By Nick Carey
GARFIELD HEIGHTS, Ohio, April 4 (Reuters) - Half a decade
into the deepest U.S. housing crisis since the 1930s, many
Americans are hoping the crisis is finally nearing its end.
House sales are picking up across most of the country, the
plunge in prices is slowing and attempts by lenders to claim
back properties from struggling borrowers dropped by more than a
third in 2011, hitting a four-year low.
But a painful part two of the slump looks set to unfold:
Many more U.S. homeowners face the prospect of losing their
homes this year as banks pick up the pace of foreclosures.
"We are right back where we were two years ago. I would put
money on 2012 being a bigger year for foreclosures than 2010,"
said Mark Seifert, executive director of Empowering &
Strengthening Ohio's People (ESOP), a counseling group with 10
offices in Ohio.
"Last year was an anomaly, and not in a good way," he said.
In 2011, the "robo-signing" scandal, in which foreclosure
documents were signed without properly reviewing individual
cases, prompted banks to hold back on new foreclosures pending a
Five major banks eventually struck that settlement with 49
U.S. states in February. Signs are growing the pace of
foreclosures is picking up again, something housing experts
predict will again weigh on home prices before any sustained
recovery can occur.
Mortgage servicing provider Lender Processing Services
reported in early March that U.S. foreclosure starts jumped 28
percent in January.
More conclusive national data is not yet available. But
watchdog group, 4closurefraud.org which helped uncover the
"robo-signing" scandal, says it has turned up evidence of a
large rise in new foreclosures between March 1 and 24 by three
big banks in Palm Beach County in Florida, one of the states hit
hardest by the housing crash
Although foreclosure starts were 50 percent or more lower
than for the same period in 2010, those begun by Deutsche Bank
were up 47 percent from 2011. Those of Wells Fargo's rose 68
percent and Bank of America's, including BAC Home Loans
Servicing, jumped nearly seven-fold -- 251 starts versus 37 in
the same period in 2011. Bank of America said it does not
comment on data provided by other sources. Wells Fargo and
Deutsche Bank did not comment.
Housing experts say localized warning signs of a new wave of
foreclosure are likely to be replicated across much of the
Online foreclosure marketplace RealtyTrac estimated that
while foreclosures dropped slightly nationwide in February from
January and from February 2011, they rose in 21 states and
jumped sharply in cities like Tampa (64 percent), Chicago (43
percent) and Miami (53 percent).
RealtyTrac CEO Brandon Moore said the "numbers point to a
gradually rising foreclosure tide as some of the barriers that
have been holding back foreclosures are removed."
One big difference to the early years of the housing crisis,
which was dominated by Americans saddled with the most toxic
subprime products -- with high interest rates where banks asked
for no money down or no proof of income -- is that today it's
mostly Americans with ordinary mortgages whose ability to meet
payment have been hit by the hard economic times.
"The subprime stuff is long gone," said Michael Redman,
founder of 4closurefraud.org. "Now the folks being affected are
hardworking, everyday Americans struggling because of the
"HARD TO CATCH UP"
Until December 2010, Daniel Burns, 52, had spent his working
life in the trucking industry as a long-haul driver and manager.
When daily loads at the small family business where he worked
tailed off, he lost his job.
Unable to cover his mortgage, Burns received a grant from a
government fund using money repaid from the 2008 bank bailout.
That grant is due to expire in early 2013 and Burns is holding
out on hopeful comments from his former employer that he might
get his job back if the economy recovers.
"If things don't pick up, I will be out on the street," he
said, staring from his living room window at two abandoned
houses over the road in the middle-class Cleveland suburb of
Garfield Heights, the noise of traffic from a nearby Interstate
highway filling the street.
Underscoring the uncertainty of his situation, Burns' cell
phone rings and a pre-recorded message announces that his
unemployment benefits are due to be cut off in April.
A bit further up the shore of Lake Erie, Cristal Fell, who
works night shifts entering data for a trucking company in
Toledo, has fallen behind on her mortgage a second time because
her ex-husband lost his job and her overtime was cut.
