Foreclosures Rise Suddenly in First Quarter

New reports from RealtyTrac.com show that foreclosures jumped 16 percent from the first quarter of 2009 to the first quarter of 2010.  Bank seizures hit a record high as banks work through the slow foreclosure process and as some borrowers whose loans were modified fall back into foreclosure.  RealtyTrac predicts that there will be 1 million bank seizures and 4 million foreclosure filings in 2010.

Over 930,000 borrowers defaulted, received an auction notice, or had their homes seized this quarter.  Foreclosure notices, which were down slightly in February, rose 8 percent in March.  It is worth noting that just six states account for 60 percent of the country’s foreclosures.  Unsurprisingly, areas such as Nevada, California, Florida, Michigan, and Arizona, which experienced some of the most drastic price inflation prior to the recession are suffering the most foreclosures.

Unemployment and declining home values are the chief factors driving the foreclosure rate.  Joblessness remains at 9.7 percent.  Estimates of the true unemployment rate (which includes frustrated job seekers and the underemployed) range from 12-20 percent depending upon the source.  Although the country experienced job creation for the first time in three years last month, most estimate that it will take years to replace the jobs that were lost during the recession.

These revelations dovetail with the increasing criticism leveled at the Obama Administration’s efforts to forestall future foreclosures.  Only 230,000 borrowers have had their mortgages permanently modified through government housing relief attempts such as the Home Affordable Modification Program (HAMP).

Many critics of the foreclosure prevention efforts say that the programs only prolong the foreclosure process, and that without principal reduction (to help underwater homeowners), many of those whose mortgages are modified will end up going into foreclosure anyway.  A Zillow report from the fourth quarter of 2009 indicates that 20 percent of homes with mortgages had negative equity.

Critics of the modification programs assert that government intervention is also delaying the housing market from truly bottoming out, which just prolongs the drop in home values.  Some warn that modifying mortgages while prices continue to fall is a futile effort.  These critics say that many of those who are underwater will eventually default and trying to bail them out is just throwing good money after bad.

What do you think about the mortgage modification programs in light of the new numbers?  Share your opinion in the comments section below.