2.4M Foreclosures Expected in 2010

by Leigh Graham · 2010-01-02 11:06:00 UTC
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The new year kicks off with some grim news about our on-going foreclosure crisis: with Obama's mortgage modification program increasingly panned as a failure, economists are predicting some 2.4 million foreclosures in 2010, a staggering number that threatens our already anemic recovery.

Being underwater on a mortgage -- owing more than the value of the home -- is now a greater predictor of foreclosure than unemployment. Fewer than 25% of all mortgages eligible for modification have been re-written, and fewer than 1% have been permanently modified to lower the principal to a more affordable amount.

Just a month ago, we sounded the alarm here about the abysmally weak performance of Obama's toothless foreclosure program, one in which the Administration knowingly avoided the bolder, more effective (but possibly more expensive in the short term) decision to require permanent mortgage modifications. At this point, critics are alleging that the current program is making things worse for thousands of homeowners, by keeping them in homes they can't afford, rather than breaking the difficult reality that it's time to let their homes go.

To that end, the Treasury has begun working with banks and homeowners through its Foreclosure Alternatives Program to allow short sales and deed relinquishments rather than foreclosures so that people can walk away from unaffordable mortgages.

This situation reminds me of the aftermath of Hurricane Katrina, when such widespread displacement across the Gulf Coast and the exorbitant cost of rebuilding the region meant that some families would just never be able to come home again. They'd be wiped out financially, and there are never enough government resources nor political will to make everyone "whole" again. But what elected official wants to break that news, and what American wants to face it? So instead we create these mediocre programs that help a few, waste more people's time and money, and might actually leave some people worse off than before. Never mind the feeling of semi-permanent limbo victims feel trying to figure out how to help themselves while waiting for alleged government intervention.

I'd hate to have the job of breaking the news to households that they have to give up on their homes, but it's a reality that we could soften substantially by facilitating the least costly and smoothest transition possible to more affordable properties. And we don't need to give up on forcing the banks towards thousands more permanent write-downs either. Taken together, these two tough love measures towards homeowners and banks would go a lot further to resolving the foreclosure crisis.

(Graph from NY Times)

Leigh Graham
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