Residential foreclosures have been rising for the past six months and will continue to accelerate in 2011, according to CoreLogic analysts.

The analytics firm estimates the number of actual foreclosures in 2010 totaled 1.3 million, up from the 1.1 million families who lost their homes in the previous year. "That runs at about 25,000 foreclosures a week in 2010, versus about 21,600 a year ago," said CoreLogic senior economist Sam Khater.

The economist expects foreclosures will continue to rise in 2011 even though the percentage of seriously delinquent loans has been declining.

He pointed out that more than one-in-five borrowers are underwater where the value of the house is less than the size of the mortgage. And negative equity is significant factor in foreclosure.

"By definition," Khater said servicers are not going to foreclose on a borrower with positive equity. Instead, they will force the borrower to sell the house, he said.

But once a borrower gets behind in their payments, negative equity makes it difficult to modify or restructure the mortgage to avoid foreclosure.

Early this fall, Amherst Securities issued a report called The Housing Crisis — Sizing the Problem, Proposing Solutions estimating that 11 million U.S. borrowers are in danger of losing their homes unless the government improves its loan modification efforts by coordinating with the private sector. (There are roughly 58 million in outstanding residential loans in the U.S., according to National Mortgage News and the Quarterly Data Report.)

CoreLogic estimated the aggregate level of negative equity in the U.S. now stands at $744 billion, a figure that will weigh on the housing market for some quite some time.

"We are still in the 4th or 5th inning for those borrowers who will be upside down for an extended period of time," Khater said.

Recently, CoreLogic released a report that shows 10.8 million single-family loans or 22.5% of all mortgages are underwater, as of September 30, compared to 11 million in the second quarter.
CoreLogic analysts attributed the 200,000 decline in underwater mortgages to foreclosures on severely negative equity properties.

The Santa Ana, Calif., provider of financial and property information defines negative equity as a mortgage with a loan-to-value ratio of 105% and higher.

Khater is forecasting that percentage of underwater mortgages will remain in 22% to 22.5% range in 2011 due to rising foreclosures and falling house prices. He expects rising foreclosures will counteract the increase in underwater mortgages caused by falling house prices.

Khater said house prices could fall 5% to 10% in 2011. "Demand is very weak," he said.

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