Home Foreclosures Expected to Surge in Coming Months

2009 July 6

Moratoriums from banks, government to expire, setting off new wave of default actions

July 6 2009 - Just as the nation’s housing market has begun showing signs of stabilizing, another wave of foreclosures is poised to strike, possibly as early as this summer, inflicting new punishment on families, communities and the still-troubled national economy.

Amid rising unemployment and falling home prices, mortgage loan defaults have surged to record levels this year. Until recently, many banks have put off launching foreclosure action on many troubled properties, in part because they had signed up for the home-stability plan from President Barack Obama’s administration, which required them to consider the alternative of modifying loans to make it easier for borrowers to make payments.

But with many government and self-imposed foreclosure moratoriums expiring, the biggest lenders indicate they are likely to move more aggressively to clear a backlog of troubled mortgages.

Home sales have been steadying nationally, thanks largely to an abundance of cheap foreclosed properties, government incentives and record low mortgage rates. Housing construction starts have flattened out, helping to bring supply into balance with demand. The rate of housing price declines has slowed as well, even turning up again in some communities.

But rising foreclosures will depress home values, pushing more homeowners underwater. Mark Zandi of Moody’s Economy.com estimates that 15.4 million homeowners, about one in five of those with first mortgages, owe more on their homes than they are worth.

Also, consumer confidence is already exceedingly low — and another jolt to the housing market could further crimp spending, which has been pummeled by the deep recession and persistent weakness in the job market. The latest unemployment rate, for June, rose to 9.5 percent, and many analysts predict that it will keep rising until the middle of next year.

The rapid pace of layoffs is of particular concern. Employers shed nearly a half-million payrolls in June. Homeowners who have lost jobs have little chance of getting their mortgages modified. That puts many homeowners on a collision course with banks that are preparing to take a more aggressive stance on loan modifications.

Home foreclosures expected to surge in coming months

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