Goodman, who took part in a panel discussion on the real estate market I moderated last week at the InterContinental Hotel in Boston, contends one in five homes is either in foreclosure or facing potential foreclosure trouble down the line.

That’s a whopping 11.6 million homes, or about 20 percent of the market, she told members of the Boston Security Analysts Society, which hosted the discussion.

It’s a number that arguably provides a more comprehensive picture than the conventional default rate – 13.5 percent according to the Mortgage Bankers Association.

And it clashes with conventional thinking in a banking industry bracing for another 4 million foreclosures, not double or triple that number. Here’s a link to a recent report by Goodman and Amherst that lays out the numbers.

Goodman’s forecast takes into account a high rate of re-default among struggling homeowners taking part in various, government-sponsored mortgage modification programs.

Goodman’s breakdown goes roughly like this. Twenty of every 100 loans are “impaired.” Of these, nine are seriously behind on their payments. Another six are now “Dirty Current” – in various government modification programs whose graduates have been defaulting at a rate of 50 percent a year. The final five are underwater on their mortgages by more than 20 percent – a group that has been defaulting at a rate of 20 percent a year.

It is a crisis that is more staggering that most of us realize – and is likely to have a much more dramatic impact on both federal policy and the banking industry than many are bargaining for right now.

Goodman predicts Uncle Sam will eventually have to embrace mortgage write-downs – letting 11 million-plus homes slide into foreclosure will prove politically untenable to policymakers and politicians in Washington.

“You have 11.6 million units in jeopardy,” Goodman said. “That is one borrower out of every five. You can’t foreclose on one borrower in five.”

“Politically this cannot happen. Successive mortgage modification programs will be attempted until something works,” she notes in a recent report.

Meanwhile, the banking industry could take a huge hit as well.

Nouriel Roubini, the economist who predicted the financial crisis and who has been dubbed “Dr. Doom” by the press, has looked at Goodman’s numbers and is warning of serious problems ahead for banks.

He pegs the potential damage at a cool trillion.

Ouch!

And as NPR’s Anthony Brooks reports, the foreclosure crisis is now deepening in states like Massachusetts, places that were initially spared the worst of the real estate collapse.

ANTHONY BROOKS: Paul Collier is an attorney in Cambridge, Massachusetts, who represents homeowners facing foreclosure. Collier says these days he’s busier than ever.

Mr. PAUL COLLIER (Attorney): The financial conditions that created this meltdown and the legal conditions that created the meltdown are still there.

BROOKS: Last month, banks took more than 1,300 Massachusetts homes – more than double the rate of the same period last year. That, according to Timothy Warren, CEO of the Warren Group, who tracks real estate in Massachusetts.

Mr. TIMOTHY WARREN (CEO, Warren Group): Foreclosures are at high levels right now. People are entering foreclosure at a very high rate. And, you know, that indicates a certain level of economic distress and that we’re probably going to be facing that for some period of time.

BROOKS: The historically high foreclosure rates are due in part to banks working extra hard to get those non-performing loans off their books. In other words, they want to close out the bad loans and resell the homes to people who can afford them.

Beyond that, Aaron Gornstein, who heads an affordable housing advocacy group in Boston, says the unemployment rate remains stubbornly high.

Mr. AARON GORNSTEIN (Director, Citizens’ Housing and. Planning Association): People are losing their jobs or have reduced work hours. We have a lot of people in the construction trades that are unemployed – close to 40 percent. So those people are falling behind on their mortgage. They can’t keep up and, as a result, they’re going into foreclosure.

BROOKS: Joel Searby agrees and says the high foreclosure rate has more to do with the tough economy than with the fallout from the subprime mortgage crisis. Searby is with a Florida research company that polled 500 Pennsylvanians who lost their homes to foreclosure, and asked them why.

Mr. JOEL SEARBY (Pollster, Strategic Guidance Systems): Forty-one percent had a prime, fixed-rate loan, while only eight percent had a subprime adjustable loan. The most significant finding is that those experiencing foreclosure experience job loss in a combination. That is, they didn’t just simply lose their job, they lost their job and then something else happened.

