Homeowners, Bad News: Foreclosure Market Isn’t Even Halfway Over

In what will certainly put a hamper on the mood of many homeowners across the country, experts indicate that the foreclosure crisis that has paralyzed the American real estate market for close to five years is not even halfway over – which means more is yet to come.

Industry experts, including the Center for Responsible Lending, believe that the damaging waves of foreclosures that have impacted the residential real estate market since 2006 have not reached their peak  – and are set to continue to rock the market for the next few years as millions of Americans remain exposed.

Somewhere in the neighborhood of 3.2 million households are at serious risk of defaulting on their mortgage loans, being foreclosed on by banks, sold at foreclosure auctions, and becoming repo homes. This could lower already-depressed home values even further and send more homes underwater, contributing to the already-high number of 11 million homes that are worth less than what is owed on their loans.

There are several reasons why the crisis may not even be halfway over, but most of them boil down to two distinct factors:

1. 1.       Foreclosure processing fraud and abuse

2010 broke all of the records when it comes to foreclosure processing. Over a million homes were repossessed and a couple million more were filed against in that year. But, towards the beginning of fall, the industry was rocked by allegations that mortgage loan servicers and lenders both were forging signatures, rubber-stamping records, and robo-signing foreclosures without having knowledge of who actually owned the case.

That contributed to a freeze on foreclosure filings that led to an enormous backlog of foreclosures that has never went away and will not be sufficiently

1. 2.       The “anchor” effect

Another factor is the “anchor” effect. High numbers of home foreclosures in the pipeline have acted like an anchor on the market – weighing down home values and sending more and more homes underwater. This in turn contributes to additional foreclosures that just continue to pile up, one on top of another, until the national foreclosure inventory is as high as it is today.

Dealing with both of these factors will entail proactive, aggressive actions from the government and the private sector -  a feat that, so far, seems more like wishful thinking rather than a real possibility. At any rate, the next 12-18 months will be crucial when it comes to seeing whether or not the crisis will improve – or finally hit rock bottom.