Surging Foreclosures Negate Mortgage Industry’s Success Claims

June 17th, 2008 | Tags: Mortgage

The claims of the mortgage industry of succeeding in reining in foreclosures have been negated by surging foreclosure in May. The numbers had jumped by about 50% from what they were during the same time in 2007. There were 261,255 foreclosure postings – a jump of 48% from 176,137 in May of 2007 and 7% from April this year.

The figures have led to mounting criticism of the government orchestrated remedial policies having no effect on the surging tide of foreclosures. The Bush administration’s poster child of help, Hope Now, is hopelessly floundering in the wake of this tidal wave of foreclosures. John Dugan the Comptroller of Currency said that the federal agency, after making its own survey, found the performance of Hope Now unsatisfactory and limited. It is clear that voluntary efforts will not suffice in rectifying matters. Allen Fishbein, of Consumer Federation of America felt that “Government intervention is going to be necessary.”

Mark Zandi is the chief economist of Moody’s Economy and also advisor to John McCain. He also admitted in his writings that the efforts of the present administration to expedite loan modifications to delay foreclosures have been “completely overwhelmed”. Credit Suisse adds to the alarm by apprehending that during the forthcoming five years 6.5 million loans will be foreclosed upon. This will engulf 8% of all the houses in the country. A government survey noted that of the mortgages sanctioned by 9 big banks (including Citigroup and Bank of America) the number of foreclosures had climbed to 1.23% of in March this year from 0.9% in December 2007.

A torrent of such reports puts pressure on the government to intervene. The lawmakers have a special role to play in guaranteeing $300 billion new loans so that borrowers can refinance and avail of cheaper prime mortgages with fixed rates. So far the focus of activity has been on temporary relief rather than on permanent solutions. This has just postponed matters and not gone to the root of the problem. Barney Frank (D-Mass) felt “much more aggressive action is needed.”

The toxic cocktail of weak real estate market, tumbling house values, tight mortgage lending practices and a slow economy have left little alternatives for the ordinary borrower but to succumb to foreclosures. To mire the mess, the mortgage rates have been rising despite platitudes by the Federal Reserve. The rate of 30-year prime mortgage has gone up from 6.09% to 6.32%.