BROOKS: Something like medical bills, divorce or a relative moving in. He says the message is that foreclosures are tied more closely to bad economic conditions than to the type of loan. Searby says he found the same results in Florida and Nevada, two states hit the hardest by the real estate crisis.

According to a recent RealtyTrac report, in the first half of this year, the number of foreclosures went up in three-quarters of the largest U.S. metropolitan areas, compared with a year ago.

Mr. COLLIER: And until we do something about it we are going to be unable to resolve the current economic crisis.

BROOKS: Again, Cambridge attorney Paul Collier. He says foreclosures not only hurt millions of individual homeowners, they destabilize neighborhoods and drag down housing prices.

Collier says federal initiatives that encourage banks to rework loans and avoid foreclosures are too weak because they’re basically voluntary. But he says it doesn’t have to be that way. Collier points out that in the wake of the 1930s Depression, some states enacted tough measures to compel banks to lower monthly payments, and that dramatically reduced foreclosures.

Mr. COLLIER: States like Kansas and Iowa simply adopted mandatory mediation. That is, every lender had to sit in a room with a professional mediator and a homeowner and discuss modification of that loan. And foreclosures went down within 20 months of the passage of that bill by 94 percent.

BROOKS: In the absence of that kind of legislation, it might help if more Americans facing foreclosure knew about state and federal programs that could help them, programs that provide incentives to rework loans and lower monthly payments.

But Joel Searby – who did the polling on those facing foreclosure in Pennsylvania – found that a majority of those surveyed didn’t know how or where to get help.

Mr. SEARBY: There’s no doubt that there’s been a disconnect between what the federal government and state governments have been offering and what these folks who are experiencing foreclosure are needing.

BROOKS: So until that changes or until the economy dramatically improves, the number of foreclosures will likely continue to rise in the months ahead.

Anthony Brooks, NPR News.

OK, we will never catch up to Nevada, the foreclosure capital of the world.

But Massachusetts has one of the highest levels of foreclosure activity of any state in the Northeast, with numbers close to those of considerably larger states like New York and Pennsylvania.

I took another look at the latest foreclosure numbers RealtyTrac sent over the other day.

Based on the percentage of households facing a trip to the auction block, Massachusetts is battling it out for second place with Connecticut, with New Jersey the regional leader.

Lenders hit nearly 23,000 homes and condos with foreclosure filings and actions in Massachusetts during the first half of the year. That’s a 24 percent jump from the first half of 2009.

That is considerably above the 13,315 foreclosure filings Connecticut saw during the first six months of the year, but adjusted for population, our gambling happy neighbor to the south actually has a slightly greater percentage of troubled properties, which account for .92 percent of the market in the Nutmeg State. The percentage of properties facing a trip the auction block in Massachusetts is a shade below Connecticut, or .84 percent of all properties.

In fact the total number of foreclosure filings in Massachusetts is very close to the numbers seen in New York and Pennsylvania, at more than 24,000 and 27,000 respectively.

Of course, our two fellow Northeastern states are also much larger. The Bay State, at 6.3 million strong, has less than a third of New York’s population and about half of Pennsylvania’s.

I have tended to be skeptical about what I have felt were overblown claims about the impact of foreclosures in Massachusetts, but even if we are not Nevada, which had more than 64,000 foreclosure filings and actions in the first half of the year, it’s still a problem here.

The Globe has an interesting piece on an uptick in foreclosure filings in the downtown Boston luxury condo market.

Good story, though the real action now is taking place in the suburbs, in old mill cities like Lawrence, and in some of Boston’s poorest neighborhoods.

OK, we will never catch up to Nevada, the foreclosure capital of the world.

But Massachusetts has one of the highest levels of foreclosure activity of any state in the Northeast, with numbers close to those of considerably larger states like New York and Pennsylvania.

I took another look at the latest foreclosure numbers RealtyTrac sent over the other day.

Based on the percentage of households facing a trip to the auction block, Massachusetts is battling it out for second place with Connecticut, with New Jersey the regional leader.Lenders hit nearly 23,000 homes and condos with foreclosure filings and actions in Massachusetts during the first half of the year. That’s a 24 percent jump from the first half of 2009.

