Foreclosures hit another record high in August: 304,000 homes were in default and 91,000 families lost their houses.

More than 770,000 homes have been repossessed by lenders since August 2007, when the credit crunch took hold.

The report from RealtyTrac, an online marketer of foreclosures properties, is the latest in string of bad news for housing.

Foreclosure filings of all kinds, including notices of defaults, notices of auctions and bank repossessions, grew 12% in August over July, and 27% compared with August 2007.

The 27% jump over last August represents a more modest year-over-year increase than in previous months, but that’s only because the housing crisis was already underway in August 2007, which saw a big spike in foreclosures.

“In August 2008 the total number of U.S. properties that received foreclosure filings, as well as the national foreclosure rate, were both the highest we’ve seen in any month since we began issuing our report in January 2005,” RealtyTrac CEO James Saccacio said in a statement.

Fannie Mae (FNM, Fortune 500) chief economist Doug Duncan isn’t surprised by the swelling numbers. “It’s been my view for a long time that foreclosures won’t peak until the last three months of 2008,” he said.

And now that the nation in a recessionary economy, with job losses exceeding 400,000 a month, Duncan speculates that the foreclosure crisis may be drawn out even longer.

“We’ve been saying that the foreclosure trend has not yet peaked,” said Doug Robinson, a spokesman for the foreclosure prevention organization NeighborWorks America. “Before it was a subprime problem,” he said. “Now, it’s everybody’s problem.”
Putting filings on hold

The August figures would have been worse, had it not been for new legislation passed in several states, including Maryland and Massachusetts, designed to make lenders wait before filing notices of default.

In Massachusetts, for example, a 90-day waiting period went into effect on May 1. Every Massachusetts homeowner now has to be notified of their lenders’s intention to file a notice of default against them, and they get a 90 day window during which they can attempt to bring their payments up to date. Lenders are prohibited from filing a first notice of default until after that period.

The impact has been immediate. RealtyTrac recorded no new notices of initial default for the state during August. That helped drive down total foreclosure filings in the state by more than 46% compared with last year.

Other states didn’t fare as well. Nevada once again had the highest rate of filings in the nation. One of every 91 households, or 11,706 families, received a foreclosure notice of some kind during the month, and more than 4,000 others lost their homes.

More than 101,000 Californians received foreclosure notices, which comes to about one in every 130 households, while more than 33,000 people there lost their homes. Arizona had the third-highest rate with one out of every 182 households in default.

All of these states saw tremendous home price run-ups during the boom, which meant that many buyers had to use exotic, risky loans in order to be able to afford a home. These mortgages include subprime, hybrid adjustable rate mortgages (ARMs) that feature two or three years of low introductory rates before the loans reset to higher, often unaffordable levels and cause borrowers to default.

In some of the other hard hit states, such as Michigan (which had one filing for every 332 households) and Ohio (one filing per 444 households), which never saw a housing boom, delinquencies are being driven by fundamental economic woes like unemployment, rather than pricey real estate.

Eight of the top 10 worst performing metro areas were in California. Stockton, in the Central Valley, had the highest rate in the nation with one in every 50 households receiving a foreclosure filing during the month.

“You go up and down the central part of [California] and that’s where you’re seeing the carnage,” said Rick Sharga, RealtyTrac’s director of marketing. Home sales are actually up in many of these cities, the prices have dropped, often precipitously. “What’s selling is the bank owned properties,” he said.

Credits: CNNMoney.com

Construction of new homes and apartments fell to its lowest level in 17 years last month, showing the country is still gripped by a severe housing downturn that has triggered billions of dollars of losses and is reshaping the structure of U.S. finance.

The Commerce Department reported Wednesday that housing construction dropped a surprise 6.2% last month to a seasonally adjusted annual rate of 895,000 units. That’s the slowest building pace since January 1991, another period when housing was going through a painful correction.

The decline is larger than the 1.6% drop analysts expected and showed weakness in all the country except the West.

The data was bound to shake Wall Street, already rattled by a crisis in the financial system. Stock futures pointed to a lower opening.

The housing downturn has depressed overall economic activity and pushed the country close to a recession. Thousands of construction jobs have been lost, contributing to an economic slowdown that has pushed the overall unemployment rate to a five-year high of 6.1% in August.
Housing woes reshape Wall Street

There have been steep declines in home prices in much of the country. This has helped trigger record levels of mortgage defaults, dumping more homes on an already glutted market and further depressing prices. The billions of dollars of losses on mortgage investments have sent shockwaves through the country’s financial sector, triggering the biggest restructuring on Wall Street since the Great Depression.

In the past 10 days, the government has seized control of the country’s two biggest mortgage finance companies, Fannie Mae and Freddie Mac, and late Tuesday announced it was providing an $85 billion emergency loan to the country’s largest insurance company, American International Group Inc. All three titans were brought low by soaring losses on mortgage investments.

