Bank Foreclosure List to Keep Growing, Study Says

by Peter Vernon on Foreclosure Crisis

A report on the federal government’s Home Affordable Loan Modification Program (HAMP) showed that the initiative is not enough to contain the growth of bank foreclosure list. On its report, the Federal Reserve Board warns that more foreclosures are in the offing, adding that the flood of distressed properties would likely occur in the next two years.

According to the study, many homeowners have lost their jobs or reduced their income, resulting to difficulty in meeting their mortgage payments, even if they have been reduced into affordable terms in order to help homeowners save their properties from bank foreclosure list. The study noted that the HAMP is not ideal for homeowners who have suffered a significant decline in their incomes as a result of unemployment or other mitigating circumstances.

The modification program involves reducing the payment ratio to income of borrowers based on present income level. In the event that the income would return to the old level, the reduction could not be reversed, making the required loan modification costly.

Additionally, the modification program will work if the value of the troubled property is less than the total mortgage owed by the homeowner. Many homeowners who feel that home prices and values would not improve soon, prefer to walk away and leave the troubled properties for lenders to foreclose.

But what is worst is the growing number of borrowers who re-default, meaning that they defaulted again on their mortgage after entering the federal program and incurring costs associated with the modification process.

Also, the study discusses the cost of foreclosures. It stated that the costs associated with the increase in foreclosures are quite significant. Historically, almost 50 percent of foreclosure filings went on to become actual foreclosures. And given the current economic downturn, the probability is great that foreclosures would even be higher.

The study pointed out that communities and neighborhood residents are also severely affected by the foreclosure crisis. Abandoned and vacant houses are magnets to vandals and criminals. Aside from that, they tend to pull down prices of nearby houses, thus making it hard for some homeowners to sell their properties at reasonable prices.

Finally, the study said that an overflowing bank foreclosure list is clogging the housing market, thus reinforcing the weakness of the sector and hindering economic recovery.