Foreclosure crisis isn't over yet

New figures from the Mortgage Bankers Association show still-high rates of delinquency.

Nearly 1 in 10 of all mortgage loans are "seriously delinquent." That means the nation's foreclosure crisis is far from over. And now that the government's whopping $8,000 tax credit for first-time home buyers (repeat buyers got a $6,500 credit) has passed, demand for housing appears to be drying up, which means home values could further erode. Falling home values, in turn, put more Americans "underwater," increasing pressure to just walk away.

Some observers are calling for more aggressive federal action to prop up a hurting sector that plays such a large role in the economy. Other say that authentic market correction – with prices falling and consumers paying down debt – is the only thing that will restore balance. Both sides say much depends on the unemployment rate.

Reporter Mark Trumbull puts the factors into perspective:

An improving jobs picture is vital to boosting the number of people who have the income and confidence to become home buyers. Two related factors also have an important role in the pace of foreclosures: the stability of home prices, and the ability of banks and at-risk borrowers to work out sustainable loan modifications.

The more home prices fall, the more borrowers go into a negative equity position (with loan balances greater than the value of their home), making default more likely. Loan modifications, meanwhile, can help struggling borrowers avoid default. But many of the modifications don't make deep cuts in the balance due. Perhaps as a result, a high percentage of the modified loans have been going back into default.

That high rate of re-default, coupled with still-high unemployment numbers, appears to be causing a high number of loans to enter the pipeline that may ultimately lead to foreclosure, Mr. Brinkmann said in releasing the numbers Thursday.

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