Foreclosure rate dips but expected to stay high

Meanwhile, as the number of unsold homes piles up in some markets, some potential buyers are having a harder time getting loans, and lending standards have tightened for those who can. That’s reduced the number of potential buyers for unsold homes.

With Democrats on the campaign trail proposing various measures to help homeowners facing foreclosure, the White House has also been trying to get out in front of the issue.

“My guess is that this foreclosure issue is going to be a major political football during the election,” said Sharga. “That could either lead to both parties not doing anything so they can blame the other or both fighting each other to come up with novel solutions to help homeowners who are losing properties.”

The latest proposal came Wednesday from the White House, when Treasury Secretary Henry Paulson said an industry coalition was working to help homeowners head off foreclosures and keep their homes. Paulson said 11 of the largest mortgage service companies, which together handle 60 percent of the nation's mortgages, had agreed to join the new coalition. Other members will include mortgage counseling agencies, investors and large trade organizations.

Democrats have said the White House actions so far have been too little and too late to significantly address the problem.

The solution to the problem will likely take more than new spending or tax dollars. Most lenders would prefer not to foreclose because the process almost always costs them money; foreclosed homes are usually priced for quick sale, which means they may not cover the unpaid loan outstanding.

But homeowners often fail to approach lenders until they are too far behind to work out a restructured payment plan. Many have trouble even identifying who their lender is. Most mortgages are sold off to investors and then serviced by separate companies. Some regulations designed to protect consumers from overly aggressive collection agents may bar lenders from contacting homeowners whose loans are in trouble.

Unscrambling the foreclosure mess has been further complicated by the huge volume of bundled loans that were chopped up by Wall Street and sold off to investors.

“There are just so many elements to this process that are screwed up or broken that it’s mind-boggling,” said Sharga. “It’s a maze of restrictions and regulations and complications that you almost need a third party to come in and slice through because that’s the only way you’re going to be able to make it work.”

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