Posted on: Friday, March 12, 2010

Economic Thaw

By Paul M. J. Suchecki
Tags: foreclosure, Loan Modification, ...
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As winter retreats, signs point to an easing of the foreclosure crisis. According to figures released by RealtyTrac yesterday, foreclosure filings, which include notices of defaults, auctions, and bank repossessions, retreated 2% from January. Bank repos dropped 10% compared to the month before. Default notices increased by 3% compared to January, but they were 25% lower than their April 2009 peak. 

Six states accounted for 62% of the nation’s foreclosures.  In California 68,562 properties got notices while 53,032 were filed in Florida; Michigan 20,028; Illinois, 17,312; Arizona, 16,718; and Texas, 12,638.  Although Nevada led the national foreclosure rate yet again, the state saw a month to month decline of 7%.

RealtyTrac credits the drop to “Foreclosure prevention policies and government legislation [which] are artificially distorting supply and demand equilibrium in the housing market.” RealtyTrac, is in the foreclosed property marketing business.

Bank of America, the nation’s largest mortgage lender, locked in almost 8000 distressed borrowers to the Obama Administration’s Home Affordable Modification Program last month. 20,666 of the bank’s customers now have permanent loan mods up from 12,761 the month before. Another 22,303 permanent modifications are approved and pending, waiting for borrowers’ sign offs.

According to Jack Schakett, loss mitigation strategies executive for Bank of America Home Loans. “We have a strong pipeline of modifications in the trial payment period, under review for conversion to permanent status, and out for final signature.”

The figures are noteworthy because many of Bank of America’s mortgages originated with Countrywide Mortgage which specialized in sub prime or Alt-A home loans for borrowers with less than perfect credit, who weren’t able to get a home loan elsewhere. When Countrywide started showing unsustainable losses in the mortgage meltdown, B of A acquired the home loan giant in 2008. Since the start of the government’s foreclosure prevention program, the Bank of America has lagged behind the norm in converting temporary trial loan modifications to permanent mortgage payment reductions. It’s good to see the mortgage giant catching up.

But can the good economic news be sustained?

• The US Department of Labor reported that first time unemployment claims fell by 6,000 last week to a seasonally adjusted 462,000 the second weekly decline in a row.
• Today the US Commerce Department reported that US retail sale rose 0.3% in February despite a drop in demand for cars and snow storms that hampered store access on the East Coast.

One gloomy note was sounded by Fitch Ratings in a new report, which credits the improvement in the housing market to the low interest rate caused by the Federal Reserve Bank’s purchase of $1.25 trillion in mortgage backed securities and the homebuyer’s tax credit. The $8,000 first-time home buyers’ tax credit and $6,500 credit for current homeowners in a new purchase, have a signed contract deadline of April 30.  The Fed’s purchase of MBS is phasing out at the end of this month. The Fitch report doubts whether home values can be sustained by the market alone without being propped up by the government. The report draws a parallel between the mortgage default rate and decline in home value.