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Job Loss, Price Decline Push Up FHA Foreclosures



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By : John Cutts    99 or more times read
Industry experts are pointing to the worsening labor market condition and dropping home prices as factors that will likely trigger a flood of FHA foreclosures. They said that these factors are contributing to the growing number of loan defaults and delinquencies.

The increasing number of foreclosures means trouble for the Federal Housing Administration (FHA), an insurance fund unit of the U.S. Housing and Urban Development. Industry experts said that the FHA has been insisting that it does not need any bailout from the federal government. But they believed that the agency would likely need about $50 billion in capital infusion in 2010 to cover all the losses it incurred when borrowers, who took out loans guaranteed by the FHA, defaulted on their mortgages.

But what really scares industry experts is that the flood of FHA foreclosures would greatly affect whatever progress has been made towards the housing market recovery. It is expected that sales of repossessed houses will hit 1.9 million next year, an increase of 1.7 million from 2009. Before the collapse of the housing market in 2007, annual foreclosure sales were about half a million.

Industry experts said that one major reason for the anticipated increase in the number of foreclosure homes is the decision of lenders to hold off foreclosing on delinquent houses. Many lenders were struggling to identify the borrowers who will qualify for the federally-supported loan modification program. Experts are expecting that by the end of this year, lenders will come to realize that only a few borrowers are eligible to receive a loan modification.

Compounding the problem is the continuing increase in unemployment rate. It is predicted that unemployment will increase to more than 10 percent in 2010, pushing more homeowners to the brink of foreclosure. Also, the resetting of adjustable rate loans to higher rates is expected to result to more foreclosures. Industry economists believe that foreclosures will start to ebb by 2011, reducing to only 1.1 million if the economy will continue to improve.

Meanwhile, the worsening foreclosure problem is pulling down housing starts for single-family homes. From 2001 to 2007, housing starts rose consistently, hitting a record high of 1.7 million. Fast forward to 2009 and housing starts are expected to reach a bottom of half a million.

Industry experts said that the trends all conspired to push FHA foreclosures to the roofs and the agency may as well think about its position of not needing any help from the federal government.
John Cutts has been educated in the finer points of the foreclosure market over 5 years.

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