Foreclosure Crisis Update

As the subprime foreclosure crisis grinds down slowly (there are still roughly 3 million pre-crisis subprime mortgages outstanding, many of them delinquent), and the HAMP program sunsets, the time has come to appraise the total damage done. In the ten years from 2007 through the end of 2016, about 6.7 million foreclosure sales were completed, and another 2 million or so short sales and deeds-in-lieu of foreclosure brought the total home losses to about 8.7 million, according to HOPE NOW.

Subprime mortgages accounted for 2 million of those foreclosure sales and perhaps another 500,000 of the stressed sales. The 2.5 million total home losses roughly matches predictions made at the onset of the crisis, and exceed by a considerable number the total number of subprime mortgages made to first-time home buyers from 2000 to 2007. In other words, subprime mortgages subtracted more than they added to home ownership.

The pre-crisis loans are by no means all resolved. About one million active mortgage loans were modified under the HAMP program, meaning that interest rates and payments were reduced for up to five years. Many of those mortgages will face steep rate and payment increases in the coming years, and many are also in negative equity, making sale or refinancing difficult or impossible. A total of around 8 million mortgages were modified under various programs at some point, although a significant portion of those later ended up among the 8 million home losses. The good news is that the number of homes whose mortgage exceeds the market value (underwater or negative equity) has declined from 30% of homes to fewer than 8%. The bad news is that just under 8% of homes are still underwater, a precarious situation that remains historically unprecedented.

These stats and many others can be found in an excellent new monthly housing finance data compendium from the Urban Institute.