Homes in Foreclosure to Increase, Fannie Mae CEO Says

The number of distressed homes in foreclosure will continue to rise this year partly because of the inability of many homeowners to get qualified for loan modifications and refinancing under the federal program, according to Fannie Mae CEO Michael Williams.

Williams added that many borrowers owe much more than the value of their homes and have already left their homes. Many of them have lost 40 percent of their home equity, making loan refinancing difficult to obtain.

He said that one out of ten homeowners with mortgages is delinquent and one out of 25 homes is in the foreclosure process. He added that the residential loan market is still tight, with government enterprises providing most of the liquidity. Fannie Mae and Freddie Mac have been providing about 70 percent of all new home loans, the Federal Housing Administration have been accounting for around 20 percent and private banks have been providing only 10 percent.

Williams also explained that he expects more homes in foreclosure because more than one million mortgage borrowers are not qualified for the Home Affordable Modification Program. Many residential properties were used to buy second homes through home equity loans. Many home loans also exceeded the conforming loan limit of $729,750.

Additionally, only 20 percent of homeowners who were given loan modification letters have responded, Williams said. The reasons for the lack of response range from job loss to doubts about the viability of the program.

In a foreclosure report released this week by a real estate research firm, nearly 358,500 households were notified with default, foreclosure auctions and lender repossessions in August. While the number marked a decrease from filings in July, housing analysts still expect for increased foreclosures in the coming months.

Fannie Mae and its smaller competitor Freddie Mac, who were rescued by the federal government last year, have been playing big roles in carrying out the Obama administration’s foreclosure prevention programs. They have been providing low-cost home loan refinancings and suspending some loan requirements to help more homeowners.

Since November last year, the two entities have received $95.6 billion in aid from the Treasury Department, which set aside a $400-billion credit line for them. Together, they hold $5.2 trillion in residential loans and have posted $165.3 billion in net losses quarterly since 2007.

Williams, who took over as head of Fannie Mae in April, said the nationwide housing market is showing positive signs, but still has to overcome lots of challenges including the rising number of homes in foreclosure.

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