Can we act upon the headlines?

It’s 2011, and with the beginning of a new year comes new hope for a year better than the last one. If you believe the headline statistics touted by retailers and economists, we’re in store for a rebound. Here are some of the signs heralded as indications of an economy on the road to recovery:

• Retail sales for the 2010 holiday season were at an all-time high
• Auto and Banking industries are repaying bailout funds from 2008 to regain companies
• At the end of 2010 unemployment claims nationwide dropped, and in California stabilized
• Sales of existing homes increased in 2010
• In 2010, foreclosure activity saw a 14% decrease nationwide, according to data tracking from RealtyTrac

Unfortunately, relying on 2010 statistics as a basis for optimism could be misleading, especially when looking into the statistical support for some of them. If one just accepts the statistic that foreclosures sales have fallen dramatically it will not be a true picture. We need to examine the drivers behind decreased foreclosures. As a result of “Robogate”, which exposed the practices of lender middle managers signing affidavits allowing banks to repossess homes in default without fully reviewing the documents, major lenders and loan services halted foreclosure proceedings last fall to evaluate their document review process. It’s now 2011, and financial institutions are gearing up to resume foreclosure activities. What also looms on the horizon is another round of adjustable rate mortgage resets to higher rates in 2011 which could potentially contribute to higher foreclosure numbers if borrowers can’t make increased monthly payments. Or worse still, borrowers faced with higher mortgage payments could decide they owe more than the property is worth and simply walk away in mass numbers.

With all the talk of a rosier outlook for 2011, it’s clear that borrowers are still facing the issue of losing their home. However, loan modifications and short sales still exist as viable options for homeowners to keep their homes while the economy stabilizes. The simple fact remains that lenders don’t want the cost of REOs dragging down their balance sheets, and invite alternatives to keep borrowers out of delinquency. They will invite alternatives that enable their books to show a positive direction. Many insiders are concerned about the prospect of an additional price decline although most that I have spoken to do not feel we should expect another large decline.

The reality is that as long as lenders keep their very tight lending criteria we cannot expect that any increase in values is just around the corner. At some point the reality of profits will need to translate into looser lending.

All the talk of an economic turnaround could lull homeowners facing distressed situations into a false sense of security. But borrowers facing delinquency or foreclosure do have options at their disposal to keep them from becoming the next bad statistic. Short sales and loan modifications are alive and well in 2011, and can help people stay in their homes or at worst have a solid chance of a fresh start.