There is a new foreclosure filing every 13 seconds in America

According to an article in Reuters this morning, every 13 seconds in America, there is another foreclosure filing.

This is a problem that is slowing our economic recovery as it destroys hundreds of billions of dollars in property values a year.

Currently, there are more than 6,600 home foreclosure filings per day, according to the Center for Responsible Lending, a nonpartisan watchdog group based in Durham, North Carolina. With nearly two million already this year, the flood of foreclosures shows no sign of abating any time soon.  Another home is foreclosed on every 13 seconds in the United States.

As unemployment numbers remain high, the country's worst housing downturn since record-keeping began in the late 19th century may only get worse. Foreclosures, which started with subprime borrowers, have now moved on to the much bigger prime loan market on the back of mounting unemployment and declining home values.

A September report by a foreclosure task force appointed by Florida's Supreme Court pointed to a shift in the root cause of foreclosures: "People are no longer defaulting simply because of a change in the payment structure of their loan. They are defaulting because of lost jobs or reduced hours or pay."

Florida had the nation's highest rate of homes -- 23 percent -- that were either in foreclosure or delinquent on mortgage payments in the second quarter, and the report said "the latest news for Florida is horrifying."

A recent pickup in sales and home prices in some regions has been heralded as a sign that the crisis in residential real estate may be close to bottoming out, after the steepest price decline since at least 1890.  However, there are still many economists who predict at least another 10% - 25% decline in property values in the next few years.

Almost half of recent home sales have been attributed to foreclosures or "short sales" at bargain-basement prices.

Even as the U.S. economy seems to be recovering from its worst recession since the Great Depression, mortgage delinquencies continue to rise. And that adds risk to any relatively upbeat assessment, since foreclosures depress the value of nearby properties while eroding the net worth of homeowners and the tax base for communities nationwide.

The Center for Responsible Lending says foreclosures are on track to wipe out $502 billion in property values this year.

That spillover effect from foreclosures is one reason why Celia Chen of Moody's Economy.com says nationwide home prices won't regain the peak levels they reached in 2006 until 2020.

In states hardest-hit by the housing bust, like Florida and California, the rebound will take until 2030, Chen predicted.

"The default rates, the delinquency rates, are still rising," Chen told Reuters. "Rising joblessness combined with a large degree of negative equity are going to cause foreclosures to increase," she added.

Anyone doubting that the recovery in U.S. real estate prices will be long and hard should take a look at Japan, Chen said. Prices there are still off about 50 percent from the peak they hit 15 years ago.

Jay Brinkmann, chief economist with the Mortgage Bankers Association, said foreclosures are expected to peak in the second half of 2010. But that forecast is based on a projection that unemployment will begin falling after topping out "barely in double digits by the middle of next year."

Since the start of the recession, the number of unemployed people has soared 7.6 million to 15.1 million.

Loan Modifications versus the Megabanks

Mortgage modifications, the centerpiece of a plan unveiled by the Obama administration in March to help as many as 9 million struggling borrowers hold onto their homes, have gotten off to a sluggish start.

According to a report released this morning on Washington Post,  banks and loan services stepped up efforts to help distressed homeowners in the second quarter, more than tripling the loan modifications that reduced principal.  In fact, the foreclosure prevention program (Making Home Affordable)has reached its goal of helping a half million people by November 1, three weeks early.  The administration has pronounced that the goal has been reached. 

The goal is for this program to help up to 4 million people by the end of 2012.

"We're very pleased to have reached this goal of half a million borrowers almost a full month ahead of target, but we obviously have a lot more to do," Shaun Donovan, secretary of the Department of Housing and Urban Development.

Senior industry executives are meeting with Treasury officials to discuss progress on the program Thursday afternoon. The Treasury Department will also issue its monthly report card ranking lenders' performance on the program.

Some lenders are already trumpeting their progress. Wells Fargo said it had nearly doubled the number of modifications it started last month to 62,989. "To help Americans coping with this tough economy, we continue to work hard at keeping people in their homes," Mike Heid, co-president of Wells Fargo Home Mortgage, said in a statement. Using the government and other loan modification programs "there is still much work ahead to preserve homeownership and to further reduce the number of foreclosed properties on the market."

Bank of America said it had helped 95,000 borrowers under the program so far, and was on track to help 125,000 by November. "We feel really good about the momentum," said Steve Bailey, Bank of America's home retention strategies and policy executive.

"This trend represents a significant shift from earlier quarters, when the vast majority of loan modifications either did not change monthly payments or increased them," it said.

Only a relatively small number of homeowners have seen financial relief from so-called "loan workouts" so far, however, and government officials acknowledge that far more is needed to reverse the national tide of foreclosures.

While we are seeing some home owners finally receiving some assistance from banks, this assistance is not happening nearly fast enough, and it is still unknown how many of those who have been assisted might still lose their homes later on to foreclosure.  We need to see lenders writing down principal balances to prevent "strategic" walk outs, and to encourage those who are struggling to want to keep their homes. 

There is no question that some modifications are being done, but what is required now is some scrutiny of the actual terms of the modifications.