November 10th, 2008 12:30 PM

Foreclosure workouts not successful

Other sources report that the total number of workouts-or successful renegotiations of mortgages to save homeowners from foreclosure-has actually fallen. These days, about 200,000 homes per month enter foreclosure, in neighborhoods all across the nation. One of the most disturbing indicators is that foreclosure data gathered by some experts shows an increase in foreclosure activity of nearly 20 percent in the month of August alone.

Initiatives like Hope Now, which is a voluntary coalition of mortgage industry representatives and housing advocacy groups, were originally launched to target subprime borrowers. Last year, when the first signs appeared that a housing rescue was needed, most industry observers thought that the problem was isolated to the subprime sector, where high cost loans were made to millions of people with bad credit. But earlier this year, the problem of massive defaults spread to the Alt-A category of mortgages. These are loans made to people who have good credit, but don't require strict underwriting to verify income and assets. Soon, Alt-A loans became so troublesome, that Fannie Mae stopped trading in them, a move that shocked the industry.

A spreading mortgage virus

The crisis was, however, far from finished. Finally, the same kinds of default problems that plagued lower quality loans spread to the prime loan category, as well. Now, even those cream of the crop loans made to people with adequate income, strong assets, and excellent credit are heading to foreclosure, and need their own mortgage bailout plan. But most economists agree that the national credit crisis can't be resolved until the housing market stabilizes, when foreclosures are halted and home price declines level off. The outlook is anything but good, and predictions are that the housing rescue will have to continue for at least another year. That view is validated by the respected Standard & Poor's/Case-Shiller housing index, which charts housing activity. The Case-Shiller index reveals the worst housing and home construction market in recorded history.

When the Hope Now alliance was first formed, many critics pointed out that efforts to rework loans were voluntary and that investors would not go along for the ride because it meant financial losses that they weren't willing to accept. Congress was reluctant to demand compliance, and now it appears that critical time was lost, as the avalanche of foreclosures has gained momentum.

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