Real Estate Foreclosure Listings to Grow Due to Second Liens
Real estate foreclosure listings are expected to grow further this year due to record levels of home-equity debts and other second-liens.
According to housing analysts and U.S. Treasury officials, the refusal of banks to restructure home-equity loans is among the biggest hindrances to successful loan modifications and foreclosure prevention. Treasury spokesperson Meg Reilly said that no lender holding a portion of the $1.05 trillion of home-equity debt has committed to modify second mortgages.
New York Banking Superintendent Richard Neiman, who is also a member of the Congressional Oversight Panel of the Troubled Asset Relief Program, said that the federal government should pressure banks to resolve the issue of second liens.
Joshua Rosner, analyst at New York City-based Graham Fisher, said that the major lenders Bank of America, JPMorgan Chase, Wells Fargo and Citigroup collectively hold second mortgages that are about $150 billion higher than the value of the properties securing them. Under current law, a second mortgage is eliminated in foreclosure unless the sales proceeds exceed the amount of the first mortgage.
The programs of the federal government to cut down real estate foreclosure listings have not been successful partly because only the first mortgage is modified, according to Scott Simon of California firm Pacific Investment Management Company. According to the Treasury Department, around 25 percent of borrowers whose mortgages were modified in 2009 have failed to sustain their monthly payments even after they have been reduced.
Rosner of Graham Fisher affirmed Simon’s statement. He added that high levels of home equity debts have prevented first-mortgage lenders to reduce principal balances to make monthly payments really affordable to borrowers.
John Taylor, CEO of the National Community Reinvestment Coalition, said that first-mortgage lenders are not willing to significantly reduce principal balances if second-mortgage lenders refuse to do the same.
According to foreclosure analysts, more homes will enter foreclosure this year as the employment situation continues to worsen and property values continue to fall. In the third quarter last year, 23 percent of all residential mortgages were underwater, based on a report from First American CoreLogic. Another California firm predicted that 3 million residential units will be foreclosed in 2010.
In April last year, the Treasury expanded its foreclosure prevention program to include second liens and help home-equity lenders reduce their interest rates. However, this second-mortgage program has not been carried out and has not been able to help cut down real estate foreclosure listings.
