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June 10, 2009
Foreclosures and job losses continue to dominate headlines nationwide. During the first quarter of 2009, the percentage of borrowers behind on their mortgage, or in foreclosure, doubled from a year earlier, to nearly 6%. Homeowners with outstanding credit are falling behind on their mortgage payments at an alarming rate. Defaults in this sector have doubled in the past year, according to the Mortgage Bankers Association.
342,000 U.S. properties went into foreclosure in April. 96,500 of those filings were in California, according to RealtyTrac, a Web-based company that compiles data for most U.S. counties. USA Today reports that more than 600,000 senior citizens are delinquent on their mortgage payments or already in foreclosure. A recent report from AARP showed that older Americans, with subprime first mortgages, are nearly 17 times more likely to be in foreclosure than Americans of the same age with prime loans.
Subprime lending has been the major reason for large numbers of foreclosures homes in Atlanta neighborhoods, according to a study of foreclosures and mortgage lending in 13 counties in Georgia by The Atlanta Journal-Constitution.
AJC found that the prevalence of subprime loans indicated which neighborhoods in Atlanta had the biggest number of foreclosures homes. In 100 communities studied, at least one in ten mortgage loans defaulted last year. In communities with the highest number of foreclosures homes, 50 percent of recent mortgage loans were subprime loans.
AJC studied other possible reasons for foreclosures and probable predictors of foreclosure patterns, such as home value, race and income, but the subprime lending factor overwhelmed the other factors.
Whereas the foreclosure crisis began with the collapse of the mortgage market, it has been exacerbated this year by the increase in unemployment. In a recent report, researchers at the Federal Reserve Bank of Boston argued that unemployment is driving foreclosures. They recommended that anti-foreclosure policy should focus on helping unemployed homeowners.
On May 20 Obama signed a “Hope for Homeowners” bill to make it easier for people to qualify for a program featuring government-insured mortgages. The administration said that only 55,000 homeowners were enrolled in the program as of May. Treasury Secretary Timothy F. Geithner told a Senate panel Tuesday that he won't know for several months whether the program will be successful.
"I don't think we're going to know until probably early fall whether we've got the incentives right and whether they're going to prove powerful enough," Mr. Geithner said while testifying before the Senate Appropriations financial services and general government subcommittee.
Geithner said that though the decline in home prices has slowed, "realistically, I think, you're going to still see a very challenging period ahead for many homeowners."
"Many more Americans are still at risk of losing their homes, and that's why we just want these programs to work," he said.
Senator Richard Durbin (D-IL) said, "It is my feeling that the previous administration, and so far this administration, has failed to come up with an approach which could dramatically turn around this increasing number of mortgage foreclosures.”
Last month, Republicans and conservative Democrats defeated a proposal by Durbin that would have given judges the power to lower mortgage payments for people declaring bankruptcy. President Barack Obama had once promised to help push the measure through Congress but backed off after banks warned that it would devastate the industry.
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