Treasury: Foreclosures Likely to Remain Elevated for Two Years
In testimony delivered Thursday to the Senate Committee on Banking, Housing and Urban Affairs, Treasury Under Secretary for Domestic Finance Robert Steel provided some additonal insight into how adminstration officials are looking to handle a rising number of foreclosures. Perhaps the most telling was an admission that foreclosures are likely to be a problem for at least two more years. "Over the course of the next two years, we expect the foreclosure rate to remain elevated above its historic level," Steel said. "A rising foreclosure rate during a period of housing price depreciation is not surprising," he said. "Yet, largely because of relaxed underwriting standards in recent years â€“ particularly in the subprime market â€“ and resetting mortgages, the number of homeowners facing hardship will be higher than during other recent housing downturns." The Treasury expects 1.8 million subprime mortgages to reset in the next two years, Steel said. He also noted that "of the 2/28 subprime ARMs originated in 2005, 88 percent had not defaulted as of late last year" -- while Steel used the point to imply that the reset problem may be blown out of proportion, industry experts that spoke with HW said the numbers are likely understated by a heavy reliance on repayment plans. "There's a reason Standard & Poor's recently increased its loss assumptions to cover the entire lifetime of a RMBS deal," said one source, who asked not to be identified. Steel also reiterated the HOPE NOW statistics first reported a few weeks back, that show the industry outreach group making accelerated progress and intiating workouts with 370,000 subprime borrowers in the second half of 2007. Click here to read the full transcript.