With FHA, Freddie Mac and Fannie Mae conventional loan limits being raised to nearly $730,000, the housing industry should be breathing a sigh of relief. Or are new conventional loan limits just a band-aid on the huge foreclosure wound?

A new coalition of mortgage lenders called Project Lifeline aims to help homeowners who are 90 days or more behind in their mortgage payments. The program includes a 30-day pause to give homeowners and their lenders time to work out a payment or loan modification solution.

Other homeowners can refinance their high-risk loans into conventional loans, and the higher loan limits will allow more homebuyers access to conventional loans.

But will that slow foreclosures?

Some believe the foreclosure crisis, such as the crush of foreclosures in Southern California, aren't being caused by subprime loans, but by homeowners who are simply walking away from homes with negative equity. They could make the payments. They just don't want to. Why are they being pressured by price? New homes that aren't selling.

"If you look at the hardest hit areas, you will see they are the areas with the most dramatic growth," says Sean O'Toole, spokesperson for ForeclosureRadar.com. "In Stockton, for example, there is an unsold new construction inventory of over 7,000 units (source: Hanley Wood, includes improved lots), yet only 150 homes (MLS) selling each month. That has put serious downward pressure on pricing -- with builders leading the charge on discounting to get existing inventories sold."

A recent study by the Boston Federal reserve found that downward pricing pressure is the primary cause of foreclosures – not subprime loans.

O'Toole points out that Realty Times noted a correlation between the date range of loans in foreclosure and the origination of risky loans, but he says the date range of loans in foreclosure also correlate with being upside down (prices have fallen to 2005 levels).

"As we think about how to get out of this crisis, I think we should all focus on the core problem -- price declines due to too much inventory. Without action this problem will get worse before it gets better. We added 60 percent more REO's to existing inventory in January than we did in December (exclusive ForeclosureRadar.com data). Ultimately, of course, it will self-correct even without intervention, with prices falling until the rent/price relationship comes back into historic norms."

Published: February 18, 2008

Use of this article without permission is a violation of federal copyright laws.

Blanche is a renowned author of five real estate books. Her newest, Bubbles, Booms and Busts: Make Money In Any Real Estate Market, McGraw-Hill, was rave-reviewed by The New York Times. She was also selected from hundreds of real estate experts to contribute to Donald Trump's book, Trump: The Best Real Estate Advice I Ever Received: 100 Top Experts Share Their Strategies, Rutledge Hill Press, and is featured on page 68. Order Now Review - Honors In 2006, Blanche was selected among scores of candidates to author two consumer real estate guidebooks for the National Association of Realtors: The NAR Guide to Home Buying, and The NAR Guide to Home Selling, Wiley & Sons. She is currently planning two new books for the NAR and its members.       Known for her keen insight into real estate industry issues and for her ability to make complex subjects easy to understand, Blanche is a sought-after keynote and continuing education speaker. Real estate organizations from MLSs, to brokerages, to franchisors, to associations hire her to provide up-to-the-minute analysis of real estate industry news and advice on how to improve revenues. Her passionate delivery, peppered with stinging wit, is a huge hit with audiences and fans. Don Klein, CEO Greater Nashville Association of Realtors, Blanche Evans, Richard Courtney, president 2007, GRAR "The GNAR membership meeting last week featured Blanche Evans as the keynote speaker. Her comments and insights resonated extremely well with those in attendance and we have had many requests for copies of her PowerPoint Presentation. She was a terrific part of the membership meeting and convention program!" - Don Klein, CEO Greater Nashville Association of Realtors Coverage from WSMV, Nashville - 8-14-2007 That Interview Guy - Get Inside The Head Of Today's Generation 2007 AE Institute Session - To purchase 2006 AE Institute Session - Parts 1 2 3 4 5 6 7 8 9 HouseValues Mastermind call - Parts 1 2 Blanche's fireside chat with Jeremy Conaway, HAR - Click here. For more articles by Blanche, click here.