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As long as Americans have owned homes and records have been kept, never have more families lost more homes to foreclosure than in the first six months of this year. The raw numbers in RealtyTrac's latest report are startling.

Foreclosures: Time for Heat or Light?

As long as Americans have owned homes and records have been kept, never have more families lost more homes to foreclosure than in the first six months of this year. The raw numbers in RealtyTrac’s latest report are startling.

Two thirds as many American families lost their homes during the first half of this year as bought homes. Foreclosures boosted inventories of homes for sale by 1.5 million units, about a third of the current national inventory of existing. That’s also about ten times greater than the number of new homes expected to be sold this year.

One in every 84 American households received at least one foreclosure filing between January and July. That’s nearly as many foreclosures as the total number of public housing units in the United States.

If every family living in greater Atlanta, Pittsburgh, Dallas, Seattle or Boston lost their home, imagine the devastation it would cause to the community. The actual number of homes foreclosed upon in the past six months exceeds the number of households in each of those cities.

Add these foreclosures of the past six months to the millions executed since this plague gripped the nation in 2006 and the extent of the human and social misery becomes difficult to fathom. Certainly, many borrowers were greedy, foolish or ignorant. Perhaps an equal number were unlucky or victims of fraudulent lenders. Whatever the circumstances, foreclosures hurt everyone. They uproot families, devastate credit, injure neighborhoods and torpedo housing values, increasing the likelihood that other local homeowners will default.

Unfortunately, the near future looks grim. June was the fourth straight month with more than 300,000 filings. That’s a 9 percent increase in total properties from the previous six months and a nearly 15 percent increase in total properties from the first six months of 2008. Foreclosure filings were reported on 889,829 U.S. properties in the second quarter, an increase of nearly 11 percent from the previous quarter and a 20 percent increase from the second quarter of 2008. Delinquencies are up (see It’s the Economy, Stupid) and July may very well break 300,000 again.

The relentless foreclosures now are creating an atmosphere of panic and fear. Pressure is mounting on the Administration to produce the results it promised with its Making Home Affordable program. But yesterday the Assistant Secretary for Financial Stability Herbert M. Allison (what a great title!), had little new to tell the Senate Banking Committee.

He measured progress by the number of lenders participating in the program (27), the number of trial modifications underway (“tens of thousands”) and the number of visitors to the program’s web site (22 million page views.)

Yet he did not cite one borrower who has actually closed on a loan modified under the program.

“At this early date, Making Home Affordable has already been more successful than any previous similar program in modifying mortgages for at risk borrowers to sustainably affordable levels, and helping to avoid preventable foreclosures,” was the best Allison could do. The only previous similar program in modifying mortgages was the widely discredited Home for Homeowners, which still exists but has modified only 52 loans at last report.

Allison finished by promising to turn up the heat on the servicers. Beginning August 4th Treasury will begin publicly reporting servicer-specific results on a monthly basis. “These reports will provide a transparent and public accounting of individual servicer performance by detailing the number of trial modification offers extended, the number of trial modifications underway, the number of official modifications offered and the long term success of modifications,” he said.

“We are also planning to deploy a data reporting tool that will contain over 130 data elements and will be able to provide a comprehensive assessment of the program at the loan, servicer, and mortgage market levels. This will enable the program to be effectively measured against specific performance benchmarks,” he said. No doubt the intent is also to light a fire under the serricers.

An excellent piece by Carrick Mollencamp and Serena Ng in Wall Street Journal last week shed more light on the situation than heat. The reporters visited with a small lender in Irving, Texas who is struggling to make the program work. To handle the volume of modifications it hired or expanded contracts with four outside companies and it recently added a late shift from 4 p.m. to 11 p.m.

“Staff lacked the training and experience to modify so many sour loans. During the housing boom, Saxon’s mortgage-servicing employees did little more than send monthly statements in the mail and track down delinquent borrowers. Like other mortgage servicers, Saxon was essentially the link between borrowers and the investors who owned pools of mortgages. It handled the day-to-day business of collecting payments on behalf of those investors, and when borrowers fell behind, of covering the payments until it could collect. When borrowers defaulted, Saxon would either modify the loans or foreclose.

“Now, firms like Saxon are under pressure to stem foreclosures at all costs. That means many employees need to be trained in an entirely new set of skills. Under HAMP (the Administration’s program), reworking a single loan can be a time-consuming process with many steps, from calculating a borrower’s debt-to-income ratio, to negotiating with investors who own different slices of the loan pool, to figuring out which type of modification works best for each borrower. Loan specialists need to study multiple guidelines, online tutorials and a HAMP data dictionary with terms such as “underlying trust identifier,” they wrote. Even the company’s scanning equipment had to be replaced to handle the load. Borrowers facing foreclosure wait four weeks, six weeks or even longer to hear whether they have been approved, and even longer to close.

Is Saxon an anomaly, a small guy simply lacking the resources to take on the program? Is the answer to turn up the heat on them with monthly reports and a “data reporting tool that will contain over 130 data elements”?

Or should we multiply Saxon’s experience many fold to gain a better understanding of why it has taken the Federal government and the world’s most sophisticated lending institutions five months during the most critical phase of the greatest crisis in the history of housing to achieve no results?

Finally, does Making Home Affordable need more heat, more light, or both?

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