US mortgage deal means more foreclosures

Even as the $26 billion mortgage settlement helps hundreds of thousands of troubled homeowners, it will bring a wave of new foreclosures. Many lenders held off on repossessing homes during the complex negotiations between 49 state attorneys general, and federal officials. That’s left a backlog of troubled loans, many of which won’t be helped by measures in the deal that will let homeowners refinance or reduce the amount of their mortgage. “The bottom line is that 2012 will see a lot of foreclosures that should have taken place in 2011 and didn’t,” said Rick Sharga, executive vice president for Carrington Holdings, a real estate finance firm. Daren Blomquist, vice president of RealtyTrac, online marketer of foreclosed properties, agrees that much of last year’s 34 per cent drop in foreclosure filings was likely due to the uncertainty involved in the negotiations. He estimates that new filings will climb from 1.9 million in 2011 to between 2.2 million and 2.5 million this year. “We think what we saw in 2011 was artificially low foreclosure numbers,” he said. He added that banks took longer to file foreclosure notices last year, and longer to finish the foreclosure process.

 

HUD press secretary Derrick Plummer said Thursday’s mortgage settlement was designed to make foreclosure the last resort for banks negotiating with homeowners who are seriously delinquent on loans. Sharga and Blomquist said that the mortgage deal will help many homeowners stay in their homes who would have otherwise been forced out. Up to one million mortgage holders could see the money they owe reduced. But the solutions offered by the settlement can only work for homeowners who can afford to make new, lower mortgage payments. Banks will have little choice to foreclose on those who have stopped paying due to prolonged unemployment or other severe economic distress. “The settlement really wasn’t designed to prevent foreclosure on loans that aren’t salvageable,” said Sharga. The five lenders who are parties to the deal—Bank of America (BAC, Fortune 500), Citigroup (C, Fortune 500), JPMorgan Chase (JPM, Fortune 500), Wells Fargo (WFC, Fortune 500) and Ally Financial together account for about 60 per cent of the mortgage market, Sharga said.