Lisa Simpson
Feb 19,2010
In: Foreclosures

2009 – A Year Dominated by Foreclosures

2009 – A year dominated by foreclosures.

Despite wide support given by the government to the housing sector the previous year of 2009 can be said to have been a year dominated by foreclosures. This is clearly indicated in the data provided by the National Association of Realtors. The median price of single family units continued to tumble through the year. According to RealtyTrac foreclosure filings went up by 15% in January in comparison to January 2009.

The foreclosure process is generally a lengthy one involving many filings as the borrowers continue to lag behind in mortgage payments. What is most alarming about the data collected by RealtyTrac is that about 88,000 houses were taken over by the banks last January. It showed a 31% spike from one year previously. This high jump points to the fact that many of those foreclosures that were being processed in 2009 are now shifting to the repossession stage and eventually these would be auctioned. About 4 million homes are in the queue and there are no signs that foreclosures are declining.

Peter Goodman of The Times reported that the anti-foreclosure plan (that pays cash as carrots to the mortgage firms who lower the monthly payments for the defaulting borrowers) could be more harmful than beneficial for many of the borrowers.

Prior to the permanent modification of a loan, as per this plan, the qualified borrowers would have to undergo a trial period for some months. During the trial period the borrower would have to be current on monthly payments. For some even this reduced payment has been a heavy load. Sometimes foreclosures do not spare them although they have been current during the trial time. The money spent during this time could have been better utilized to shift to a rented quarter or for something else.

There is a growing agreement among many financial pundits that the key to the solution is to reduce the principal amount of the mortgage balance rather than only bringing down the monthly dues. The target should be to lower the payment simultaneously with the equity. This would prove to be an incentive to the borrowers to keep running on the mortgage dues.

But the government officials have not taken this line of approach because of the expenses they fear. The lenders too are being obstacles – unwilling to take losses unless those who hold the second mortgage also agree to a loss. The banks hold the second mortgages and for them the amount would be staggering – something they would definitely not agree to.