That is considerably above the 13,315 foreclosure filings Connecticut saw during the first six months of the year, but adjusted for population, our gambling happy neighbor to the south actually has a slightly greater percentage of troubled properties, which account for .92 percent of the market in the Nutmeg State. The percentage of properties facing a trip the auction block in Massachusetts is a shade below Connecticut, or .84 percent of all properties.

In fact the total number of foreclosure filings in Massachusetts is very close to the numbers seen in New York and Pennsylvania, at more than 24,000 and 27,000 respectively.

Of course, our two fellow Northeastern states are also much larger. The Bay State, at 6.3 million strong, has less than a third of New York’s population and about half of Pennsylvania’s.

I have tended to be skeptical about what I have felt were overblown claims about the impact of foreclosures in Massachusetts, but even if we are not Nevada, which had more than 64,000 foreclosure filings and actions in the first half of the year, it’s still a problem here.

The Globe has an interesting piece on an uptick in foreclosure filings in the downtown Boston luxury condo market.

Good story, though the real action now is taking place in the suburbs, in old mill cities like Lawrence, and in some of Boston’s poorest neighborhoods.

However, the days of letting troubled homeowners sit in limbo for months or years are long gone.

Banks are moving to seize homes and then unload them on the real estate market. Of course, the timing could not be better, coming just as prices falter and sales plunge with the end of the home buyer tax credit, but that’s a story/rant for another day.

Overall, the pace with which banks are seizing homes is escalating dramatically as we hurtle towards that dubious, 1-million-homes-repossessed milestone.

Bank repossessions jumped 5 percent from the first quarter and are a whopping 38 percent over the second quarter of 2009. The grand tally of 269,062 homes seized set a new quarterly high, RealtyTrac finds.

OK, so how is Massachusetts doing in all this frenzy of foreclosure activity?

Well, not so hot.

It’s easy to fall into the trap of comparing the Bay State with foreclosure disaster zones like Nevada and Arizona. We are not in that league.

But Massachusetts still had nearly 23,000 homes and condos hit with foreclosure filings and actions during the first half of the year. That’s a 24 percent jump from the first half of 2009.

In fact the total number of foreclosure filings in Massachusetts is very close to the numbers seen in New York and Pennsylvania, at more than 24,000 and 27,000 respectively.

Of course, our two fellow Northeastern states are also much larger. Our beloved Bay State, at 6.3 million strong, has less than a third of New York’s population and about half of Pennsylvania’s.

That’s certainly no reason to pat ourselves on the back. Rather, what has gone so wrong here in Massachusetts?

According to a new report from RealtyTrac, the marketer of foreclosed properties, 31% of all sales were foreclosures. And homebuyers purchasing those properties paid a whopping 27% less, on average, compared to sales of non-distressed homes.

These foreclosure sales include properties sold in short sales or after a bank repossession, known as REOs in industry terms. It does not include transfers from borrowers to banks, as in a sheriff’s auction.

REOs, those homes already taken back from borrowers, commanded lower prices than short sales and other pre-foreclosures. The average REO sold for 34% less than conventional sales while pre-foreclosures averaged only 15% less.

Part of the reason for the bigger price cut for REOs is that many of them come to the market in poor condition, their previous owners either unable to or unwilling to maintain them.

Beaten-down condos: ‘Deals of lifetime’

Foreclosures have become a dominant feature of many real estate markets, finding willing buyers among young bargain hunters and savvy housing market veterans.

During 2009, more than 1.2 million property sales involved foreclosures. That grew 25% compared with the year before, and 2,500% from 2005.

“That number boggled my mind,” said Rick Sharga, a spokesman for RealtyTrac. “A 2,500% increase over a four-year period surprised even us.”

Foreclosure sales were highest, expectedly in the bubble states. In Nevada, for example, they represented nearly 64% of transactions. And that’s actually an improvement over the 75% of all sales during the first three months of 2009.

