teasury: Assistant Secretary for Financial Institutions Michael S. Barr Written Testimony on Stabilizing the Housing Market before the House Financial Services Committee, Subcommittee on Housing and Community Opportunity

... I want to highlight some key points of success:

We have signed contracts with over 45 servicers, including the five largest. Between loans covered by these servicers and loans owned or guaranteed by the GSEs, more than 85 percent of all mortgage loans in the country are now covered by the program.

Over 570,000 trial modifications have been offered under the program. Over 360,000 trial modifications are underway.


[W]e recognize that any modification program seeking to avoid preventable foreclosures has limits, HAMP included. Even before the current crisis, when home prices were climbing, there were still many hundreds of thousands of foreclosures. Therefore, even if HAMP is a total success, we should still expect millions of foreclosures, as President Obama noted when he launched the program in February.

Some of these foreclosures will result from borrowers who, as investors, do not qualify for the program. Others will occur because borrowers do not respond to our outreach. Still others will be the product of borrowers who bought homes well beyond what they could afford and so would be unable to make the monthly payment even on a modified loan.

Pictures of atom bombs go here.

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EW YORK (CNNMoney.com) -- The foreclosure crisis grinds on amid signs of hope.

A report released Thursday shows that substantially fewer people had their homes repossessed in August.

Unfortunately, a large number of Americans are still falling behind on their payments.

A total of 76,134 troubled borrowers lost their homes in August, but that is 12.7% fewer than in July, according to RealtyTrac, an online marketer of foreclosed properties.

The pipeline of troubled borrowers remains full, however. Filings of all kinds dropped only slightly, just 0.5%, from July.

According to RealtyTrac spokesman Rick Sharga, there are a couple of possible explanations for the decline in bank repossessions, called REOs in the industry.

"It could be that the government-led mortgage modification programs are finally gaining some traction," he said. "But it could also be that the banks are still delaying repossessions of these properties."

Because banks take big losses on REOs, they may leave delinquent borrowers in their homes, especially where lenders already have a substantial amount of vacant, unsold inventory. Presumably, the borrowers are caring for the properties, which saves banks the time and expense of upkeep and maintenance.

Plus, there is always hope that some of these borrowers will "self-cure" -- or catch up on their loans without assistance -- which is better for banks' bottom lines. In fact, a recent report from the Boston branch of the Federal Reserve found that 30% of borrowers who have missed two mortgage payments eventually become current.

Increases in short sales could also be reducing the repossession statistics, according to Duane LeGate, president of HBN Interactive, a short-sale specialist. These are transactions in which lenders allow borrowers to sell their homes for less than what they owe.

"A lot of banks are delaying the foreclosure process if they see any kind of chance of making a reasonable short sale," he said.

The reprieve in repossessions could be coming to an end, however. Sharga expects a spate of payment problems to start this fall as interest rates reset on some of the exotic mortgage products that proliferated during the boom. Option ARMs (adjustable rate mortgages) in particular will be a big problem.

A Fitch Ratings report released last week forecast that of the $200 billion in option ARMs outstanding, $29 billion will reset to fully amortizing loans by year's end, and another $67 billion will recast in 2010. The average payment increase will be 63%, or $1,053 a month -- an impossible hurdle for many borrowers.

These loans are named for the options they give borrowers. They can pay at a minimum rate, which does not even cover interest; at an interest-only rate; at a fully amortizing 15-year rate; or at a fully amortizing 30- or 40-year rate.

More than 60% of all option ARM borrowers, and more than 80% of all option ARMs issued in 2006 and 2007, often pay just the minimum amount, according to First American LoanPerformance.

That means the principal balances of these loans actually grow. And when they get too large, somewhere between 110% and 125% of the original loan amount, the lender will convert the loan into a fully amortizing mortgage. That usually results in payment shock, a huge jump in monthly mortgage costs.

"We're in the soup for at least another year," Sharga said.

That could mean a third dismal year of foreclosures. So far this year 540,222 homes have been lost to repossession, which is on par with the first eight months of 2008.

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Thought it was worth linking this to this old article from Moneyweek as a reminder

Why US House Prices Will Keep Crashing

Read or re-read the whole article that ends by saying:

........But why else should Britons worry about imploding US home prices?

Firstly because whatever our politicians are telling us, many banks won't want, or even be able, to lend very much while the losses on their dodgy US dabblings keep growing.

And secondly because what happens in US housing is a good guide to our own property market. The US crash started a good 12-18 months before ours, yet it's continuing. There are more than enough domestic reasons why British property prices will keep dropping, as we've pointed out several times recently: Longer dole queues are bad news for house prices. But while the housing market keeps imploding on the other side of the Atlantic, there's even less chance of a turnaround over here.

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thats the trouble with non recourse.

Americans, may love their homes. they may lose their jobs and some income..they may get government aid with their mortgages.

who knows what terms are being offered....2% IO? 2% 50 year terms? who knows.

some Americans will look at rental as a cheaper option, and walk. many have.

and when they do...the MORTGAGE is STILL a loss and a weight on the lender. it doesnt go away just because it was defaulted.

Its the same in the UK. they may have bailed 300,000 mortgage holders out, but this is costing...and if some (many) cant recover their income in 2 years....the mortgage is STILL THERE, with interest rolled up, with taxpayers still needing to pay back the loan used to finance the homeowner so rescued. and their are fewer taxpayers.

I think this is a debt spiral that will come back to hit in 2011.

Edited by Bloo Loo

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