Why Foreclosure Homes Still Abound

Despite the claim by two federal agencies that more than 185,000 home loans were modified in the first quarter of this year and that more than 50 percent of the modified loans resulted in lower monthly payments, the number of foreclosure homes in many areas of the country is still increasing.

While foreclosures slowed down in some areas, the number of foreclosure homes in areas not immediately affected by the foreclosure crisis has been rising.

Besides, more foreclosure homes are expected to enter the market when adjustable-rate mortgage loans readjust to their higher rates.

In addition, many homeowners and housing counselors have been complaining that their requests for loan modifications and other foreclosure prevention options are being ignored by the lenders despite various mediation efforts launched by state governments and despite the expansion of the Obama administration’s foreclosure prevention program.

Analysts point to several factors why foreclosure homes still abound.

The first factor is the continued rise of the joblessness rate. Jay Brinkmann, economist of the Mortgage Bankers Association, said that the monthly home loan payment is the first thing sacrificed when a worker gets unemployed. He also said that even a worker who is still employed but fearful of getting laid off starts saving his salary rather than making his monthly loan payments.

With the joblessness rate expected to reach 11 percent in the coming months, foreclosures are expected to further rise.

Another factor is the home price level. While home buyers are waiting for further decline in home prices, sellers are waiting for a rise in home prices so that they can sell their homes and prevent foreclosure. Economists say that the ideal state of the housing market is when the buyer and the seller can meet at a price level fair to both parties.

The third factor is the lack of home credit. Prospective home buyers who can help reduce the number of foreclosure homes in the market cannot make their home purchases because of lack of credit. Either the banks are too strict with their requirements or they have no funds to lend.

Another factor is low appraisal, which is partly caused by the implementation of the new appraisal code. Home buyers and sellers complain that the appraisals are too low, hindering buyers from pursuing their planned home purchases because they lack funds to close the gap between the home price and the loan value.

Lastly, one of the big factors for the continued increase in foreclosure homes is the reluctance of lenders to agree to short sales, which can prevent foreclosures.

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