Every 13 seconds in America, there is another foreclosure filing. That's the rhythm of a crisis that threatens to choke off hopes for a recovery in the U.S. housing market as it destroys hundreds of billions of dollars in property values a year.
There are more than 6,600 home foreclosure filings per day, according to the Center for Responsible Lending, a nonpartisan watchdog group based in Durham, North Carolina. With nearly two million already this year, the flood of foreclosures shows no sign of abating any time soon.
If anything, the country's worst housing downturn since record-keeping began in the late 19th century may only get worse since foreclosures, which started with subprime borrowers, have now moved on to the much bigger prime loan market on the back of mounting unemployment.
In congressional testimony last month Michael Barr, the Treasury Department's assistant secretary for financial institutions, said more than 6 million families could face foreclosure over the next three years.
"The recent crisis in the housing sector has devastated families and communities across the country and is at the center of our financial crisis and economic downturn," Barr said.
A September report by a foreclosure task force appointed by Florida's Supreme Court pointed to a shift in the root cause of foreclosures: "People are no longer defaulting simply because of a change in the payment structure of their loan.
They are defaulting because of lost jobs or reduced hours or pay." Florida had the nation's highest rate of homes — 23 percent — that were either in foreclosure or delinquent on mortgage payments in the second quarter, and the report said "the latest news for Florida is horrifying."
A recent pickup in sales and home prices in some regions has been heralded as a sign that the crisis in residential real estate may be close to bottoming out, after the steepest price decline since at least 1890.
But nearly half of recent sales have been attributed to foreclosures or "short sales" at bargain-basement prices.
Even as the U.S. economy seems to be recovering from its worst recession since the Great Depression, mortgage delinquencies continue to rise.
And that adds risk to any relatively upbeat assessment, since foreclosures depress the value of nearby properties while eroding the net worth of homeowners and the tax base for communities nationwide.
The Center for Responsible Lending says foreclosures are on track to wipe out $502 billion in property values this year.
That spillover effect from foreclosures is one reason why Celia Chen of Moody's Economy.com says nationwide home prices won't regain the peak levels they reached in 2006 until 2020.
In states hardest-hit by the housing bust, like Florida and California, the rebound will take until 2030, Chen predicted.
"The default rates, the delinquency rates, are still rising," Chen told Reuters. "Rising joblessness combined with a large degree of negative equity are going to cause foreclosures to increase," she added.
Anyone doubting that the recovery in U.S. real estate prices will be long and hard should take a look at Japan, Chen said.
Prices there are still off about 50 percent from the peak they hit 15 years ago.
Jay Brinkmann, chief economist with the Mortgage Bankers Association, said foreclosures are expected to peak in the second half of 2010. But that forecast is based on a projection that unemployment will begin falling after topping out "barely in double digits by the middle of next year."
Last week the Labor Department reported the unemployment rate rose to a 26-year high of 9.8 percent in September, in the latest evidence that a turnaround in the jobs market is the missing link in the economic recovery.
Since the start of the recession, the number of unemployed people has soared 7.6 million to 15.1 million.
In Florida, unemployment is hovering at a nearly 40-year high of 10.7 percent, led by a steep decline in construction jobs.
Modifications and "Monsters"
Mortgage modifications, the centerpiece of a plan unveiled by the Obama administration in March to help as many as 9 million struggling borrowers hold onto their homes, have gotten off to a sluggish start.
The Office of the Comptroller of the Currency, which regulates U.S. banks, said in a Sept. 30 report that banks and loan services stepped up efforts to help distressed homeowners in the second quarter, more than tripling the loan modifications that reduced principal.
"This trend represents a significant shift from earlier quarters, when the vast majority of loan modifications either did not change monthly payments or increased them," it said.
Only a relatively small number of homeowners have seen financial relief from so-called "loan workouts" so far, however, and government officials acknowledge that far more is needed to reverse the national tide of foreclosures.
Help would be more than welcome in areas like Miami Gardens where there is a pervasive sense of anger about banks and the blight caused by foreclosures in a city that once boasted one of the highest home-ownership rates in the country.
A predominantly African-American community of 111,000 people, just north of Miami, it now has a 13 percent foreclosure rate — the second highest in Florida — and a glut of shuttered or boarded-up homes.
"The banks were bailed out first. We all assumed that they were going to turn around and help other people but that didn't happen," said Ruby Milligan, 61, a teacher who took early retirement after suffering a mild stroke several years ago.
She received a foreclosure notice from Deutsche Bank in August last year, but still lives in her Miami Gardens home, fearing a knock on the door with an eviction order any time.
Her retiree income is considered insufficient to qualify her for any modification of the adjustable-rate home-equity loan that she took out when the property was worth far more than it is today, she said.
"I feel that the banks should write these mortgages down," Milligan said. "They wrote these bad mortgages, they created these monsters."
One way of easing the crisis would be so-called "cramdowns," a measure giving bankruptcy judges authorization to write down the principal on homeowners' mortgages.
A similar measure helped curtail family farm foreclosures in the 1980s, but Representative Brad Miller, a North Carolina Democrat, said the banking lobby killed it when it came up for approval by Congress earlier this year.
"We fought that fight before and lost it," Miller said. "The industry will continue to oppose it."
Copyright 2009 Reuters.