What Foreclosures Soaring 32% in April Will Mean

Foreclosures took a frightening jump up in April. A report from RealtyTrac says that the number moved up 32% over April of last year and hit 342,038. Home defaults and auctions rose 47% over the same period.

RealtyTrac's theory for the jump is that banks are becoming more aggressive in working through their portfolios of bad mortgages after telling the federal government that they would hold off to help stabilize the market. (Read "Four Steps to Ending the Foreclosure Crisis.")

There was no change in which states have suffered the most. In April the states hurt most badly were California, Nevada, and Florida.

The by-products of the news will challenge the government's plan to help people stay in their homes through programs like mortgage payment modifications. The programs were meant to build a foundation under housing prices and keep worthy homeowners in their houses by reducing monthly payments. But, homes in foreclosure at not candidates for the assistance.

People are also less likely to want to take advantage of programs that allow them to keep properties that are still falling in value because of a deteriorating housing market. Having a mortgage that is deeply underwater is not attractive to many people, even if their payments on that properties are brought down.

The news about foreclosure rates is also a challenge to bank earnings and balance sheets. If the government could have kept hundreds of thousand of mortgage holders in their houses, banks would keep at least some of the income for the properties. Those same banks now face large write-offs on their home loan portfolios which may make the recovery of the financial services industry even more difficult than it already is.

The rumors are that the housing market is bottoming. It is harder and harder to find evidence that the perception is true.

— Douglas A. McIntyre

See the 25 people to blame for the financial crisis.

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