"Once you get behind it's so hard to catch up," she said.
Fell, a mother of four, hopes the economy will gather enough
speed to help her avoid any risk of losing her home. Her
ex-husband has found a new job and she is getting more overtime,
so she hopes she can catch up on her mortgage by the fall.
Burns and Fell are the new face of the U.S. housing crisis:
Middle class, suburban or rural with a conventional 30-year
fixed mortgage at a reasonable interest rate, but unemployed or
underemployed. Although the national unemployment rate has
fallen to 8.3 percent from its peak of 10 percent in October
2009, nearly 13 million Americans remain jobless, meaning many
are struggling to keep up with their mortgage payments.
Real estate company Zillow Inc says more than one in four
American homeowners were "under water" or owed more than their
homes were worth in the fourth quarter of 2011. The crisis has
wiped out some $7 trillion in U.S. household wealth.
"We're seeing more people coming through who have good loans
with reasonable interest rates," said Ed Jacob, executive
director of non-profit lender Neighborhood Housing Services of
Chicago Inc, which provides foreclosure counseling. "But in many
households only one person works now instead of two, or they had
their hours cut."
"The answer to the housing crisis now is job creation."
EARLY SIGNS OF UPTICK?
Zillow expects the resurgence in foreclosures this year,
combined with excess inventory of unsold, bank-owned homes will
contribute to a 3.7 percent national decline in prices before
the market hits bottom in 2013 and stays there until 2016.
"The hangover from this crisis will far outlast the party of
the boom years," said Zillow chief economist Stan Humphries.
Getting through the remaining foreclosures and dealing with
the resulting flood of homes on the market in the wake of the
bank settlement is a necessary part of the healing process for
the U.S. housing market, he added.
According to leading broker dealer Amherst Securities, some
9.5 million homes are still at risk of default and in February
it said it expected to see the uptick in foreclosures start to
hit in March and April.
There is other evidence that many of the foreclosures that
did not happen in 2011 will happen this year.
A January report by the Neighborhood Economic Development
Advocacy Project in New York found that in the first half of
2011 the number of 90-day pre-foreclosure notices in New York
City outnumbered court foreclosure actions by a ratio of 14 to
one, indicating that while proceedings were initiated against
many homeowners, they were left incomplete.
"Now the banks have a settlement, foreclosure numbers for
2012 are going to be high," said NEDAP co-director Josh Zinner.
A recent survey by the California Reinvestment Coalition, an
umbrella group of nearly 300 non-profit groups in the state, of
member agencies found 75 percent of respondents expected
increased demand for their foreclosure prevention services in
2012 but more than a third had to scale back services because of
"Funding is a major concern given what our members expect
for this year," said associate director Kevin Stein.
All this has non-profits intensifying calls for the Federal
Housing Finance Agency to drop its opposition to allowing the
government-backed mortgage giants Fannie Mae and Freddie Mac it
regulates to reduce principal for underwater homeowners.
Principal reduction involves reducing the amount borrowers owe
in order to make a loan modification affordable for struggling
homeowners. Republicans and the FHFA oppose principal reduction
because of the risk of "moral hazard"- that homeowners who do
not need help will seek to abuse largesse and have their
mortgages reduced too.
ESOP in Ohio engages in "hits" on Chase branches -- they say
Chase is the least accommodating major bank when it comes to
working with struggling homeowners -- where they try to hand
letters to bank mangers calling on chief executive Jamie Dimon
to lobby FHFA head Edward DeMarco for principal reductions.
A Chase spokeswoman said the bank has made "extensive efforts"
to work with homeowners, helping 775,000 borrowers stay in their
homes since early 2009, avoiding foreclosure "more than twice as
often as we have had to foreclose."
Housing groups like ESOP maintain, as they have throughout the
housing crisis, that unless the FHFA embraces widespread
principal reduction, many more under water borrowers face losing
"Until banks engage in meaningful principal reduction as a
matter of course," ESOP's Seifert said after a recent protest at
a Chase branch in Cleveland, "this crisis will not end."
By Nick Carey