US home foreclosures up 53%; record surge in bank seizures

July 12, 2008
US home foreclosures up 53%; record surge in bank seizures

NEW YORK - UNITED States foreclosures last month jumped 53 per cent
from a year earlier, and bank seizures rose the most on record as
falling property values and higher interest rates forced more
Americans to give up their homes.

More than 252,000 properties, or one in 500 US households, entered a
stage of the foreclosure process, RealtyTrac, a seller of default
data, said on Thursday.

Bank seizures rose 171 per cent, the most since January 2005 when the
company began tracking such statistics.

Foreclosure activity is at the highest since the Great Depression of
the 1930s, said Mr Rick Sharga, RealtyTrac's vice-president of
marketing.

Home prices, which fell the most on record in April, have created a
cycle where shrinking equity drives home owners into foreclosure,
which in turn pushes home prices down further, he added.

Mr Mark Zandi, the chief economist at Moody's Economy.com, said: 'The
foreclosure problem is getting worse and will stay with us well into
the next decade. The job market is eroding and home owners have less
equity.'

Mr Sharga said: 'We will have one million bank-owned properties by
the end of the year. That will represent between one-fourth and one-
third of all home sales.'

Credit Suisse analysts said in an April 23 report that about 53 per
cent of borrowers with sub-prime loans - those with poor or
incomplete credit histories - will have negative equity in their
homes at the end of the year, and the number will rise to 63 per cent
next year.

They added that tighter underwriting standards mean those borrowers
whose adjustable-rate mortgages were reset to higher payments cannot
refinance their loans.

About 2.7 million sub-prime borrowers will enter the foreclosure
process by the end of 2012, with a peak of new foreclosures in the
third quarter of this year, the analysts said.

Mr Zandi said that about US$3.5 trillion (S$4.8 trillion) in home
owner equity has been wiped out since the spring of 2006, when
housing prices were at their peak.

Rising mortgage defaults and auctions of foreclosed properties are
adding to a glut of unsold homes and prolonging the housing slump.

Efforts by the US Congress to insure as much as US$300 billion in
refinanced mortgages and save up to two million borrowers from
foreclosure can work only by 'slowing down or reversing home price
declines and equity deterioration', Credit Suisse said.