Despite Loan Modifications, Foreclosures Will Continue To Rise Through 2010

Loan Modifications have been sold as the way out of this credit mortgage crisis. However delinquencies and repossessed homes are breaking records and are at their highest level since 1972, which is when the Mortgage Bankers Association started to keep records.

This is scary, at the beginning of the year 1 in 10 of American loans was past due or going through a foreclosure. Regardless of the efforts to stop this trend the rates just continue to increase. This surge in delinquencies indicates that a recovery in the housing market could be thwarted by the worsening employing rates and the drying up of the easy-money lending coffers.

On a more positive note, we had to find something; the median home prices do seem to be recuperating. Areas like California, which were hardest hit by the crisis, do seem to inching their way up. Some predict a rise of 9% in California by the end of next year. One reader quite rightly commented I must be crazy to report that. I don’t expect such a rise either but that is what some are forecasting based on current trends. Unfortunately it is likely this is just a local anomaly caused by the special circumstances of California that it many cases can be considered an country on its own, it would after all be the fourth economy in the world if it was separated from the U.S.

All other indicators remain very negative, in the third quarter of this year 14.4% of U.S home loans were foreclosing or 30 days past due, that is 1 in 7, a steep rise from the beginning of the year.

Jay Brinkmann, the mortgage group’s chief economist, is reported by the Los Angeles Times to predict delinquencies will continue to rise after unemployment tops, which according to him will occur in the first or second quarter of 2010. The rule book predicts that foreclosures will continue to rise for two quarters after unemployment peaks, but we don’t get drops in housing prices like those we have experienced in the last year every decade so the rule book will probably be useless. In other words expect foreclosures to continue into the fourth quarter of 2010 and beyond.

What is probably the scariest statistic and we have had plenty of them, is that prime loans, the best loans with the lowest interest rates, represent 33% of all foreclosures. Prime loans mean prime clients with good jobs (or former jobs) and good credit scores (i.e. reliable, conservative clients). When the best clients struggle where does that leave the rest?