Delinquencies and Foreclosures

Delinquencies and foreclosures have skyrocketed to the point where, as shown in Figure 3.2, nearly 8 percent of all U.S. mortgages were affected as of year-end 2008, an all-time high since the Mortgage Bankers Association started tracking this in 1972. This represents more than four million homes and roughly $1 trillion of mortgages. And the problem is rapidly getting larger, as in January 2009 alone more than $30 billion in

Figure 3.1 Mortgages Outstanding (millions)

Source: Freddie Mac, Q3 2008, as reported by James B. Lockhart III, Director, Federal Housing Finance Agency, at the Association of Government Accountants 7th Annual National Leadership Conference (Washington, D.C., February 19, 2009).

Figure 3.1 Mortgages Outstanding (millions)

Source: Freddie Mac, Q3 2008, as reported by James B. Lockhart III, Director, Federal Housing Finance Agency, at the Association of Government Accountants 7th Annual National Leadership Conference (Washington, D.C., February 19, 2009).

Figure 3.2 Total Delinquencies (Seasonally Adjusted) and Foreclosures

Source: National Delinquency Survey, Mortgage Bankers Association.

Figure 3.2 Total Delinquencies (Seasonally Adjusted) and Foreclosures

Source: National Delinquency Survey, Mortgage Bankers Association.

mortgages defaulted and 274,000 homes received a foreclosure-related notice (default notice, auction sale notice, or bank repossession).

The problem mortgages are not evenly spread out, however. While only 16 percent of mortgages are "private label," meaning that they were sent to Wall Street and securitized, they accounted for 62 percent of seriously delinquent mortgages as of Q3 2008, as shown in Figure 3.3 .

The rate of monthly foreclosures has more than tripled since the peak of the bubble, as shown in Figure 3.4 . RealtyTrac.com estimates that over 1.5 million bank-owned properties are on the market, representing around one-third of all properties for sale in the United States.

While the number of foreclosures appeared to be stabilizing in early 2009, the main reason is that a number of states and banks (plus Fannie and Freddie) have enacted foreclosure moratoriums, in part due to anticipation of an Obama administration foreclosure mitigation plan, the outline of which was released on February 18, 2009, and the details of which were released on March 4, 2009. We discuss in Chapter 5

Finance Agency, at the Association of Government Accountants 7th Annual National Leadership Conference (Washington, D.C., February 19, 2009).

Figure 3.4 Foreclosure Activity by Month

Source: RealtyTrac.com U.S. Foreclosure Market Report.

Figure 3.4 Foreclosure Activity by Month

Source: RealtyTrac.com U.S. Foreclosure Market Report.

why we believe this plan is a step in the right direction but will likely have only a moderate impact in reducing the tidal wave of foreclosures, which Credit Suisse forecasts at four million to 10 million from 2009 to 2012 (depending on the economy, home prices, and the effectiveness of foreclosure mitigation plans).1

Further, attempts at foreclosure mitigation have so far been a bust, as most loan modifications haven 't addressed the underlying problems of deep-underwater homeowners and unaffordable monthly payments, so the majority of modified mortgages have redefaulted in less than six months, as shown in Figure 3.5 '

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