Home mortgage foreclosures up, expected to rise
usatoday.com
Christine Dugas, USA TODAY
In another sign of the weakening economy, more debt-laden Americans are losing their homes.
In the first quarter, the number of home mortgages in foreclosure increased 9% to about 142,000, according to Mortgage Information, a San Francisco-based mortgage research firm that tracks a database of about 29 million loans.
The jump is noteworthy because mortgages typically have lower default rates than other loans. When homeowners fall on hard times, they're likely to pay their mortgage before other bills.
In addition, the increase comes as Congress is finalizing a bill that could make it harder to stave off foreclosure in bankruptcy.
Industry experts predict foreclosures will continue to grow in the wake of higher delinquency rates last year. "I would expect the foreclosure numbers would stay higher even after delinquencies start to subside," says Doug Duncan, chief economist at the Mortgage Bankers Association of America.
Another worrisome sign: Mortgages originated last year are going bad sooner than loans taken out in previous years, according to Mortgage Information. And in some metropolitan areas, such as Philadelphia and Atlanta, foreclosures have increased at a faster rate than the rest of the nation.
Several factors can trigger foreclosures, experts say. For example, when homeowners have little or no equity in a home, or when the market value declines, they don't have much to lose if the lender forecloses.
Even with U.S. home values still strong, home equity has declined with the proliferation of home-equity loans and low-down-payment mortgages, according to a study prepared last year by Freddie Mac.
Many US families live from paycheck to paycheck and don't have a cushion when they hit a financial bump. If the economy continues to weaken and layoffs increase, more homeowners could find it hard to keep up.
But in the future, cash-strapped families could find that they can't take advantage of an option for stopping foreclosure and catching up on back mortgage payments — Chapter 13 bankruptcy.
Chapter 13 allows debtors to keep their assets and pay bills over several years. "In some parts of the country, the main reason for filing for Chapter 13 is to save a home," says Henry Hildebrand, a Chapter 13 trustee in Nashville.
But two versions of a bankruptcy reform bill that passed the House and Senate last year could change that. "The bill is filled with provisions which collectively would undermine a debtor's fresh financial start and make Chapter 13 less viable," says Samuel Gerdano, executive director of the American Bankruptcy Institute.
Congressional leaders are attempting to appoint a conference committee that would reconcile the two versions of the bill, but they face opposition from Sen. Paul Wellstone, D-Minn., who has threatened to filibuster the motion. |