Surprisingly, both Massachusetts and Rhode Island had higher incidences of foreclosure sales than did the bubble state of Florida, at 42% vs. 39%.

“Massachusetts and Rhode Island were two of the only Northeastern states that racked up unsustainable price increases during the boom,” pointed out Sharga.

Managing foreclosure inventories

Lenders have been trying to manage their inventories of foreclosed homes to prevent them from flooding the market and dragging down prices.

“It will be interesting to watch how they will manage the inventory levels of distressed properties on the market in order to prevent more dramatic price deterioration,” said Saccacio.

Sharga said the impact of foreclosure sales on the rest of the homes for sale can be very strong. He cited Nevada, where the price difference between foreclosed properties and conventional sales is very narrow, only 17%.

“That state had such a high incidence of foreclosure sales it managed to depreciate the entire inventory there,” he said

Foreclosures petitions, which mark the first step in the foreclosure process in the Bay State, fell 9.4 percent to 2,110 from 2,329 in May 2009 and were also down 13.2 percent from 2,431 in April. A total of 11,118 petitions to foreclose were filed statewide in the first five months of the year, a 1.3 percent increase from 10,978 during the same period in 2009.

But the number of completed foreclosures more than doubled in May compared to a year earlier. Foreclosure deeds, which are recorded when a property has been foreclosed on, surged 119.7 percent to 1,283 from 584 in May 2009. May foreclosures were down 6.7 percent from the prior month’s 1,375 foreclosure deeds. Year-to-date foreclosure deeds rose 48.4 percent to 6,107 from 4,114 a year earlier.

I spent time last night studying a foreclosure spreadsheet covering most of the towns and cities across our metro area put together by RealtyTrac.

The typical suspects – poor urban neighborhoods and small industrial cities – continue to struggle, with foreclosure activity, everything from initial notices to auctions, measuring well into the hundreds.

But the volume of activity is surging in the suburbs, especially in some of the towns along the Boston-to-Providence corridor and along the South Shore as well, especially in the Plymouth area.

There’s a lot of data here, so for today, I am going to focus on those southerly suburbs on the Providence corridor, stretching from Medfield and Walpole to Wrentham, possibly one of the more intriguing buying opportunities out there.

The prices are generally a step down from the tony western suburbs, while the commute to Boston is still endurable. Jump on the commuter rail say in Walpole and you are in town in 45 minutes to an hour – as far as I know there are no competing freight trains, as there is on the Wellesley/Framingham line, to constantly derail schedules.

After skyrocketing during the bubble years, prices have also settled back to earth in these towns, with the median price of a home in Medfield now back at $565,000. Other towns in the southerly suburbs, like Millis, Medway, Norwood, Walpole, Sharon and Foxboro, have median sale prices in the $305,000-to-$370,000 range.

And it’s an area that is now seeing a sharp spike in distressed properties. While the numbers may seem small compared to the hundreds of foreclosure notices and auctions that have ripped through Boston’s poorer neighborhoods in just the first four months of the year, in many cases foreclosure activity in these towns is on par or exceeds regular sales activity.

More than 70 homes in Franklin fell into trouble during the first four months of the year, spanning the range from initial foreclosure notices to auctions. Through the end of April, by contrast, 63 homes were sold in the town, at a median price of $373,000, the Warren Group reports.

Other towns in Boston-to-Providence corridor are also seeing sizable jumps during the first four months of 2010 compared to the same period in 2009, RealtyTrac reports. All sales numbers and prices below come from the Warren Group.

• Medfield saw 16 homes fall into foreclosure trouble, a 250 percent increase, compared to 33 homes sold overall. The median price is $565,000.
• Sharon saw a 100 percent jump in foreclosure activity involving 34 homes, a doubling from the same period in 2009. Forty homes were sold during the same period, at a median price of $370,500.
• Medway experienced a 275 percent surge in foreclosure activity involving 45 homes. That is well more than the 25 homes that sold during the first four months of the year, at a median price of $325,000.
• Foreclosure activity in Millis soared 250 percent, affecting 28 homes, more than double the 12 homes that sold in town through April at a median price of $306,000.
• Foxboro saw foreclosure activity jump 68 percent, with 27 homes involved, compared to the 31 homes that sold during the same period at a median price of $351,000.

