Will 2010 Be a Better Year For Foreclosures?

No one argues that 2009 has been anything but a terrible year for residential real estate in the United States. Foreclosure proceedings were instituted at the average rate of three hundred thousand per month. The average home value dropped over seven percent, and that’s with record low mortgage interest rates.

Certainly, some areas are harder hit than others are. California, Florida, Nevada and Arizona have been especially hurt due primarily to the fact that the markets were overbuilt and there was substantial speculative purchasing. However, the problem is nationwide.

Will 2010 be a better year? Well, it probably depends on how you define better. Foreclosure filings were the worst in July 2009, and have dropped somewhat since then. However, do you consider a quarter million foreclosure filings, in a single month, to be good news? That it is not as bad as July still does not mean it can be termed good.

In addition, there have been so many legal challenges and government suggested or mandated moratoriums that there is a case that can be made that the foreclosure statistics are coasting, but not really improving.

Another cause for skepticism towards the foreclosure numbers later in 2009, is the federal government loan modification program. Homeowners were offered a three-month trial, during which their loans could not be foreclosed. The goal is to give the borrowers time to work out their problems. This was of course, popular. It also was popular for the banks, since they did not have to declare these loans as questionable on their books.

It remains to be seen if, at the end of the three-month trial period, these loans will have been converted to non-foreclosure status, and if so, for how long. However, the effect the program had on the statistics was dramatic. Just when the program started the monthly foreclosure rate dropped. If these trials don’t convert, and stay converted, will the foreclosure rate go back up? Further, with the deficit mounting, how long can or will the government continue the subsidy?

Now let’s look at the adjustable rate mortgages (ARM’s) that were so popular in recent years. The initial terms of the mortgage, including especially the interest rate, was very favorable. Combined with very loose credit qualification standards, it promoted mortgage writing like never before.

As the initial teaser period ends, the mortgages revert to more market like terms and conditions and the rates go up, in some cases dramatically. The new rates, combined with the enormous unemployment problem, makes for monthly payments that the borrowers can no longer meet. Credit requirements have tightened, making it difficult or, at times, impossible to refinance. The borrower has to wonder why, when his situation is the same, the standards that allowed him a mortgage a few short years ago, now deny him one.

This year, 2010, is going to be the biggest year yet for ARM’s to come due. While according to some there seems to be a limited improvement in the unemployment numbers, everyone agrees that all of 2010 will be a difficult year for jobs. How does an unemployed, or under employed, person handle a new mortgage payment that, in some cases, may double?

Reduced house prices and tough credit restrictions make refinancing out of the question so the only alternative, in many cases, is non-payment leading to foreclosure.

In summary, while there appears to be limited pockets of improvement in the economy in general, and the housing market specifically, it is unlikely that 2010 is going to be a year that will be called “good”, as it relates to housing and foreclosures. The best that can be hoped for is that it is a transitional year and a springboard for a better 2011.

Original: Will 2010 Be a Better Year For Foreclosures?