While slightly fewer homeowners received a foreclosure notice in May compared to April, the historic foreclosure rates were helped by a combination of increased unemployment, delayed government relief, the end of a foreclosure moratorium and increasing mortgage rates. For more on this see the following article by Don Miller from Money Morning.
U.S. banks ended a moratorium on foreclosures in March, resulting in a surge of foreclosure filings in May and propelling the number over 300,000 for an unprecedented third straight month, the latest report from RealtyTrac Inc. said yesterday (Thursday).
The historic numbers highlight the struggles of the U.S. housing industry as it waits for President Barack Obama’s rescue programs to take effect.
“There were almost one million foreclosure filings in a three-month period, and that’s simply unprecedented,” RealityTrac Senior Vice President Rick Sharga told Reuters in an interview.
Even though the latest figure was down 6% from April, it was up 18% from May 2008, and foreclosures may hit a record 1.8 million for the first six months of 2009.
Surging unemployment and falling home prices are hampering the economic recovery as skyrocketing interest rates prevent homeowners from refinancing, selling or moving up into more expensive homes.
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The official unemployment rate climbed to 9.4% in May, the highest since 1983, the Labor Department said last week. Additionally, weakness in the government bond market has ratcheted mortgage rates up a full percentage point from their spring lows to more than 5.5%.
“One of the cures to this problem is enough buying activity to eat up the inventory of distressed properties,” Sharga said. “If mortgage rates go up to where people decide to wait out the market again, that’s just going to add to the inventory numbers and put more downward pricing pressure on all homes.”
The Obama administration introduced a $75 billion housing rescue plan in March giving banks the ability to modify the mortgages of as many as 9 million American homeowners into more affordable monthly payments. It appears it will take more time for those programs to derail the foreclosure pain plaguing the U.S. economy.
“We need to give the administration’s programs a little bit of time to gain traction,” said Sharga. “If unemployment continues to worsen, all bets are off on foreclosure rates.”
Economists see reducing the number of foreclosures as critical to stabilizing the housing market and boosting home prices, consumer confidence and the overall U.S. economy.
A total of 321,480 properties received a default or auction notice or were repossessed last month, RealtyTrac said in a statement. One in 398 U.S. households received a filing last month.
“The foreclosure bucket is filling faster than it’s emptying,” Jay Brinkmann, chief economist of the Washington- based Mortgage Bankers Association, told Bloomberg News. “It will continue through next quarter at least.”
Foreclosures continued to surge partially because banks ended a temporary program freezing foreclosure activity in March, which had prevented many seriously delinquent loans from entering the foreclosure process. Many of those loans are now being subjected to court actions.
That was reflected by more properties entering the initial default and auction stages, as opposed to bank repossessions, which were down to their lowest levels since March 2008, according to RealtyTrac Chief Executive Officer James J. Saccacio.
“Many lenders and servicers are beginning foreclosure proceedings on delinquent loans that had been delayed by legislative and industry moratoria. It’s likely that we’ll see a corresponding spike in REOs as these loans move through the foreclosure process over the next few months,” he said in a statement on the company’s website.
California had the highest total number of filings at 92,249, 23% higher than last year. Florida had the second-highest total with 58,931 filings, up 50% from May 2008. Nevada was third with 17,157 filings, up a whopping 83%.
Arizona, Michigan, Ohio, Illinois, Georgia, Texas and Virginia rounded out the top 10, which accounted for 77% of total U.S. filings, according to RealtyTrac.
This article has been reposted from Money Morning. You can view the article on Money Morning’s investment news website here.