Rescue fails many facing foreclosure

July 21, 2010 at 12:00a.m.

Associated Press

WASHINGTON

The Obama administration’s effort to help those at risk of losing their homes is failing to aid many and could spur a rise in foreclosures that would further depress the housing industry.

More foreclosures would force down home prices, and that would deter already-ailing home builders from starting new projects.

As a result, the economic rebound could suffer. Each new home built creates, on average, the equivalent of three jobs for a year and generates about $90,000 in taxes paid to local and federal authorities, according to the National Association of Home Builders.

“Foreclosures hold down the pricing for everybody,” said Marty Mitchell, vice chief executive officer of Mitchell & Best Home Builders in Rockville, Md. “As a builder, we have to be cognizant of foreclosures, if there are more coming along, because it affects pricing across the board.”

Home construction plunged in June to the lowest level since October, the Commerce Department said Tuesday. Driving the decline was a more-than- 20-percent drop in condominium and apartment construction, a small but volatile portion of the housing market. Construction of single-family homes, the largest part of the market, essentially was flat.

Applications for building permits, a sign of future activity, were up slightly. But that was also the result of the volatile apartment market.

The glut of homes being sold at foreclosure or as short sales — when a bank agrees to accept less than the total mortgage amount — could rise even faster in the months ahead.

More than 40 percent of the 1.3 million homeowners enrolled in the Obama administration’s mortgage relief effort have fallen out of the program, the Treasury Department said Tuesday.

“The program really hasn’t helped a lot of people, or at least not nearly as many had been hoped for,” said Mark Zandi, chief economist at Moody’s Analytics. He predicts that about 2 million homes are likely to be sold over the next 12 to 18 months as foreclosures or short sales.