A growing percentage of U.S. homeowners were saddled with “underwater mortgages” in the first quarter, accounting for almost one in four homes in a trend that poses a serious threat to the housing market’s recovery, real estate website Zillow.com said on Monday. U.S home values also declined again in the first quarter, Zillow reported. It was the 13th consecutive quarter of year-over-year declines. “Several large California markets have shown significant stabilization in home values, marking what could be a bottom,” Stan Humphries, Zillow chief economist, said in an interview. “But, most markets across the country remained in decline.” Home values declined year-over-year in 106 of the 135 metropolitan areas tracked by Zillow. Humphries said the government’s recently expired homebuyer tax credits likely only shifted the timing of sales, rather than creating new demand. Buyers seeking to take advantage of the tax credits had to sign purchase contracts by April 30 and have until
June 30 to close on the sales. Humphries said inventory levels were rising during the first quarter and home values continued to decline at a steady clip, even when the tax credits were still in place.

As a result, national home values are likely to reach bottom in the third quarter, and home value appreciation will likely then be near zero for some time, possibly as long as five years, he said. The number of homeowners losing their homes to foreclosure across the country rose to a new peak in March, with more than one in every thousand homes, or 0.11 percent, being foreclosed, the highest since Zillow began recording national foreclosure data in 2000. Foreclosure resales remained high in March, accounting for 22.2 percent of all U.S. home sales. Foreclosure resales made up the majority of sales in several metropolitan areas, the reports showed.

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North Carolina will receive $159 million as part of a federal aid package designed to fight foreclosures in states plagued by high unemployment.

The $600 million package announced Monday by the Obama administration is the latest sign that the nation’s foreclosure problem has spread from subprime borrowers to the growing number of people who can’t find work.

“The first wave of foreclosures had more to do with subprime loans, but right now many of the foreclosures in North Carolina are because of the surge in unemployment,” said Charlene Crowell, communications manager for state policy and outreach at the Center for Responsible Lending in Durham. “A little bit of money will help. It won’t solve all the problems, but it certainly comes at a time when many North Carolinians are needing help.”

Portions of the state have seen a jump in foreclosure filings so far this year. Filings in Durham, Johnston, Orange and Wake counties jumped 72 percent – to 1,516 – in January and February compared with the first two months of 2009. Not every filing results in a foreclosure.

There were 2.8 million foreclosure filings nationally in 2009, and that number could exceed 3.5 million this year, according to RealtyTrac Inc., a research firm based in Irvine, Calif.

Such predictions have caused the Obama administration to step up its efforts over the last six weeks to prevent foreclosures.

Last month, the administration pledged $1.5 billion for states that have seen the biggest decline in housing prices: Arizona, California, Florida, Michigan and Nevada. On Friday, federal officials announced a plan to reduce the amount some distressed borrowers owe on their home loans and give unemployed homeowners temporary relief.

Critics of these efforts question whether such programs are simply rewarding borrowers who acted irresponsibly during the housing boom.

North Carolina’s allocation will go to the N.C. Housing Finance Agency, whose mission is to provide affordable housing options to residents.

Margaret Matrone, the agency’s director of government relations and communications, said it’s too early to say what exactly the $159 million will be used for because Treasury officials won’t announce the rules governing the program for another two weeks.

Matrone noted that the agency already has several foreclosure prevention projects. One provides loan payments to people while they look for a job or are retrained. Another program, which received $6.5 million in federal grant money, counsels homeowners who are in danger of losing their houses.

“We feel like we’re in really good shape to do it,” Matrone said.

Treasury: Think locally

In announcing the $600 million aid package, administration officials emphasized that they want the solutions to come from the local level.

“We’re looking for innovation at the local level in these markets,” Diana Farrell, deputy director of the WhiteHouse’s National Economic Council, said on a Treasury conference call, Bloomberg News reported. “We want to stabilize the markets and prevent foreclosure.”

Of the five states receiving portions of the $600 million, only Ohio received a larger allocation than North Carolina.

The sizes of the allocations were determined by the number of people living in counties with unemployment rates of more than 12 percent.

North Carolina’s overall unemployment rate was 11.2 percent in February, and more than half the state’s 100 counties register rates above 12 percent.

Laws for homeowners

Earlier this month, state banking regulators announced several rule changes designed to fight foreclosures.

Beginning June 1, once a homeowner asks for a loan modification, any foreclosure actions must be halted. Under current rules, lenders can pursue foreclosures at the same time they’re working with homeowners to make their loan payments more manageable.

The second new regulation requires mortgage servicers to respond clearly and promptly when homeowners ask for mortgage assistance. A breakdown in communication can lead to foreclosure.

  “The vast majority of new distressed borrowers we are seeing involve the loss of income,” said John A. Courson, MBA’s President and CEO.  “This program is designed to buy those borrowers time to find a new job, after which they could hopefully qualify for a loan modification.” Loan servicers who participate in this program would reduce monthly payments to an affordable level based on household income, and borrowers would be initially evaluated for the forbearance program using a model that assumes the borrower will be reemployed within nine months of losing his or her job at 75 percent of the borrower’s previous salary.  The borrower would be reevaluated as to employment and income status every three months for a total forbearance of nine months.  

 Once reemployed, the borrower would be evaluated for a modification under the Obama Administration’s Home Affordable Modification Program (HAMP). “Recent statistics show that the average unemployed U.S. worker stays unemployed for between six and seven months,” added Courson.  “That is a long time for a borrower with a dramatic drop in income to stay current on their mortgage.  Further, borrowers with such a precipitous drop in income can’t qualify for most loan modification programs, so we are looking for ways to allow those borrowers to keep their homes while they look for another job.”

  job market is nothing to write home about, either.”  There were an estimated 234,000 new homes for sale at the end of December, according to the report. At the current sales rate, it would take 9.1 months to sell through that inventory. That’s up from December, when there were 8.1 months of inventory on the market. Prior to December, inventory levels had been steadily declining since May 2009. IHS Global Insight’s Newport said he also expects sales to pop this spring. However, he may reduce his full year forecast for new home sales in light of Wednesday’s report. “Builders are putting up homes,” he said. “But what these numbers are telling us is that those homes aren’t selling.”