Foreclosure Filings Still on the Rise. Labor Market is Major Influence on Outlook

One inrnevery 45 housing units in the United States was the subject of a foreclosurernnotice during the year just ended, and the number may still be heading uprnaccording to data released today by RealtyTrac.

Overrn3.95 million foreclosure filings of all types were served against U.S.rnhomeowners, a 21 percent increase in foreclosure notices over 2008 and a 120rnpercent increase over 2007. The number of properties against whose owners thernactions were served represented 2.21 percent of all U.S. housing units comparedrnto 1.84 percent in 2008 and 1.03 percent in 2007.

InrnDecember a total of 349,519 properties were involved in some foreclosurernaction, 14 percent higher than in November and a 15 percent increase over thernprevious December. December 2008 had shown a similar jump over the previousrnmonth.  Activity in Quarter 4 was down 7rnpercent from Quarter 3 but was still up 18 percent over the fourth quarter ofrn2008.

Thernusual suspects topped the state breakdown of foreclosure activity.  Nevada, Arizona and Florida continued to havernthe most foreclosures with 10 percent of houses in Nevada getting at least onernforeclosure notice during the year. Activity in December was up 27 percent overrnNovember but substantial decreases in October and November contributed to a 37rnpercent decline between the 3^rd and 4^th quarter.

More than 6 percent ofrnArizona households received foreclosure filings in 2009 and Florida was a closernthird, with 5.93 percent of its housing units receiving at least onernforeclosure filing during the year.

Other states with 2009rnforeclosure rates ranking among the nation's 10 highest were California (4.75rnpercent), Utah (2.93 percent), Idaho (2.72 percent), Georgia (2.68 percent),rnMichigan (2.61 percent), Illinois (2.50 percent), and Colorado (2.37 percent).

Inrnabsolute numbers, California, Florida, Arizona, and Illinois accounted for 50rnpercent of all U.S. foreclosure activity with 1.4 million properties receiving at leastrnone filing during 2009. California recorded filings against 632,573 properties,rnFlorida, 516,711; Arizona, 163,210, an increase of 40 percent over 2008; and Illinois,rn131,132.

Other states with 2009rntotals among the 10 highest in the country were Michigan (118,302), Nevadarn(112,097), Georgia (106,110), Ohio (101,614), Texas (100,045), and New Jerseyrn(63,208).

James J. Saccacio, chief executive officer ofrnRealtyTrac said, “As bad as the 2009 numbers are, they probably would have beenrnworse if not for legislative and industry-related delays in processingrndelinquent loans. After peaking in July with over 361,000 homes receiving a foreclosurernnotice, we saw four straight monthly decreases driven primarily by short-termrnfactors: trial loan modifications, state legislation extending the foreclosurernprocess and an overwhelming volume of inventory clogging the foreclosurernpipeline.

“Despite all the delays,rnforeclosure activity still hit a record high for our report in 2009, capped offrnby a substantial increase in December,” Saccacio continued. “In the long term arnmassive supply of delinquent loans continues to loom over the housing market,rnand many of those delinquencies will end up in the foreclosure process in 2010rnand beyond as lenders gradually work their way through the backlog.”

With weakness in the labor market expected to extend into 2010, the outlook for housing in the year ahead is under an increasing amount of scrutiny.

Mortgage News Daily Managing Editor Adam Quinones adds…

The obvious question that arises is: WILL GOVERNMENT LOAN MODIFICATIONS BE SUCCESSFUL? IS THERE ANOTHER WAVE OF FORECLOSURES LOOMING IN THE SHADOWS?

Looking past tight credit conditions and rising interest rate issues,this is largely a function of the labor market, which is a factor of consumer spending, which is a function of the labor market. Uh oh….this is one big CHICKEN OR THE EGG causality dilemma! What will come first…growth in consumer spending or labor market expansion? Or neither?

I acknowledge that conditions in the labor market are improving after a year of contraction, but in order to see a drastic turn around in consumer demand, there needs to be a significant turn around in job creation.  We are just coming out of a massive cost cutting cycle and reduction in business inventories. During the recovery process, the contraction in business inventories will likely lead to periods of growth in manufacturing and an uptick in GDP, unfortunately this will be a bit misleading to most because structural weakness will remain as hiring is likely to remain slow while productivity is extremely high and consumer demand unstable READ MORE ABOUT PRODUCTIVITY.

This implies we will see only temporary spikes in hiring…and a very choppy recovery in consumer spending….and therefore it's hard to believe that loan modification programs will be a major success.  With that in mind it is becoming more and more obvious that a recovery in the housing market will be a slow, stagnant, frustrating process.

HERE is the most recent update on Fannie Mae and Freddie Mac loan portfolios. This report discusses the GSE's loan portfolio size and composition, the performance of the portfolio, and provides an update of foreclosure prevention objectives.

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