Foreclosure Expert: The Worst is Yet to Come – Foreclosure filings reach nearly 3 million in 2009, record high

The freshly painted burgundy shutters on a blue house on Shelby’s Arnold Drive fit in with the rest of the surrounding neighborhood. But there’s one difference between this house and others around it — this home is owned by a bank instead of a family. It’s a foreclosure. And according to industry experts, it’s far from being alone.
Industry group RealtyTrac’s year-end report shows a record 2.8 million U.S. properties with foreclosure filings in 2009. It shows 3,957,643 foreclosure filings — default notices, scheduled foreclosure auctions and bank repossessions — a 21 percent increase in total properties from 2008 and a 120 percent increase in total properties from 2007. The report also shows that 2.21 percent of all U.S. housing units (one in 45) received at least one foreclosure filing during the year, up from 1.84 percent in 2008, 1.03 percent in 2007 and 0.58 percent in 2006.
Foreclosure expert and consumer bankruptcy attorney O. Max Gardner III said the number of homeowners who have been able to modify their loans and save their houses is “dismal.”
“The sad thing is nothing is really working,” said Gardner. “None of the modification programs are really working.” As it is, loans are being modified — albeit at a slow pace — and mortgage companies are reducing interest rates temporarily, Gardner said. “The way they’re modifying the loans is not giving consumers the kind of relief they need,” he said. “They need to create a sustainable payment.” Gardner said there is one thing that could help the situation — a statutory obligation that would force companies to reduce the principal of a loan instead of simply the interest rate. That could better align mortgages with current home values.
Home values themselves have plummeted over the past several years, said Gardner, and some people are paying on mortgages that are for more than the homes are actually worth in today’s market. “If you really want a sustainable program, debt must be reduced to the amount of the property,” he said. Despite Gardner’s grim outlook on the foreclosure situation, both locally and across the nation, he said there is one thing that has kept it from being worse than it already is. “The one thing that saved it is the prime interest rate has been stable since 2007,” he said. “If it were higher, the problems would be 10 times worse.”
Some of those mortgages are simply walking away from homes because the outstanding principal on the mortgage is higher than the home’s value. Adding to the problem are mortgage companies, which also walk away from homes because of back taxes, lawyers’ fees and homeowners’ association fees. “The problem is working its way up in income levels,” said Gardner. Overall, he expects the number of foreclosures to increase at least until 2012 as they extend into wealthier neighborhoods, targetting professionals such as doctors, accountants and lawyers, he said. And because of that Gardner has a simple message for consumers: The worst is yet to come.