Report: 3.2 Million Foreclosures Must Be Prevented In 2010 To Stabilize Housing Market

More than three-quarters of next year’s estimated 4.2 million foreclosures will need to be prevented in order to further stabilize housing prices, according to a new report by Credit Suisse analysts.

The analysts argue that already there are early signs of recovery. Thanks to a decline in foreclosure sales from their winter highs, the homebuyer tax credit, and “record high
affordability levels,” housing prices have begun to stabilize.

But for a recovery to take hold next year, foreclosure sales will have to decrease even more. The analysts note that if foreclosure sales represent some 25-30 percent of all home sales next year, then home prices could see an uptick.

For that to happen, though, the Credit Suisse analysts estimate that about 3.2 million foreclosures must be prevented next year.

It’s unclear how exactly that would happen, given the early returns on the Obama administration’s $75 billion foreclosure-prevention plan.

Some 31,000 homeowners have received permanent relief under the plan’s mortgage modification program, which aims to help troubled homeowners modify their mortgages into sustainable monthly payments relative to income. About 700,000 homeowners are enrolled in three-month trials.

The plan is aiming to help three to four million homeowners. A government watchdog has publicly questioned numerous times whether that’s achievable, given the performance to date and the plan’s design. For example, the plan requires that homeowners have an income. With 10 percent unemployment, many experts have questioned whether the government’s Home Affordable Modification Program (HAMP) can help the unemployed stay in their homes.

“Current performance statistics on HAMP are quite disappointing in the above context,” the Credit Suisse report notes.”However, multiple rounds of government attempts to achieve foreclosure prevention for those who fall through trial mods are likely to keep volume of foreclosure sales under check.”

That is, the analysts expect the Obama administration to step up its efforts.

“We anticipate multiple rounds of government attempts to achieve foreclosure prevention for those who fall through trial mods by lowering the bar or directing them towards alternative foreclosure prevention programs,” they wrote.

Though it would be welcomed by distressed homeowners, government efforts wouldn’t be free. Talk of federal budget deficits are playing a big role in the present job creation and health care debates on Capitol Hill. Lenders, investors, homeowners and mortgage servicers all receive taxpayer-funded cash for every successful permanent modification under HAMP. About $27 billion has been allocated thus far.

Underscoring the importance of preventing foreclosures, the Credit Suisse report notes: “Home price stabilization has primarily resulted from decline in share of foreclosure sales.”

If those start to creep up, this year’s gains in stabilizing the housing market could evaporate.

Read the report below:

Credit Suisse Report -