Is the End of the Foreclosure Crisis in Sight? By James R. Hagerty Wall Street Journal 02-19-2010

Is the End of the Foreclosure Crisis in Sight?
By James R. Hagerty
The Wall Street Journal
February 19, 2010

The Mortgage Bankers Association had some surprising news today: Fewer people fell behind on their home-mortgage payments in last year’s fourth quarter than in third quarter.

The trade group, known for having its own mortgage woes, said 3.63% of mortgage borrowers were between 30 and 59 days overdue in the fourth quarter, according to its latest survey of lenders. That was down from 3.79% in the third quarter.

Normally, that rate increases in the fourth quarter as heating bills and holiday expenses cause some overextended people to stiff the mortgage company for a month or two.

Jay Brinkmann, the MBA’s chief economist, was far more upbeat than he has been for a long time and even quipped that, unlike Tiger Woods, he would take questions after making his statement on the latest survey. Mr. Brinkmann said the numbers suggest that “we are likely seeing the beginning of the end of the unprecedented wave” of defaults and foreclosures that has been washing over us since 2007. Fewer people are falling behind, he said, because fewer are losing their jobs (though lots of people who want to work still can’t find jobs).

What’s more, he said, the first quarter numbers for newly delinquent borrowers should look even more favorable.

Even so, he conceded, “we still have a big problem to deal with.”

The overall number of people in trouble with their mortgages—those behind on payments or in the foreclosure process—keeps bloating. At the end of the fourth quarter, 15% of home loans on one-to-four-family homes were in that category, up from 11% a year earlier. For the latest quarter, that equates to about 7.8 million households.

So if fewer people are falling behind, why are more people behind than three months ago? Because those that have fallen behind are tending to remain that way for a long time, sometimes for years.

In other words, people delinquent on their loans are staying in their homes longer before losing them to foreclosure. Lenders tend to be bureaucratic and are overwhelmed with paperwork from foreclosure cases. So are the courts in states such as Florida that have a judicial process for foreclosures. At the same time, federal and state programs aimed at saving many borrowers mean that lenders are going through lengthy procedures to determine which people are eligible for easier loan terms. While waiting to be helped or evicted, many people don’t make payments. Some borrowers say they have trouble getting in touch with employees at lenders and often are asked to provide the same documents repeatedly.

About 2.9 million households are 90 days or more behind on payments, but not yet in foreclosure, nearly triple the total of two years ago, according to LPS Applied Analytics, a data provider. On average, those households are nine months behind on payments.

Here’s another sobering stat: In Florida, 13.4% of home loans are stuck somewhere in the foreclosure process, the MBA estimates.

While the mortgage bankers would like to celebrate the beginning of the end there is no guarantee that the number of households newly behind on payments will continue to shrink. LPS, which uses separate data from lenders, estimated that 3.4% of borrowers were 30 to 59 days behind in January, up slightly from 3.3% in December.

At some point, mortgage delinquency and foreclosure rates will turn decisively downward. But even when that happens, it will be at least several more years before we work through the loan problems we already have, ones that could result in another 5 million to 7 million homes being lost to foreclosure, according to various guesstimates.

So there may be a light at the end of the tunnel, but it’s still pretty faint.