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Mortgage Modifications Failing, Sparking More Economic Stress

The Huffington Post   First Posted: 02/08/11 12:24 PM ET Updated: 05/25/11 07:30 PM ET

Foreclosure

Despite signs of economic improvement, the foreclosure crisis is far from over. According to a piece of fresh data released on Monday, low levels of mortgage modifications are likely to lead to more foreclosures, and more foreclosures will weigh heavily on the still fragile U.S. economy.

Only 36,500 mortgage modifications were completed in December 2010, 58 percent lower than a peak hit in April 2009, Fitch Ratings found in an analysis of loans packaged into mortgage-backed securities.

Fitch predicted that 60 to 70 percent of modified risky and subprime loans were likely to default again within 12 months. Homeowners are expected to default on another 50 to 60 percent of loans which were modified before foreclosure began, probably leading to an increase in the number of foreclosures.

"The combined efforts of HAMP [the Home Affordable Modification Plan] and other mortgage loan modification programs have made little more than a dent in the large volume of outstanding distressed loans," Diane Pendley, a Fitch managing director told the LA Times.

The AP found U.S. economic stress increased in December because an increase in foreclosures outstripped lower unemployment figures. Foreclosure rates rose in 33 states, the AP reports, with the most dramatic increases in Utah, New Jersey, Nevada and Arizona.

The AP's Economic Stress Index calculates a score from 1 to 100 based on unemployment, foreclosure and bankruptcy rates, any county with a score over 11 is considered stressed. AP found the most dramatic increases in economic stress were concentrated in counties with large numbers of real estate workers:

"The average county's score in December was 10.4, up from 10.3 in November. Slightly more than 40 percent of the nation's 3,141 counties were deemed stressed, up slightly from November.

Nevada was again by far the most troubled state with a Stress score of 22.56. It was followed by Florida (16.47), California (16.36), Georgia (14.5) and Arizona (14.46). Among those five, only Nevada's Stress score rose from November to December.

And once again, the healthiest states were in the Plains and New England. North Dakota had the lowest Stress score in December: 4.65. It was followed by Nebraska (5.38), South Dakota (5.69), Vermont (6.19) and New Hampshire (6.95)."

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