Foreclosures Continue to Rise: What are your Options?

March foreclosure data was released today, and the numbers are grim. Lenders initiated foreclosure proceedings for nearly 300,000 homes, a 20% increase from February. On the bright side, March witnessed only 39,000 actual repossessions, down from 87,000 in February. Still, “Since the mortgage meltdown hit in July 2007, 1,447,866 homes” have already been repossessed. Nationwide, a home is now repossessed every 13 seconds.

While foreclosure is increasingly becoming a national trend, data indicates that some regions remain more at-risk than others; “RealtyTrac…today released its Metropolitan Foreclosure Market Report for Q1 2009, which shows cities in California, Florida, Nevada and Arizona accounted for the 26 highest foreclosure rates in the first quarter among metro areas with a population of 200,000 or more.” In Las vegas, 1 out of every 25 mortgages is now involved in foreclosure proceedings.

Detailed national data is still hard to come by, but “a new report from a Minnesota non-profit revealed demographic and financial information about people facing foreclosure.” Minnesota isn’t a perfect microcosm of the national housing crisis. Still, it represents a nice cross-section of people effected by foreclosures, and the report contains some interesting data. For example, “Homeowners with subprime loans sought counseling at a much higher rate than these loans exist in the market…While the default of subprime mortgages has received considerable attention, 59% homeowners receiving foreclosure counseling had prime, fixed rate loans.” In other words, while subprime borrowers certainly deserve the attention they are receiving by the media, creditworthy borrowers are also being hit hard.

Foreclosures can provide some aggregate benefit to the economy by way of nudging housing prices towards ’sustainable’ levels; “In areas hard hit by foreclosures such as Florida, California and Nevada, some neighborhoods peppered with boarded-up homes with overgrown lawns now are showing signs of revitalization. In addition, homebuyers can take advantage of depressed prices by purchasing nicer homes than they would otherwise be able to afford.

Generally speaking, however, foreclosure is a painful and tedious process, for both lender and borrower. As a result, it is something that both parties try to avoid at all cost. The diagram below illustrates the ample opportunity provided to borrowers in foreclosure to avoid actual repossession. In some states, “a lender foreclosing on a mortgage must first provide notice to homeowners about the availability of foreclosure counseling services in their area.”

Meanwhile, the Obama administration recently expanded its foreclosure prevention plan to try to keep as many people in their homes as possible. “Under the expanded plan, some homeowners could see their payments fall significantly and the interest rate on their second mortgage pushed down to 1 percent.”

As a result, 250,000 homeowners teetering on the verge of repossession were spared in March, and were instead offered loan modifications or repayment plans. “Repayment plans merely postpone payments for delinquent borrowers without making them any more affordable. Mortgage modifications are changes in the terms of loans that reduce or freeze interest rates, extend the life of the loan, reduce loan balances or any combination of those three, to, ideally, lower the amount borrowers pay monthly.”

You can see from the following chart the various avenues that can be pursued to avoid repossession. The chart is built from Minnesota data and evinces a 55% foreclosure prevention rate. A similar program in Philadelphia has achieved a 78% success rate, so there are definitely reasons to be optimistic.

In short, the federal government in conjunction with non-profit organizations and lenders themselves, are trying to make it easier for you to avoid foreclosure. If you are already facing foreclosure or fear that such proceedings might be imminent, it would be advisable to review your options. The US Department of Housing maintains an excellent Guide to Avoiding Foreclosure, complete with a listing of foreclosure avoidance counselors.