The article I’m referrencing from the Wall Street Journal today is by Peter Eavis and shows a chart with a straight line increase in foreclosures from 2006 through the end of the the 3rd quarter, 2009.   The percentage of mortgage holders that are 90 days past due is rising at a scary pace – now over 8%!  The scary part of that number is not the number but the current direction – still rising at almost a 3% per year clip.  If there is no change in direction in 2010, then by this time next year, 12% of mortgage holding homeowners will be in foreclosure or a hairs breath away from it.

The article is worth reading if you can find it.  It purports that the real problem causing the foreclosures is not that borrowers are “unable to make payments” but that they owe more than their home is worth.  More home owners than ever are having trouble finding a reason to make their mortgage payment.  This is the real issue.

What is also worth noting, is that the Feds recently made it more difficult for banks to foreclose.  By adding a new local meeting with homeowners and longer waiting periods as well as stiffer penalties to the bank for making a mistake in the process, it take a bank 3 to 6 months longer to complete the process.  This will not likely cause fewer foreclosures – instead it will prolong the whole situation.  So you add negative equity to a tougher foreclosure conclusion and you’ve got a senario that could last a while.

My sense of things is that the two “facts” above are not the most important peices of information – because personal finance is rarely about the facts.

Think about this with me for a minute:  Let’s say you will be inheriting a $400,000 home, but the home is stuck in probate.  In order to get this home out of probate you have to keep the mortgage holder happy by making the  monthly payments of $3000 on the $100,000 mortgage.   It is estimated to be a three year period of time before probate awards you the right to sell this home and reap the reward.  How hard would  you try to keep the mortgage paid?  My guess is you’d sell a car, quit going out to eat for a while, whatever.  You have 300,000 reasons to fight to make that payment each month.

Take away a financial reward and many are redefining what is “possible”.  Today, making payments during a difficult time is not something many are willing to do – they don’t see anything important riding on it.  I’ll get back to that – who wants to talk about doing the right thing?

All that said, I’m an optimist.  I like to think that the “next report” will be better.  I am anxious to see the last quarter of 2009 numbers.  Even a slight leveling off would be nice to see.  I’ll try to stay on this stat for you.

Until then, expect at least two things:

1.  Mortgage Lenders will be harder on NEW applicants until they see the current pipeline shape up.

2.  Home values will not rise meaningfully in markets where foreclosures are rising; this is most markets in the US and certainly true of mid-Michigan.  Sure they may stop plummeting, but won’t rise.

Now back to my sermon.  If you are someone who owes more on your home than the home is worth and you have the ability to tighten your budget and make your payments - do it.  Don’t give up.  Do what you have to do.  Use your investments.  Call a friend.  Have family step in.  Do the right thing.  Pay what you borrowed.  Even one fewer home on the market in 2010 will make a difference.  You borrowed the money – YOU pay it back.

If I had a nickle for every time I heard a client tell me that this housing crisis wasn’t there fault and they had no choice but to pack their flat screen TV, XBOX, and Ethan Allen furniture in the back of their 2009 stricked out leased suburban and get out – I could pay MY mortgage off.

But hang on. As it turns out–with this stat, at least–things are looking pretty good here too. If by “here” you mean the Midwest in general.  The Pending Home Sales Index is based on contracts signed in September. Nationally, this number rose 6.1% against the previous month, and is 21.2% higher than in September of last year. This is the largest annual increase on record. In the Midwest the index rose 8.1 percent and is 17.8% higher than last year. Not bad. And though foreclosures will continue to work against us, they’re coming at a slower rate. The net result? Reduced inventories.

And there are other things helping to reduce inventories: the imminent extension of the first-home-buyer tax credit (or some form of it); the extension of Freddie, Fannie, and FHA higher loan limits (just announced last week); and the release of pent-up demand as approximately three million renters have moved into the financially-qualified category as potential buyers (this according to the NAR); and now, the continued gains in pending home sales.

Collectively, these should cut into the existing inventory and act to lower supply and eventually raise home prices. We’re seeing this in other markets around the country, and where we see home prices rise, we’re also seeing more willingness on the part of lenders to underwrite. And that will happen here too, eventually.

I’m not going to say be patient, because if you’re still in this business, you learned how to do that long ago.