March foreclosure news scare

Nationally, foreclosures are up 47 percent from last year and, more scarily, up 7 percent from February.

Why scary?

Many struggling homeowners use income tax refunds to prop up their mortgages in March, so month-to-month foreclosures usually decline.

And, the bloodletting probably still isn’t over.

“I don’t think we’ve hit the bottom of the market yet,” says Rick Sharga, RealtyTrac vice president. “We should see at least one more short-term spike,” as more subprime loans continue to go into default.

Meanwhile, many banks are allowing struggling homeowners to refinance.

The economy of the next 18 months will tell whether this is a sensible move or pounding money down a rathole. My initial vote, though, is for “rathole,” and I’m not alone.

Jason Allnut, vice president of credit loss management with Fannie Mae, says he’s heard of people refinancing time after time and never making a single loan payment. “There’s been an abuse of modifications historically, which just creates bigger losses for the investor,” he says.

Some places, it probably won’t matter. In struggling northeastern Ohio, it could take at least three-four years for a rebound.

And, mortgages resold as investment devices have less flexibility to be renegotiated.