For August, the 6.2% drop in housing construction reflected a 1.9% decline in single-family construction, which fell to an annual rate of 630,000 units. Construction of multifamily units fell by 15.1% to an annual rate of 265,000 units.
Northeast building activity falls the most

Building activity was down in all parts of the country outside of the West. Construction fell by 14.5% in the Northeast and was down 13.6% in the Midwest and 7.4% in the South.

All the declines left construction activity 33.1% below the level of a year ago. Analysts believe that construction will continue falling for many more months as builders struggle to reduce the backlog of unsold new homes in a market that continues to slump.

Building permits, considered a good indicator of future activity, dropped 8.9% in August to an annual rate of 854,000 units.

Credits: CNNMoney.com

As part of the massive housing rescue bill passed by Congress in July, troubled borrowers will be able to refinance their home loans with the backing of the Federal Housing Authority (FHA) starting on October 1.

But at a congressional hearing today in Washington, lenders didn’t seem terribly enthusiastic about the program, dubbed Hope for Homeowners.

The program calls for lenders to voluntarily refinance delinquent mortgages by reducing loan balances to 90% of a home’s current market value. The new loans will be backed by the FHA, which will be receive 5% of the new loan balance as a payment from the lender.

“I think lenders will be enthusiastic about the program but they have other things they’d like to do before they do a principal write down,” said Brian Montgomery, Assistant Secretary for Housing at the Department of Housing and Urban Development.

One lender’s representative, Marguerite Sheehan, Senior Vice President for JPMorganChase (JPM, Fortune 500) Home Lending, testified about the drawbacks of Hope for Homeowners.

“Under the Program, [investors in the loans] will take a loss when the principal balance is written down,” she testified, adding that they won’t have a chance to make up that loss if home prices recover. Sheehan added that Chase can make borrowers’ monthly payments affordable simply by reducing their interest rates, rather than loan principle.

She added that JPMorganChase will use the program when it is deemed to be the best option for investors and borrowers, but that investors would prefer to use alternative loan workouts that give banks and investors the chance to share in any future home price appreciation. That’s similar to the program recently announced by the FDIC for IndyMac Bank.
Banks stress their own efforts

Bank of America (BAC, Fortune 500) managing director Michael Gross said that the new FHA program was just one of many loan workout options that the bank is employing.

And he stressed that the bank’s own efforts to save troubled loans, especially those B of A inherited when it bought Countrywide, have been successful. He said that the bank increased its loan modifications by 450% this past August compared with August of 2007.

When asked whether the program would be considered a last resort by lenders, all the members of the panel, including Gross, agreed that it would be.

And Mary Coffin, speaking for Wells Fargo (WFC, Fortune 500), testified that relatively few of her bank’s borrowers owe more on their mortgages than their homes are worth, meaning they would be unlikely to benefit from the FHA’s refinancing and write down program.

“We estimate as many as 30,000 to 40,000 customers who … may qualify for Hope for Homeowners,” she said, and committed to using the program in those cases.

Even Sheila Bair, who heads the Federal Deposit Insurance Corporation, praised the FHA program but said that few borrowers with IndyMac, the bank that the FDIC took over in July, would use it.

She said that her responsibility to maximize profits for the investors would probably limit the number of IndyMac borrowers who would take advantage of Hope for Homeowners

On its own, her agency has been very aggressive in heading off foreclosures at the troubled bank. About 60,000 of IndyMac’s more than 740,000 mortgages are more than 60 days past due, according to Bair. The FDIC has already offered 7,400 of them workouts. Some 1,200 workouts have been completed, giving borrowers an average monthly savings of $430.

Bair also said that she thinks the FDIC’s programs could be used as a model for other lenders to use in their workout efforts.

Credits: CNNMoney.com

Foreclosures hit another record high in August: 304,000 homes were in default and 91,000 families lost their houses.

More than 770,000 homes have been repossessed by lenders since August 2007, when the credit crunch took hold.

The report from RealtyTrac, an online marketer of foreclosures properties, is the latest in string of bad news for housing.

Foreclosure filings of all kinds, including notices of defaults, notices of auctions and bank repossessions, grew 12% in August over July, and 27% compared with August 2007.

The 27% jump over last August represents a more modest year-over-year increase than in previous months, but that’s only because the housing crisis was already underway in August 2007, which saw a big spike in foreclosures.

“In August 2008 the total number of U.S. properties that received foreclosure filings, as well as the national foreclosure rate, were both the highest we’ve seen in any month since we began issuing our report in January 2005,” RealtyTrac CEO James Saccacio said in a statement.

Fannie Mae (FNM, Fortune 500) chief economist Doug Duncan isn’t surprised by the swelling numbers. “It’s been my view for a long time that foreclosures won’t peak until the last three months of 2008,” he said.

And now that the nation in a recessionary economy, with job losses exceeding 400,000 a month, Duncan speculates that the foreclosure crisis may be drawn out even longer.

