4 Reasons Why Foreclosures Might Increase In 2010

Last Updated Dec 15, 2009 2:46 PM EST

According to today's RealtyTrac numbers, the number of foreclosures in November 2009 declined 8 percent from October. That's the good news.

Unfortunately, the total number of foreclosures is up 20 percent from a year ago.

The scariest number: In 2009, 3.9 million homes were sent a foreclosure filing.

This makes the second year in a row that foreclosure filings hit an all-time high. As we count down the days to 2010, I'm wondering just how many foreclosures we'll see next year. Conventional wisdom says that as the recession eases, and more people get hired, the number of foreclosures should decrease.

That sounds reasonable, and over time it will likely be true. But there are (at least) four reasons why foreclosures might increase in 2010):

  1. People are still losing jobs. While there was a seemingly magic moment recently when all layoffs reportedly came to a near-halt last month, the reality is that the U.S. is still losing jobs, even if we lost only 11,000 jobs last month (a number that seems impossibly low). In fact, the U.S. needs to create somewhere in the neighborhood of 150,000 to 175,000 jobs each month just to stay even with the population increase. If folks can't find jobs (and currently about six people are applying for every job that's available), they won't be able to make their mortgage payment, and more houses will fall into foreclosure.
  2. Lenders are being forced to make trial loan modification permanent - or end them. Of the 728,000 homeowner who are in trial loan modifications, just 31,382 have been made permanent. Lenders say many homeowners haven't turned in their completed documents. Homeowners say lenders are losing documents. Either way, if you can't qualify for a permanent loan modification, either because you're out of work or because it's more profitable for a lender to take back the house, foreclosures will rise.
  3. The number of loans in default is at an all-time high. Of those homeowners in trial loan modifications, about 27 percent are behind in their payments. Of all homeowners with mortgages, more than 14 percent are late with their payments. As more homeowners default, lenders will have to start making tough decisions about foreclosing on these properties, as it becomes clear that the homeowners cannot get current on the loans.
  4. Property values could start falling after the home buyer tax credits expires. President Obama recently signed an extension and expansion of the home buyer tax credits. (Read the new home buyer tax credit rules here.) But all this "free" money ends on June 30, 2010, and even Sen. Johnny Isakson has said that there will be no further home buyer tax credit extensions. So what happens when fewer buyers are out shopping for a larger number of foreclosures? Property prices decline, and that means more homeowners will be underwater with their homes. If what we've seen so far holds true, the further underwater a homeowner is, the more likely he or she will be to walk away from their property.
Wall Street might be stabilizing, but on Main Street, we could be headed for another record year of foreclosures - and that's one record I'd rather not break.

Ilyce R. Glink is the author of several books, including 100 Questions Every First-Time Home Buyer Should Ask. She blogs about money and real estate at ThinkGlink.com.

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    Ilyce R. Glink is an award-winning, nationally-syndicated columnist, best-selling book author and founder of Best Money Moves, an employee benefit program that helps reduce financial stress. She also owns ThinkGlink.com, where readers can find real estate and personal finance resources.