Smart Borrower Blog

Mortgage Foreclosures Begin a New Cycle

Jul 4th, 2009 @ 7:01 AM by Alden Smith

With the nightly news screaming headlines each night about the number of jobs lost, it is little wonder that we see another large wave of foreclosures looming on the horizon.   With 467,000 jobs lost in June, it is little wonder that we are seeing another cycle of foreclosure defaults happening.

Even though the housing market has shown some signs of stabilization, and we see home prices seeking more level ground, rising unemployment will undo any advances that the housing market has made.   This year alone, we have seen record levels of mortgage defaults.   Even though foreclosures have lessened a bit due to the Obama administration’s home stability plan, we cannot expect that to last.

Loan defaults have risen sharply.   Rumors are flying that the biggest lenders are likely to become more aggressive in foreclosures so that they can clear up the huge backlogs of unstable mortgages that they have on their books.

We are seeing more stability in home sales due to the huge number of cheap foreclosed properties currently available.   Currently, housing prices are showing a bit of an uptick in some communities.

All of these factors will do little to stabilize the housing market if unemployment continues to rise as it has.   A new cycle of foreclosures will depress the value of many homes.   According to Mark Zandi of Moody’s Economy.com, about one in five home owners with first mortgages are currently underwater, owing more than the home is worth.   With consumer confidence at an all-time low, any shakeup in the mortgage market will cause further reaction.   With unemployment rates at 9.5% and rising, there is little doubt that we will see any stability in the mortgage market for quite some time.

We have to wonder how long it will be before the big banks begin to take a tougher stance on defaults.   Even though the Obama plan has good intentions, the big banks will certainly look to their bottom lines.

The foreclosure process takes a considerable length of time.   This ties up a bank's capital, and makes it even harder for prospective new home buyers to get a loan at a decent interest rate.   Even though many people have a decent credit score, it does little good when banks are jittery and unwilling to make any new loans.

I believe that all of the issues in the mortgage market are based on unemployment figures.   It’s obvious to me that if a person is unemployed, they are either struggling to maintain their mortgage payments, or are in no position to purchase another home.   There is no predicting how long this problem will last, and until unemployment figures change direction, we will see nothing but trouble in the mortgage market.