Foreclosure Flood Waters Are Still Rising Fast

Last Updated Apr 15, 2010 1:51 PM EDT

The dam is bursting on foreclosures. New data out today shows that the number of homes repossessed by banks has hit a record high.

REOs, as they're called in the trade, rose nine percent in the first quarter compared to the previous one, according to housing industry research firm RealtyTrac. Home seizures are up 35 percent from the year-ago quarter.

Through March, one in 138 U.S. homes were hit with a foreclosure notice. As of February, some 6 million borrowers were at least two months late on their mortgages, government data indicates.

Since this crisis began, a couple things have become increasingly clear: Lenders and their investors don't want to reduce homeowners' mortgage payments, since that hurts corporate earnings; and the federal government's response to the problem has been, and is likely to remain, inadequate.

Both outcomes were predictable. To state the obvious, banks lend money for profit. Under that prime directive, they resist anything that would hurt their earnings. And financial institutions seek to use their enormous political clout to thwart any piece of public policy that threatens their performance.

Despite all the rhetorical huffing and puffing, President Obama and Congress -- especially Republicans -- remain in thrall to the financial industry. For example, rather than backing legislation last year that would have let courts force lenders to reduce a borrower's loan payments, the Administration and lawmakers opted for programs that gave the banks' discretion about whether to modify mortgages. The surge in foreclosures is partly a result of that decision.

Meanwhile, the housing market remains bleak, especially with the prospect of lenders putting growing numbers of foreclosed properties up for sale.

More broadly, the financial "reform" bill taking shape on Capitol Hill fails, in deference to banking and political interests, to tackle some of the leading causes of the housing bust. These include the existence of unnecessarily large financial firms, rampant predatory lending and the rogue waves caused by an almost entirely unregulated "shadow banking" system.

Although that bill is likely to be signed into law, probably by Memorial Day, it won't change the contours of that system. Past is again becoming prologue.

Sound good?

Image from Wikimedia Commons; table from Congressional Oversight Panel

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    Alain Sherter covers business and economic affairs for CBSNews.com.