“We’ve been saying that the foreclosure trend has not yet peaked,” said Doug Robinson, a spokesman for the foreclosure prevention organization NeighborWorks America. “Before it was a subprime problem,” he said. “Now, it’s everybody’s problem.”
Putting filings on hold

The August figures would have been worse, had it not been for new legislation passed in several states, including Maryland and Massachusetts, designed to make lenders wait before filing notices of default.

In Massachusetts, for example, a 90-day waiting period went into effect on May 1. Every Massachusetts homeowner now has to be notified of their lenders’s intention to file a notice of default against them, and they get a 90 day window during which they can attempt to bring their payments up to date. Lenders are prohibited from filing a first notice of default until after that period.

The impact has been immediate. RealtyTrac recorded no new notices of initial default for the state during August. That helped drive down total foreclosure filings in the state by more than 46% compared with last year.

Other states didn’t fare as well. Nevada once again had the highest rate of filings in the nation. One of every 91 households, or 11,706 families, received a foreclosure notice of some kind during the month, and more than 4,000 others lost their homes.

More than 101,000 Californians received foreclosure notices, which comes to about one in every 130 households, while more than 33,000 people there lost their homes. Arizona had the third-highest rate with one out of every 182 households in default.

All of these states saw tremendous home price run-ups during the boom, which meant that many buyers had to use exotic, risky loans in order to be able to afford a home. These mortgages include subprime, hybrid adjustable rate mortgages (ARMs) that feature two or three years of low introductory rates before the loans reset to higher, often unaffordable levels and cause borrowers to default.

In some of the other hard hit states, such as Michigan (which had one filing for every 332 households) and Ohio (one filing per 444 households), which never saw a housing boom, delinquencies are being driven by fundamental economic woes like unemployment, rather than pricey real estate.

Eight of the top 10 worst performing metro areas were in California. Stockton, in the Central Valley, had the highest rate in the nation with one in every 50 households receiving a foreclosure filing during the month.

“You go up and down the central part of [California] and that’s where you’re seeing the carnage,” said Rick Sharga, RealtyTrac’s director of marketing. Home sales are actually up in many of these cities, the prices have dropped, often precipitously. “What’s selling is the bank owned properties,” he said.

Credits: CNNMoney.com

Alan Greenspan famously declared the worst was over back in November of 2006. And the National Association of Realtors’ erstwhile chief economist David Lereah called the bottom a few times, starting in May 2006.

Plenty of other economists and real estate analysts have attempted to do the same - and of course they’ve all been wrong.

But a consensus seemed to emerge among experts at a housing forum held by Standard & Poor’s and the Chicago Mercantile Exchange on Wednesday in New York. Readers will be forgiven for taking this pronouncement with a large grain of salt.

Several panelists, including Economy.com’s chief economist Mark Zandi, Goldman Sachs (GS, Fortune 500) economist Charlie Himmelberg, S&P managing director David Blitzer and S&P senior economist Beth Ann Bovino all agreed that home prices would stabilize sometime during the summer of 2009.

“The bottom of the housing market is coming into view,” said Zandi, whose recent book “Financial Shock,” examines how the subprime mortgage crisis occurred. “House prices, based on the S&P Case-Shiller index, are down 20% peak-to-trough and I expect them to fall another 5% to 10%.”

“The key is housing affordability,” Zandi said. “The [price] decline is beginning to restore affordability, which is now near its long-term average. In some places, Boston, Chicago, Denver, Orange County, affordability has been restored and those markets have stabilized.”
More declines ahead

One piece of good news noted was home sales volume. The number of homes sold each month has already leveled off nationally, staying within a narrow range nearly every month this year at an annualized rate of about 5.5 million units a year.

Bovino said her forecast for home price decline is slightly more bearish than Zandi’s, mostly based on S&P’s belief that the country is now in a recession. With the economy struggling, job losses rising and a tough lending environment, she expects prices to fall another 10%.

“We think there will be an overshoot [with prices going beyond their logical bottom],” she said, in part because so many buyers are afraid to get into the market. “Nobody wants to catch a falling knife,” she said.

And after prices do bottom out, Himmelberg expects them to remain fairly flat for a year or so.

Everyone on the panel agreed that the government takeover of Fannie Mae (FNM, Fortune 500) and Freddie Mac (FRE, Fortune 500) should help the housing market.

“We expect Fannie and Freddie to be more aggressive [in buying loans] over the next few months,” said Zandi. “We are at a low point in credit availability right now.”

The panelists were careful to couch their optimism with caveats. Zandi, for example, points out that there is a lot of uncertainty about the fate of Fannie and Freddie, in the wake of their government takeover.

There is some speculation that the companies will be downsized by a new administration after the presidential election in November.

“Neither candidate,” said S&P managing director David Blitzer, “has decided what they want to say about that.”

Credits: CNNMoney.com