Foreclosures reach record numbers again in July

While the Obama administration tries to put on a good show of encouraging mortgage modifications, the grandstanding is not working. According to Realty Trac, only about 230,000 homes have received help, while 464,058 homeowners lost their homes this year through the end of July.

For the fifth month in a row, we've seen foreclosure filings rise. Another 360,000 properties received foreclosure notices, which includes default notices, scheduled auctions or bank repossessions. That's an increase of 7 percent over June and 32 percent over July 2008. One in every 355 U.S. homes had at least one filing in July. More than 87,000 homes were repossessed.Three factors have contributed to the jump: some state moratoriums were lifted, option ARMs started to reset and job losses continue to mount. Option ARMs were typically used for more expensive property, and greater numbers of higher-priced homes that financed using the exotic tools are now entering the foreclosure process. Also more prime borrowers with better credit histories who could afford more expensive homes are now falling behind, as job losses mount.

Arizona, California, Nevada and Florida continue to be the hardest hit, with Las Vegas holding the number 1 spot for the 31st consecutive month. One in every 47 homes got a foreclosure filing in July and, for the first six months of 2009, one in every 13 properties in Las Vegas was hit. In sheer numbers, however, California had the most foreclosure filings - 108,104. In Arizona, one in every 135 homes got a foreclosure filing and in Florida the rate was one for every 154 homes.

Other cities that have not been hit as hard are starting to show strain. For the first six months of 2009, Seattle's foreclosure rate jumped 72 percent over the July 2008 numbers; one in every 107 homes got a foreclosure filing. Minneapolis's foreclosure rate jumped 58 percent, or one in every 90 homes, while Phoenix jumped by 51.7 percent, which represents one in every 22 homes.

Cities seeing improvement in the past six months included New York, where foreclosure filings dropped by 23.5 percent, Boston, where with foreclosures were down 40.7 percent; and Houston, which had a 31.3 percent decrease.

Clearly, the mortgage modification incentives encouraged by the Obama administration are barely making a dent in preventing foreclosures. That's probably because, in about two thirds of the cases, foreclosure makes more sense for the bank than modification. The Fed has shown that people facing foreclosure fit into one of three categories; the first are those who, with an adjustment in payment, will be able to afford the home. The second are those who will fall behind again, resulting in another round of foreclosure filings, which will cost the bank even more money. Finally, the third will self-cure, which means they start paying again without help in two to three months.

Thus, in two of the three groups, banks will save money by refusing the modify the loans, which means that there is little incentive for them to work with people. Consequently, many banks are dragging their feet when it comes to implementing Obama's mortgage modification programs, even though they've gotten bailed out by the government.

Lita Epstein has written more than 25 books including The 250 Questions You Should Ask to Avoid Foreclosure."

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