New round of foreclosures delivers blow to recovery
Foreclosures hit new highs in April and more are expected in months ahead.
A second wave of home foreclosures is sweeping the nation, but this time the blame lies with the recession and "liar's loans" to people who had no proof of income and not with the infamous subprime mortgages that first triggered a full-scale housing crisis.Skip to next paragraph
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In fact, it's hard to pinpoint any single reason for the second wave. Just name a recent economic development – credit-card company crackdowns, the challenge of paying off large student loans, rising joblessness – and it's another contributor to a foreclosure, say some housing analysts. Moreover, foreclosure moratoria, which some states enacted late last year, have been lifted, sending a fresh gush of foreclosure proceedings into the pipeline.
“The sky is falling,” says John Taylor, president and CEO of the National Community Reinvestment Coalition, a Washington-based group that has tried to make housing affordable. “We all wanted things to get better, but it looks like foreclosures are going to worsen.”
A 'serious weight' on the economy
The new rise in foreclosures is likely to have some large-scale implications. As banks take over properties, they will probably put them on the market, adding to the downward pressure on home prices and further destabilizing the industry. Banks themselves could see another period of losses if foreclosures continue at these rates. And any further problems at the banks could spill over to the economy at large.
The latest evidence that foreclosures are becoming a larger problem came Wednesday when RealtyTrac, which compiles foreclosure data, reported that last month 342,000 households received at least one foreclosure-related notice. That’s up 32 percent compared with notices issued last April and marks the second consecutive month when at least 300,000 households got a foreclosure filing.
With moratorim ended, filings resumed in spades
In California's case, some of the surge is related to a foreclosure moratorium the state enacted last September but ended earlier this year.
“In many instances it was required that lenders meet certain borrower notification [criteria] before they could file,” says Andrew LePage, a spokesman for DataQuick, real estate information company in LaJolla, Calif.
And file they did. Lenders filed 135,431 default notices, a record number, in the first quarter, according to DataQuick. That was up 80 percent from the fourth quarter of 2008 and 19 percent higher than a year ago.
A confusing time for homeowners in default
Some lenders may have also wanted to wait to see how President Obama’s $75 billion mortgage help program, called Making Home Affordable, works. “Some of them may have been holding off to see what the government was going to do,” says Mr. LePage. On Thursday, Treasury Secretary Timothy Geithner and Housing and Urban Development Secretary Shaun Donovan planned to hold a briefing on what they termed "the swift implementation" of the program.