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Housing Market May Be Healing Itself

This article is more than 10 years old.

Just as the Obama administration's efforts to help troubled borrowers begin to kick in, the ailing U.S. housing market may be on the mend on its own.

According to Chris Mayer, senior vice dean at Columbia Business School, the foreclosure crisis may be near its peak. Following a springtime burst of bank repossessions--mainly due to the expiration of government moratoriums--seizures are likely to begin tapering off in the summer, he says.

As bank fire sales slow, home prices should stabilize. Assuming that the economy begins to grow in the second half of the year, as many expect, "We may be starting to see a leveling off," Mayer says.

Mayer, a chief architect of several Senate housing bills in the last year, says the real estate recovery was mostly due to market forces and "there is little evidence that this is a result of government actions."

This bold assertion comes at a time when federal interventions to aid mortgage borrowers are just beginning to get in gear. The $275 billion Making Home Affordable program, a two-pronged effort to modify or refinance troubled loans, launched in April and lenders have only closed their first batches of workouts. The Federal Housing Administration's $300 billion Hope for Homeowners program has resulted in just one refinanced loan so far, though a more robust version of the program was unveiled in April.

Meanwhile, the number of newly delinquent borrowers didn't increase in March, an encouraging new trend. And sales activity is picking up, albeit often on distressed properties. But just the same, some markets, like subprime-scoured San Diego, are considered by many to have hit bottom. And if the market can really heal itself to some degree, then the necessity of government intervention is called into question.

Mayer did give a nod to the Federal Reserve for lowering interest rates to historic lows and noted that the $8,000 first-time homebuyer tax credit seems to be having a positive effect. And government-controlled lenders Fannie Mae and Freddie Mac , along with the FHA, have provided nearly all the funding for mortgages over the last year. So to say that Washington hasn't done anything wouldn't be fair, but to say that more interventionist efforts haven't mattered much would.

However, regardless of any forecasts for an end to the crisis, at the moment foreclosures are running at record levels and nearly one in 12 Americans were behind on their mortgage payments during the first quarter, according to the Mortgage Banker's Association.

Job losses--unemployment hit 8.9% in April--are also causing more borrowers to miss payments. The late-to-the-scene government foreclosure efforts might end up being crucial to stemming another wave of repossessions, which, unlike the previous wave spawned by loose lending standards, could be generated by the weak economy.

On Wednesday, RealtyTrac reported that one in every 347 homes received a foreclosure notice in April, only a slight uptick from the month before. While this rate has been high for two consecutive months, much of this is a result of the end of various state and lender-imposed bans on foreclosures.

"Basically the dam burst last month and we're still seeing the flood," says Rick Sharga, vice president of the Irvine, Calif.-based data provider.