Just as we saw a double dip in home prices, we may be seeing another surge in foreclosures.
And just as the home price scenario was caused by artificial government stimulus, in the form of the home buyer tax credit juicing home sales only briefly, the foreclosure scenario was caused by real negligence, in the form of the "robo-signing" paperwork scandal.
Banks and servicers stopped foreclosures entirely for a time after the malpractice was discovered, and courts delayed the process, picking through papers as foreclosures were resubmitted; that is now turning around.
The system is ramping up again, and foreclosure starts are up dramatically, more than 10 percent in June from the previous month, according to Lender Processing Services (LPS). The good news of the past few months has been that while the end game is quickening, as stalled foreclosures are making their way through the system at a faster pace, new delinquencies were decreasing, leading us all to believe that the crisis is abating.
Well think again.
New delinquencies rose 2.4 percent in June, which isn't a lot, but it is still the wrong direction. This as the pipeline is still so clogged that foreclosure timelines continue to rise. The average loan in foreclosure in June was delinquent a record 587 days, and more than 40 percent of 90+-day delinquencies have not made a payment in more than a year. For loans in foreclosure, 35 percent have been delinquent for more than two years, according to LPS.
Today's surprisingly good jobs report for Julydid not do much to impress economists, who cited still fewer people working in July than June and far fewer job creations on average in the past three months than in three months before that. Bottom line, we need surging jobs to shore up consumer finances and consumer confidence, both of which are vital to housing's recovery.
Even as Fannie Mae reported a second quarter drop in mortgage delinquencies in its portfolio, chief economist Doug Duncan had this to say about the future:
"Economic growth at the current pace is insufficient to spur sustained, robust job creation, which is required to boost sentiment, spending and housing demand. Our July Fannie Mae National Housing Survey, to be released next Monday, continues to indicate a high level of caution among consumers regarding additional financial commitments. In addition, 70 percent of Americans believe that the economy is moving in the wrong direction, according to our quarterly survey that will be released . The impact of recent financial market volatility on household wealth is an additional setback to confidence and the outlook for the housing market."
If the foreclosure numbers are not improving significantly, which the latest data would indicate, and the weak economy is in fact getting weaker, the Obama administration will have to reverse its course of removing itself from housing and figure out new and better ways to jump back in.
I am constantly amazed, and have been for years, at how little the President speaks of our housing disaster, especially of late. It's what got us into this mess in the first place, and without its strong recovery, the economy cannot walk out of this recession on anything but a crippled foot.
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