A storm of defaults

Bloomberg

U.S. foreclosure filings climbed 28 percent in November from a year earlier and a brewing "storm" of new defaults and job losses may force 1 million homeowners from their properties next year, RealtyTrac said.

A total of 259,085 properties got a default notice, were warned of a pending auction or were foreclosed on last month, the seller of default data said in a report Thursday. That’s the fewest since June. Filings fell 7 percent from October as state laws and lender programs designed to delay the foreclosure process allowed delinquent borrowers to stay in their homes.

"We’re going to see a pretty significant storm next year," Rick Sharga, executive vice president of marketing for Irvine, California-based RealtyTrac, said in an interview. "There are two or three clouds that suggest a pretty heavy downpour."

Rising unemployment, expiring foreclosure moratoriums and state efforts that "run out of steam" will push monthly filings toward the record of more than 303,000 set in August, Sharga said. The number of homes that revert to lenders, the last stage of foreclosure and known as "real estate owned" or REO properties, will increase to 1 million from as many as 880,000 this year, he said. "The forces leading to foreclosure are hard to offset in most cases and impossible in many," Robert Hall, a Stanford University professor and chairman of the National Bureau of Economic Research committee that calls the beginnings and ends of recessions, wrote in an e-mail. "Job loss is a major source of defaults at all times, and job losses are running at extreme levels now."

Job losses
U.S. companies slashed payrolls by 533,000 last month, the fastest pace in 34 years, for a total of 1.9 million job cuts so far this year. Home prices have fallen by about a fifth from the mid-2006 peak, according to the S&P/Case-Shiller home price index.

"The decline in prices and its devastating consequences" will continue next year with no indication of when they will stabilize, Hall said. Programs that modify the terms of loans, including efforts by Fannie Mae, Freddie Mac, JPMorgan Chase, Bank of America and Citigroup can’t help thousands of borrowers, he said.

"Something like 70 percent of subprime foreclosures are beyond the reach of modification programs because the owners are investors, because the owner is in default for the second time on the property, or because the owner has disappeared," Hall said.

Mortgage delinquencies
The share of mortgages delinquent by 30 days or more in the third quarter rose to a seasonally adjusted 6.99 percent while loans already in foreclosure rose to 2.97 percent, both all-time highs, the Mortgage Bankers Association said in a Dec. 5 report. The gain in delinquencies was driven by an increase in loans with payments 90 days or more overdue.

"Until we see a turnaround in the job situation, we’re not going to see these numbers improve," said Jay Brinkmann, chief economist of the Washington-based bankers group.

In November, one in every 488 U.S. households received a foreclosure filing, RealtyTrac said. Nevada had the highest rate for the 23rd straight month with one in 76 households in some stage of foreclosure, more than six times the national average. Filings more than doubled from a year earlier to 13,962.