Critics: Too few homes saved

Hope Now, the government's response to the foreclosure crisis, comes under fire

WASHINGTON -- Soaring foreclosure rates are raising questions about the mortgage industry's claims that lenders are making a dent in the housing crisis.

Foreclosure filings last month were up nearly 50 percent compared with a year earlier. Nationwide, 261,255 homes received at least one foreclosure-related filing in May, up 48 percent from 176,137 in May 2007 and up 7 percent from April, foreclosure listing service RealtyTrac said Friday.

In North Carolina, the report shows that foreclosure filings rose 23.52 percent from a year ago.

The grim foreclosure figures come as criticism mounts that efforts by government and the mortgage industry to stem the tide of foreclosures aren't keeping up with the rising number of drowning homeowners.

Critics say a Bush administration-backed mortgage industry coalition, dubbed Hope Now, is falling far short.

"It's clear that these voluntary efforts in and of themselves cannot really make a dent," said Allen Fishbein, director of credit and housing policy at the Consumer Federation of America.

"Government intervention is going to be necessary."

Mark Zandi, chief economist of Moody's Economy.com and an adviser to Republican John McCain's presidential campaign, wrote this week that "the Bush administration's efforts to encourage loan modifications and delay foreclosures are being completely overwhelmed."

A Credit Suisse report this spring predicted that 6.5 million loans will fall into foreclosure over the next five years, reaching more than 8 percent of all U.S. homes.

Sobering statistics like these are leading to more calls for government intervention, especially from lawmakers who want the government to guarantee as much as $300 billion in new loans to help borrowers refinance into cheaper, fixed-rate mortgages.

Little checking

A government report released Wednesday found that among mortgages held by nine large banks, including Bank of America and Citigroup, foreclosures climbed to 1.23 percent of all loans in March from 0.9 percent in October.

In a speech, Comptroller of the Currency John Dugan said the federal agency conducted an examination of foreclosures and loan modifications after finding "significant limitations" with data collected by trade groups like Hope Now.

"Virtually none of the data had been subjected to a rigorous process to check for consistency and completeness," Dugan said. "They were typically responses to surveys that produced aggregate, unverified results from individual firms."

The comptroller's report found that 2.7 percent of seriously delinquent mortgages had been modified as of March, up from 1.8 percent in November 2007.

The industry has continued to favor repayment plans, which help borrowers get back on track after missing a few payments, rather than permanent loan modifications, such as lower interest rates.

Faith Schwartz, executive director of Hope Now, said in an e-mail statement that the group's statistics "encompass more member data and provide a broader view of the range of solutions delivered by a larger number of mortgage servicers."

What went wrong

The combination of weak housing sales, falling home values, tighter mortgage lending criteria and a slowing U.S. economy has left financially strapped homeowners with few options to avoid foreclosure.

Making matters worse, mortgage rates have been rising. Freddie Mac, the mortgage company, reported Thursday that 30-year fixed-rate mortgages averaged 6.32 percent this week, the highest level in nearly eight months.

According to the RealtyTrac report, one in every 483 U.S. households received a foreclosure filing in May.

Foreclosure filings increased from a year earlier in all but 10 states. Nevada, California, Arizona, Florida and Michigan had the highest rates.

RealtyTrac of Irvine, Calif., monitors default notices, auction sale notices and bank repossessions. Nearly 74,000 properties were repossessed by lenders nationwide in May, while more than 58,000 received default notices.

It's hard to battle back

Rick Sharga, RealtyTrac's vice president of marketing, said foreclosures are unlikely to peak until the fall as more loans made to borrowers with poor credit records reset at higher rates.

About 50 percent to 60 percent of borrowers who receive foreclosure filings are likely to lose their homes, Sharga said; the rest should be able to sell or refinance.

Nationwide, one of every four sales between January and March was a distressed sale, and that figure jumps to more than 50 percent in the hardest-hit areas, according to Economy.com.

In some neighborhoods, lenders are slashing prices dramatically to rid themselves of an unprecedented number of foreclosed properties, which is sparking bidding wars and multiple offers. While that's a positive for the real estate market, buyers in other parts of the country are still holding back.

Lehman Bros. economist Michelle Meyer wrote in a report Thursday that U.S. home sales are likely to hit bottom at the end of the summer but that a recovery is likely to be feeble.