Home Prices Drop, Foreclosures Soar

Home foreclosures nationwide in October this year increased by 25%, from the same period in 2007, to almost 280,000 units as reported by the California-based foreclosure tracking firm RealtyTrac.

Worsening the effects of foreclosures, unemployment also increased while house prices fell. According to the Labor Department, the national jobless rate increased to the peak rate of 6.5% in 14 years, and payroll income fell for the tenth consecutive month. House prices have dropped every month since the first quarter of 2007, as shown in the S&P/Case-Shiller housing price index.

First American predicts 3.2 million foreclosed properties in 2008, up by 80% from 2007. An additional decrease of just 5% in home prices would put nearly 10 million households in negative equity. Robert Van Order of the University of Michigan said that negative equity is an accurate predictor of loan default most of the time.

For the 22nd consecutive month in October this year, Nevada had the biggest foreclosure rate, with one in every 74 households in foreclosure. California had the highest number of foreclosure proceedings at 56,954, despite a decrease in foreclosure rate. The other states with the biggest foreclosure rates are Colorado, Michigan, Georgia, Illinois, New Jersey and Ohio.

The metropolitan area with the biggest foreclosure rate is Las Vegas, with one home in 62 units in foreclosure and an increase of more than 50% from October 2007 to 12,155.

Prompted by concerns about the housing market and the economy in general, three of the country’s biggest banks, JPMorgan Chase, Bank of America and Citigroup, have launched their own programs to help distressed homeowners through loan modifications. Bank of America has restructured 226,000 in 2008 while Citigroup has restructured 370,000 units since 2007.

Citigroup says it will offer loan modification to about half million additional homeowners whose aggregate mortgage loan amounts to $20 billion. Mortgage companies Freddie Mac and Fannie Mae also said they would offer lower interest rates and would extend loan terms to as long as 40 years to qualified borrowers.