During the second quarter of 2008, U.S. foreclosure filings more than doubled from a year earlier, as falling home prices left borrowers owing more on mortgages than their properties were worth.

According to RealtyTrac Inc., one in every 171 households was foreclosed on, received a default notice, or notice of a pending auction. Almost 740,000 properties were in some stage of foreclosure, putting downward pressure on prices and increasing the possibility that homeowners would end up owing more than the value of their homes.

Twenty-five million U.S. homeowners face the possibility of owing more on their homes than they are worth, which would make it impossible for them to negotiate better loan terms or sell their property without contributing cash to the transaction.

A glimmer of good news is the fact that new home sales fell less than expected. Sales of new homes fell .06% to 530,000, compared to 533,000 in May 2008. It had been projected by economists that sales would fall to 503,000. The Standard and Poor’s Supercomposite Homebuilding Index rose 4.2%, lowering its loss for the past 12 months to 42%.

Falling home values and rising default rates have lead RealtyTrac to almost double the projected number of foreclosures in 2008 to about 2.5 million, although the housing bill passed last week by Congress may affect those figures. The housing bill is intended to help Americans with subprime mortgages refinance into 30-year fixed-rate mortgages backed by the government.

Forty-eight states had increased foreclosure filings in the second quarter of 2008, compared to a year earlier. Nevada was the hardest-hit, where one in every 43 households received a foreclosure notice during the second quarter, four times the national average and an increase of 147% from a year earlier. California was the second most affected, with foreclosure filing tripled from the previous year. Arizona, Florida, Colorado, Ohio, Michigan, Georgia, Massachusetts, and Illinois rounded out the top ten.

According to Guy Cecala, publisher of Inside Mortgage Finance, lenders are expected to cut in half the number of mortgages to purchase homes in 2008 compared with two years ago.

In a report published last week, economists at Lehman Brothers Holdings, Inc., predict that foreclosures will push all home values down by an estimated 6% and will contribute to national prices declining another 15% by the end of 2009.

Rick Sharga, executive vice-president for marketing at RealtyTrac, believes that a big problem in the market is uncertainty. “Buyers aren’t sure this is the right time to get in, lenders aren’t sure where to lend, investors aren’t sure where to put their money in an environment of depreciating assets. The psychology of the market is as responsible as the financial part of the market.”

Link to the article: http://www.bloomberg.com/apps/news?pid=newsarchive&sid=abN2dxnardoQ

Kathleen