NEW YORK (MainStreet) — First the good news, then the bad.
The number of underwater homeowners – those who owe more on their mortgage than their property is worth – declined for the third straight quarter, according to a new report from CoreLogic, a research firm.
There were 10.8 million underwater homes at the end of the third quarter this year, down from 11 million at the end of the previous quarter. In total for the first three quarters of 2010, CoreLogic reports 500,000 fewer homes with negative equity, though the 10.8 million that remain represent 22.5% of all properties in the U.S.
While this data set may provide some hope that the housing market is beginning to improve, it comes with one major caveat. During this time period, as the number of underwater homes decreased, the number of foreclosed properties increased.
A separate report from RealtyTrac estimates that there will be 1.2 million foreclosures by the end of 2010, an increase of about 300,000 from 2009, which offsets much of the reduction in underwater homes. Indeed, the states that CoreLogic found to have the biggest drop in underwater properties – Nevada, Arizona and Florida – also posted the highest foreclosure rates during this time period.
To put it bluntly, a big part of the reason that fewer homes are underwater now seems to be that banks have ramped up foreclosure proceedings against homeowners who have fallen too far behind on their mortgages, rather than working with them to renegotiate the terms of their loan.
The cause of this disturbing trend seems to rest with lenders as much as with the government.
According to the Congressional Oversight Panel, which released a report Tuesday reviewing the government’s mortgage modification program, lenders have “repeatedly lost borrower paperwork or refused to perform loan modifications,” opting instead to pursue foreclosures.
At the same time, the Treasury Department has failed to hold lenders accountable for their refusal to pursue alternatives to foreclosures. As a result, the panel estimates that government will only be able to prevent about 300,000 foreclosures from happening, compared to the program’s initial goal of stopping up to 4 million foreclosures.