Michele Johnson is no stranger to desperate phone calls, but lately they’ve become an even more regular occurrence. Johnson, who is chief executive of the Consumer Credit Counseling Service of Southern Nevada & Utah, says that these days, homeowners facing foreclosure are seeking out the agency’s help in droves.
“There was just so much creative financing that was going for the last few years with consumers not understanding fully the potential ramifications,” she explains. “Our goal here now is to mitigate their losses.”
The U.S. fared much better as a whole: RealtyTrac measured a total of 130,786 filings nationwide in February, down 4% from January’s level.
February’s decline, however, may prove fleeting. “A 4% decrease, for all intents and purposes, is flat,” says Rick Sharga, RealtyTrac’s vice-president of marketing. Foreclosures were still up 12% year-over-year, and February’s total marked the first time there have ever been two back-to-back months with U.S. foreclosure numbers over 130,000, Sharga notes. January’s total foreclosure figure—136,113—was the highest monthly number ever recorded by RealtyTrac.
RealtyTrac still expects 2007 foreclosure activity to be 33% higher than in 2006 based on trends in the first two months of this year. “It appears that as subprime and FHA loans default at higher-than-anticipated rates, and lenders tighten their underwriting standards, we’re going to continue to see a spike in the number of homeowners facing foreclosure,” said President Jim Saccacio in a statement.
Many borrowers with adjustable-rate mortgages are simply not prepared when the rates on those loans shoot up. Low-income borrowers and those with weak credit have felt the sting of the market slowdown the most, and now tighter lending standards brought about by increased defaults are ruling out refinancing for many who may have qualified for a better loan a year ago.
A record number of people could face the emotional trauma of losing a home in 2007, but some good may come of it. Long term, tighter lending standards will weed out possible foreclosure candidates.
“Assuming they don’t reverse their progress, I’d give the market a year or two to clear out most risky loans,” says Sharga. “Three years from now, we will likely see a significant foreclosure decrease.”