Another day, another report on the state of our nation’s housing market. Today it’s the monthly foreclosure report from RealtyTrac, saying that while total foreclosure activity is decreasing, the number of homes being repossessed by the banks hit a new record high.
“Lenders appear to be ramping up the pace of completing those forestalled foreclosures even while the inflow of delinquencies into the foreclosure process has slowed,” writes the company’s CEO James J. Saccacio.
This report comes on the heels of a Bank of America executive yesterday saying that the company, which took over the slings and arrows of Countrywide Financial a few moons ago, would start to push short sales and other foreclosure alternatives over taking the homes back onto its books. But will it matter?
“Although the ramping up of short sales is occurring, it won’t be enough to offset all the loans coming through foreclosure,” Bob Caruso of Lender Processing Services tells me. “It’s great that everybody’s ramping up, but the volume is still coming through so heavily that the short sales will only be a fraction of the loans coming through.”
Caruso cites the government’s Home Affordable Modification Program as a continuing driver of more foreclosures, because it’s just putting off the inevitable.
“The HAMP program has already piqued and is coming down. Less and less loans are eligible for HAMP because the government made the criteria really tight. They made it almost like threading a needle,” adds Caruso.
That, he says, is because while the program gets borrowers down to a 31 percent debt to income ratio for the mortgage, it doesn’t factor in all the other debt that borrowers are carrying (see blog May 17). He says too many Americans have “debt management issues,” to put it nicely.
Now while I was mulling that, I saw a report from my colleague Steve Liesman on new Federal Reserve data showing “Americans extinguished their mortgage debt in the first quarter at the fastest pace in nearly 40 years, either by paying it off or defaulting.” He goes on to say, “As a result, the report showed that household net worth climbed by more than a trillion dollars to $54.5 trillion, the highest level since the fourth quarter of 2008.”
Well now you know what I started to think then … is that more evidence that defaulting borrowers are juicing consumer spending with their excess cash?? (see blog April 12) Steve tried to do a lot of very confusing math on it, but then he looped in Mark Zandi, of Moody’s Economy.com, who had the following reaction:
“I don’t think the fed’s mortgage debt data sheds much light on the issue. What matters for consumer spending growth is the cash being freed up by so many households not making a mortgage or rental payment. That mortgage debt is declining is suggestive that there are lots of these households, but it doesn’t suggest much more than that.”
Okay, so here’s what I learned today: Despite a slight drop, really a flattening, in new foreclosures, the pipeline is still so full that bank repossessions and freeloading borrowers are going to mess with the fundamentals of our economy for a good long time to come.