Foreclosure crisis worsening; 1.5 million notices in 2009
Thursday, July 16, 2009 at 7:32 am
There’s more proof out today that the foreclosure crisis is only getting worse, despite everything that’s been thrown at it so far: Foreclosure notices reached a new record high during the first half of this year, Bloomberg reports.
Citing data from RealtyTrac, an online foreclosure database, Bloomberg said the rising number of notices shows how job losses and falling property values are making the housing crisis even more severe.
More than 1.5 million properties received a default or auction notice or were seized by banks in the six months through June, the Irvine, California-based seller of default data said today in a statement. That’s a 15 percent increase from the year earlier. One in 84 U.S. households received a filing.
“People are losing their jobs, seeing their income go down and are underwater on their mortgage,” Richard Green, director of the Lusk Center for Real Estate at the University of Southern California in Los Angeles, said in an interview. “It’s a toxic combination.”
Stemming the tide of foreclosures is a critical component to stabilizing the housing market, so it is imperative that the lending industry and the government work in tandem to find new approaches to address this issue.
The Wall Street Journal, in the meantime, takes a look at servicers trying to do loan modifications, and offers a glimpse into why so few loans are getting reworked. The story profiles the troubles of Morgan Stanley’s mortgage loan servicing firm, Saxon Mortgage Services Inc., which has been slower than most servicers to get loan modifications off the ground.
Part of the problem at Saxon is that it didn’t ramp up its ability to modify loans as early as other servicing companies. A spokeswoman for Saxon says that when Morgan Stanley purchased the company in 2006, it lacked enough employees and systems to undertake massive numbers of modifications. It wasn’t until the spring of 2007 — after its portfolio of subprime loans had already started to sour — that Saxon began to focus on modifying loans. Not until the fourth quarter of 2008 did Saxon boost its capacity to handle a large flood of requests.
All this takes its toll, not just by increasing foreclosures but by adding to the woes of already troubled borrowers. The story profiles Steve Applegate, owner of a Lake Mary, Fla., building-supplies business. Hurt by the construction downturn, Mr. Applegate last fall asked Saxon to modify his $750,000 home loan.
Mr. Applegate, a 60-year-old father of two, says he was told in January that he’d been approved for a rate cut to 2.08% from 6.5%, which would cut his $4,063 monthly payment by more than half. But the confirming paperwork from Saxon never arrived, he says, and in March, he was notified he was in default. When he phoned Saxon, a different loan negotiator recommended foreclosure.
He tried to resuscitate the earlier modification. At one point in April, he spent nearly two hours on the phone with Saxon, got disconnected twice, and was routed to four individuals, according to a recording of the call.
In May, Mr. Applegate was informed by Saxon that he had approval under HAMP for a modification starting June 1.
The good news didn’t last. When he tried to make a second payment on the modified loan, he was told he hadn’t qualified after all. When the Journal asked what happened, a Saxon spokeswoman said that the company had erred in sending him paperwork for a HAMP modification because his outstanding loan balance exceeded the program’s limit of $729,750.
Earlier this month, Saxon said it would modify his loan outside the federal program. Mr. Applegate is still waiting.
If you want to know why foreclosures seem unstoppable, there’s one reason. And the more foreclosures there are, the more dramatic the domino effect. Foreclosures drive down home values for everyone else, forcing more people into negative equity situations, which can lead them to quit paying on their loans, which means more foreclosures. And the cycle repeats itself.
Foreclosures that are delayed don’t just go away; they resurface eventually. Borrowers like Steve Applegate sit in limbo, hoping to avoid a foreclosure that may be inevitable. How many more loans are in the pipeline, just like his? How much longer will the lending industry and Washington wait before heading this off? Time is not on their side, and each month that brings fresh evidence of record high foreclosures only proves that point.