The Obama administration's $75-billion program to help troubled borrowers hold on to their homes appears to be keeping more California families out of foreclosure, data released Wednesday showed, but the relief may be temporary.
The number of homes entering the first stage of foreclosure declined 24.3% during the fourth quarter from the previous three months, according to MDA DataQuick, a San Diego real estate research firm. The decline in the default number is significant because any new wave of foreclosures, which could swamp the housing market's recovery, would be preceded by a surge in defaults.
So far, thousands of California borrowers have had their mortgages modified through Obama's Making Home Affordable program, but only 7.8% of those modifications were permanent through Dec. 31, according to government data. If the majority of borrowers who have received temporary loan modifications are unable to make those changes permanent, another surge of foreclosures could follow.
"Given what we see in terms of the number of distressed properties that are in the pipeline, we do expect that foreclosures will mount as borrowers are not able to make it from a trial modification to a permanent modification," Celia Chen, senior director of Moody's Economy.com, said. "This will cause home prices to start falling again."
The foreclosure explosion began early in 2007 as home values began falling and adjustable-rate mortgages began resetting, putting payments out of reach for many homeowners. Rising unemployment has added to the problem.
Of particular concern is the number of people who are underwater, or owe more on their mortgages than their homes are worth. That number soared with the precipitous drop in home prices. At the end of September, about 1 in 4 U.S. mortgage holders was underwater, and more than a third of California mortgage holders were in that position, according to First American CoreLogic, a real estate data firm.
"If a borrower is deeply underwater, he doesn't want to be in the home," said Laurie Goodman, senior managing director of Amherst Securities. A loan modification would give the borrower more time, she said, "but there is no reason to stay in your home, and you save a lot by just walking away."
Consumer groups are calling for more aggressive measures to help struggling borrowers stay in their homes, such as cutting the amount borrowers owe on their mortgages.