The mistake when looking at foreclosure data may be in thinking too literally – great, I will try and snag a home set at a foreclosure auction.

The auctions are tricky and by that point the bank or investors with cash to burn have already swooped in. But there are a whole bunch of homes that never get that far – the owners are facing trouble but trying to do a short sale or are just ready to bargain and sell fast.

Beyond that, a rising number of distressed properties in a particular town are certain to put downward pressure on prices, forcing other prospective home sellers to compete.

Bank of America’s Foreclosure Fight Plan

Wednesday, March 24, 2010

SUSIE GHARIB: Welcome relief today for some people who can’t make their mortgage payments if they’re with Bank of America. Tom, under pressure from state attorneys general, the bank agreed to forgive as much as 30 percent of the loan principal. Today’s announcement comes as part of a settlement with the state of Massachusetts.

TOM HUDSON: And you know Susie, lots of strings are attached though to qualify. In fact for one thing, relief is only for certain types of mortgages. The homeowners also have to be at least 60 days behind on their payments and significantly underwater on those loans. Now just 45,000 people are eligible nationwide.

GHARIB: And those loans could be reduced by a combined total of $3 billion. The plan goes into effect in May. Now leading the negotiations with Bank of America was Massachusetts Attorney General Martha Coakley and she joins us now. Attorney General Coakley, thank so you much for coming on the program.

MARTHA COAKLEY, MASSACHUSETTS ATTORNEY GENERAL: Good evening.

GHARIB: Let me begin by just congratulating you on the deal. Forty five thousand people will be helped by this agreement. But my question is, is that enough? We report on our show all the time that there are millions of people who are under water in that they owe more to banks than the value of their home. Is this enough?

COAKLEY: Well, it is certainly a good start, because we’ve tried with other attorneys general to push this idea that modifying loans, reducing principal so that you get modifications that actually work to keep people in their homes, this is the first time that people have really been willing to do this. And so Countrywide, those who have Countrywide Mortgages will benefit, but our hope is that other servicers, holders of notes will recognize that this is really what has to happen to make sure that we stop the spread of foreclosure and we start to turn this economic crisis around.

GHARIB: Well, that’s a good point. Do you think that your agreement with Bank of America will be a prototype for other lenders and even for the Federal government for the Treasury to do something similar?

COAKLEY: Well, we hope so because for several years now, we’ve worked on foreclosure rescue schemes, on bringing lawsuits. The attorneys general had an agreement with Bank of America, with Countrywide in the past. But even though the servicers have said they’ve been willing to modify loans, we’ve seen somewhat half hearted efforts even from the Federal pressure. This is an agreement that they will do this and we believe it’s commercially reasonable for them to do it, rather than to have homes foreclosed upon. And we hope that it finally is beginning to dawn that this is what should happen to turn this around, keep them in the home, but also stop the greater threat of foreclosures, make sure we don’t have the abandoned property and keep people back, you know, paying a monthly amount so that we really stop the trend that we’ve seen that’s really underlying the root of a lot of this economic crisis.

GHARIB: You mentioned about the half hearted efforts. Even in the case of this deal with Bank of America, what can you do to make sure that they really do modify loans in this way?

COAKLEY: Well, I think it’s clear that as a result of our investigation and in fact that we were looking for this remedy. We were prepared to bring suit if we weren’t able to reach this agreement. And some of the money that comes to the commonwealth are for monitoring and implementation of this agreement. We believe very strongly that this has to happen. It has to happen in a way that actually keeps people in their homes. So we’re committed to it. And the fact that it is going to be national I think will have both other servicers as well as other attorneys (AUDIO GAP) people in their homes not just modifying those foreclosure in another six months or a year.

GHARIB: So what’s next? What’s your next move? What else can you do and other states do to help distressed homeowners who are not part of, who do not have loans with Bank of America, but what more can you do to help distressed homeowners?

