Although the worst of the wave of foreclosures tied to the highest risk
mortgages such as subprime hybrid adjustable rate loans may have
passed, there remain significant concerns about the financial condition
of homeowners. The continued weakness in the local housing market
combined with the declining local and national economy have led to
increased default and foreclosure rates for Alt-A (loans considered
riskier than prime, but less risky than subprime) and prime mortgages.
These conditions are expected to continue through 2009. Additionally,
there are concerns about the performance of other types of higher-risk
loans such as payment option ARMs and the re-default of unsustainable
loan modifications conducted in the past year.

Direct assistance to homeowners will remain a top priority for
Congress, and the Obama administration. One factor that may lead to
declines in foreclosure filings in 2009 is the effectiveness of
interventions implemented by both private financial institutions and
the federal government. In the fall of 2008, a number of large
financial institutions including Bank of America, JP Morgan Chase,
Citibank, Fannie Mae, and Freddie Mac announced more systematic and
substantial loan modification programs and, in some cases, foreclosure
moratoriums. While the success of these interventions is unclear to
date, they may lead to a decline in foreclosure filings. Additionally,
there have been substantial discussions on ways in which the federal
government can be more directly involved in aiding distressed
homeowners. One proposal would use part of the $350 billion remaining
in the Trouble Asset Relief Program (TARP) to aid home owners. While
the TARP program was initially designed to aid troubled financial
institutions, there have been signals that Congress and the new
administration may focus some of the remaining funds on direct aid to