Mortgage foreclosures rise to record

In any case, it will be some time before the dust settles on the mortgage market and any housing turnaround can be confirmed. That’s because the process of working out a delinquent loan — whether through refinancing or foreclosure — can take months to play out. For lenders and investors who bought bad loans, the process will likely extend well into next year.

“It can take 12 to 14 months for the loans to go through the foreclosure process and then be sold before a loss might be incurred (by the lender),” said Susan Barnes, head of mortgage-backed securities ratings at Standard & Poor’s.

In the meantime, hopes for a buoyant spring season have come and gone for the real estate market with little sign of recovery, especially in regions where the level of unsold new and existing homes remains at historically high levels.

"There are large inventories that will have to be worked off in certain sections of the country before we see a recovery take place," said Duncan.

Meanwhile, lenders have tightened standards for new loans, which has shut some potential buyers out of the market. Rising interest rates have also slowed demand.

“Certainly the evidence suggests that the housing recession is getting worse, not better,” said Nouriel Roubini, a former White House economist who is now an economics professor at New York University.

While the number of foreclosures hit a record, the national average masks strength and weakness in different regions of the country. Markets in California, Florida, Nevada and Arizona, which  saw the biggest boom, are now feeling the most pain — and will likely take the longest to recover. Ohio, Indiana and Michigan also saw high rates of foreclosures, according to the latest figures. But nearly half the states outside those trouble spots saw a drop in new foreclosures.

So far, it doesn’t appear that the housing recession has spread to the wider U.S. economy. Though interest rates have bumped higher, they still remain fairly tame by historical standards. Inflation, as measured the by the Producer Price Index, appears to be holding steady, according to figures released Thursday. And despite the pinch of higher gasoline prices, consumer spending has shown little sign of slowing, based on retail sales figures released on Wednesday.

All of which leads some economists to believe that despite the financial hit to the millions of individual borrowers who got in over their heads, the impact on the wider U.S. economy will be limited.

“The U.S. is a massive economy with incredible productivity, and the non-housing (gross domestic product) has been growing over 3 percent in the last year,” said Brian Wesbury, chief economist at First Trust Advisors.

“We can absorb these losses. It's going to be painful, and there's still some losses to come. But it's not the kind of thing that will drag the entire economy down.”

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