COAKLEY: Well, as we have looked at the range of options, as we have in Massachusetts brought a suit against Freemont and a suit pending against Option One, we are continuing to focus on both holding accountable those who made these kinds of loans and I should point out that they’re not just sub-prime loans here. These were loans that were made in a variety of ways to people who might have had more, they were credit worthy borrowers. They might have had less risky financial products and I think we’re going to continue to look at those who have made the loans, those who are servicing the loans, where the sticking point has been. Let’s get the servicers together with the holders of the notes to say this is what really should be happening, to continue this push to really stop the spread of foreclosures. So we’re going to continue to stay active with many of the other attorneys general and I know the Federal government through its program in working in conjunction with attorneys general looking at mortgage fraud, but also looking at ways in which we start making these remedies be real remedies to keep people in their homes.

GHARIB: Certainly a lot more work to be done. We appreciate your coming on the program to tell us about this first phase. Thank you very much.

COAKLEY: Thank you.

GHARIB: My guest tonight, Martha Coakley, Massachusetts attorney general.

But the problem is by no means over: The number of foreclosure deeds filed – the final step in the foreclosure process – has risen by 14 percent in the first two months of this year compared with the same time last year, according to statistics tracked by The Warren Group.

However, the number of initial petitions to foreclose fell 6.1 percent in the first two months of this year, compared with the same period in 2009.

Warren Group CEO Tim Warren said he currently considers initial petitions to represent a more accurate barometer of the status of delinquent loans in the state. He said that’s partly because there is a widening delay between when a home is auctioned off in a foreclosure auction and when the ownership change is recorded as a foreclosure deed.

Warren said the initial petitions peaked last summer, at a rate of nearly 3,000 petitions a month statewide. In contrast, about 2,100 were filed in the state last month. That’s a modest increase from the nearly 1,900 petitions filed in January, but still roughly in line with what The Warren Group has seen in the past four months.

Warren said he expects foreclosures will continue to haunt the local real estate market because of the state’s relatively high unemployment rate of 9.5 percent.

“We haven’t solved the jobs problem,” Warren said. “As long as people are unemployed … to the tune of 10 percent, that’s a bunch of people who are struggling to make ends meet, trying to squeeze a mortgage payment out of unemployment benefits.”

The city of Boston has seen significant improvements with its foreclosure problem. The number of foreclosure deeds filed in Suffolk County – which consists of Boston, Chelsea, Revere and Winthrop – in the first two months of this year fell 22.3 percent from the same time in 2009, and the number of initial petitions to foreclose fell 20.9 percent.

But Cape Cod, with its prominent second home market, continues to struggle. The number of foreclosure deeds filed on Cape Cod rose 46 percent in the first two months of this year, and the number of initial petitions were up by 1.4 percent.

But there is a flurry of signs, some national, and one local, that we just might be finally reaching a turning point.

On the macro level, the number of homeowners falling behind on their mortgages actually fell in the fourth quarter, the Mortgage Bankers Association reported Friday.

Mortgages either 30 or 60 days past due fell in the fourth quarter compared to both the third quarter of 2009 and the last three months of 2008 as well.

Meanwhile, a few government officials appear to be finally getting the idea the time is past for fancy sounding initiatives with big numbers that, when push comes to shove, just don’t work.

The Obama Administration is sending $1.5 billion to five states hardest hit by the foreclosure crisis, namely Nevada, California, Florida, Arizona and Michigan. The money will be used to do everything from bail out underwater homeowners to help the jobless pay their mortgages.

That has got to be more effective than all those silly loan modifications.

And locally, the number of foreclosed homes sitting empty in neighborhoods across Boston is also starting to fall markedly.At one point, there were nearly 1,200 foreclosure specials out there in neighborhoods like Dorchester, Roxbury, East Boston and Mattapan.

That number has since plunged to 778, Evelyn Friedman, head of the Department of Neighborhood Development, tells me.

City Hall has either purchased or put under agreement 120 foreclosed homes, which it plans to resell to local nonprofit housing organizations, developers and individual homeowners.

“I would hope in the next two or three years we would be finished with the foreclosure problem here in Boston,” Friedman said.

Bold words yes, but backed up with some real action.