Beware! A Flood of Foreclosures is About to Break

The recent increase in price of houses may have heartened many but it is best not to rest and be sanguine. Pundits are asking the people to be beware because a flood of foreclosures is about to break. Standard & Poor (credit rating agency) is telling investors the exact worth of the securities backed by mortgages and warns that the temporary increase has only been a mirage. It is predicting a tsunami of fresh foreclosures that will push down the real estate once more.

The blame is being put on the “shadow inventory” comprising of about 1.8 million residential houses that have been so far held back but are now on the way to foreclosure. For many reasons this delay has been taking place and these have been lurking in the wings ready to enter the stage.

A sizeable number of borrowers have lagged behind in their house mortgage payments and are either lagging behind or have stopped making payments. The servicers are overcrowded with the numbers. The courts too are choking. The modifications and moratoriums have done nothing much except to postpone the final day. The day is fast approaching when they cannot be kept hidden any longer. The persisting unemployment is forcing many more borrowers to fall in the delinquent group.

$1.6 trillion mortgages had been parceled and sliced into securities by financial wizards of Wall Street. Of these mortgages worth $425 billion are delinquent and in all probability go into foreclosure. Only a fraction of these borrowers are able to catch up with the assistance of modification of the loan. But many fall behind and re-default again. The numbers of bad mortgages have been steadily increasing month by month hampering and putting brakes on the HAMP plan of the federal government. The delinquencies are continuing to increase.

The focus has lately been on Fannie Mae and Freddie Mac. The Republicans are demanding meticulous accounting from both of these entities. Rep Scott Garrett (Republican/New Jersey) and others of his party in the House plans to announce Accurate Accounting of Fannie Mae and Freddie Mac Act at a press conference. The law would force the Office of Management and Budget (OMB) to prepare the budget in such a way that it would accurately mirror the losses endured by these two Government Sponsored Enterprises (GSE) since they were taken over.

The National Association of Realtors has put forward a plan in this matter, as reported in the Wall Street Journal.