Foreclosures at record high – more to come

The foreclosure hammer is hitting ever harder. People lost their homes at the highest rate on record in the first three months of the year, and late payments soared to a new high, too – an alarming sign that the housing crisis and its damage to the national economy may only get worse.

Slumping home values are being blamed in large part for the rising tide of foreclosures. Troubled borrowers are left owing more to the bank than their homes are worth. They can’t sell without taking a huge financial hit, so they just walk away.

Dumping more empty homes on an already glutted market also is likely to put a further drag on home prices – extending a vicious cycle.

Watching their home values sink, consumers have pulled back on spending, a factor in the economy’s slowdown.

California, Florida, Nevada and Arizona accounted for 89 percent of the total increase in new home foreclosures, said Jay Brinkmann, the association’s vice president of research and economics. Those are places where prices have fallen sharply and there was a lot of home building, creating too much supply, he said.

“The economy is treading water, and the housing market is one of the undercurrents trying to pull it down,” said Stuart Hoffman, chief economist at PNC Financial Services Group.

Nearly 1 percent, or roughly 447,723 loans, fell into foreclosure during the January-to-March period, the Mortgage Bankers Association said Thursday in its quarterly snapshot of the mortgage market. That surpassed the previous high of 0.83 percent over the last three months in 2007.

The report also found that more homeowners slipped behind on their monthly payments. The delinquency rate jumped to 6.35 percent – or 2.87 million loans – compared with 5.82 percent for the previous three months. Payments are considered delinquent if they are 30 or more days past due.

With prices expected to keep dropping, foreclosures and late payments “are going to continue to go up,” Brinkmann said.

Both the rate of new foreclosures and late payments were the highest on record going back to 1979.

Homeowners with tarnished credit who have subprime adjustable-rate loans took the hardest hits. Foreclosures and late payments for these borrowers also swelled to all-time highs in the first quarter.

More problems also cropped up with loans to more creditworthy borrowers.

The percentage of subprime adjustable-rate mortgages that started the foreclosure process climbed to 6.35 percent. The rate was 5.29 percent in fourth quarter, the previous high. Late payments rose to 22.07 percent from 20.02 percent, the previous high.

The percentage of such loans falling into foreclosure was 0.54 percent, compared with 0.41 percent at the end of last year. Late payments rose to 3.71 percent from 3.24 percent.

The numbers were higher for those prime borrowers with adjustable-rate mortgages. Initially low rates reset to much higher ones, making it difficult, if not impossible, for homeowners to keep up with monthly mortgage payments. The portion of those loans falling into foreclosure jumped to 1.55 percent from 1.06 percent. The delinquency rate rose to 6.78 percent, compared with 5.51 percent.

Foreclosed properties going for much less

San Diego County’s unprecedented housing downturn has created a sharp split in the resale market, with foreclosed properties selling at steep discounts while other homes take a much smaller hit.

Although values are down in all categories, the variance between the resale prices of foreclosed and regular properties is dramatic. An analysis performed by DataQuick Information Systems at the request of The San Diego Union-Tribune showed that during the first three months of the year:

• Countywide, the median price paid for foreclosed houses and condominiums was $325,000 – 28.3 percent below the $453,000 median for nonforeclosure sales. That compares with a peak of $515,000 in the fourth quarter of 2005, when foreclosures were almost unheard of.
• Single-family houses in foreclosure sold for a median price of $365,000, compared with a median of $500,000 for nonforeclosures. The 2005 peak in that category was $565,000.
• Condos in distress sold for a median of $230,000, while the figure for nonforeclosures was $360,000. The median at the 2005 peak was $400,000.

Analysts say banks’ eagerness to get houses off their books even if they have to slash prices could continue to be a drag on the market for some time, with discount foreclosure sales putting downward pressure on prices in surrounding neighborhoods.

At the same time, optimists see reason for hope that overall price levels in the county will stabilize once the distressed properties are sold off, though that process could continue well into next year. Foreclosed properties made up 35.2 percent of all resales in January, February and March.

“Remember, all of this foreclosure pain we’ve seen so far has come amid an economic backdrop that, until recently, wasn’t that bad outside of real estate,” DataQuick analyst Andrew LePage said.

Alan Nevin, chief economist for the California Building Industry Association and San Diego-based MarketPointe Realty Advisors, predicted foreclosure sales could account for as many as 15,000 out of 25,000 total sales this year. But at some point, the foreclosures will drop off, he Nevin said.

“Anybody who’s going to walk away from a house or condo has already done it,” Nevin said. “Now it’s just a matter of the pig going through the snake.”

He recommended that buyers and sellers pay attention to areas with unusually low sales counts where post-foreclosures sales dominate.

“The median price could pop back up once we see a more normal level of sales activity across all neighborhoods and home types,” LePage said.

Alan Gin, an economics professor at the Burnham-Moores Center for Real Estate at the University of San Diego, said the DataQuick figures reveal a direct relationship between foreclosures and the prices that homes command.

In areas with no foreclosure sales, the median house price dropped 5.3 percent on average in the past year, as measured by price per square foot, Gin said. But for every 10 percent increase in the percentage of transactions that were foreclosures, the median price per square foot dropped an additional 3.6 percent.

For example, in La Jolla, which had no foreclosure sales in the first quarter, the median price per square foot on 42 sales was $698, a figure 5.7 percent lower than a year ago. In National City, where nearly half of the 30 houses sold in the first three months of 2008 were foreclosures, the $268-per-square-foot price was down 32.7 percent over the past year.

“We’re sort of in uncharted territory here with the number of foreclosures being so high, particularly as a percentage of total sales,” Gin said. “And so it could be that we’ve got some distortion in the market at this point.”

In some cases, lenders will spruce up vacant, abandoned houses with a new coat of paint, carpeting and new appliances in order to command prices competitive with the overall market, said agent Rose Avedisian, a foreclosure specialist who has an inventory of 150 bank-owned properties she is trying to sell.

“The banks that choose not to have that philosophy and want to get the houses off their books are willing to sell them at below market value,” Avedisian said.

It’s no mystery why foreclosed properties generally sell for less than nonforeclosures, said Peter Dennehy, senior vice president of Sullivan Group Real Estate Advisors in San Diego.

“In general, the banks are not like homeowners hoping to make a profit,” Dennehy said. “They have no interest in owning real estate, especially when they’re owning more and more of it. They’re the extreme form of a motivated seller.”

While foreclosed homes tend to be in worse condition than those that are privately owned, that’s not always the case, agent Linda Ring said. Ring has sold a number of houses in eastern Chula Vista, where many first-time buyers had stretched beyond their means to buy.

At the neighborhood level, the correlation between foreclosure levels and resale prices varied widely.

The typical foreclosure house in that area is two stories with three to four bedrooms and two to three baths on a 3,000-square-foot lot. Many have upgraded kitchens, Ring said.

“The banks don’t want to attract a fire sale, so they price them the same as the neighbor across the street,” she said. “But once it hits the 120-day mark, the price becomes pretty flexible.”

In the 91914 ZIP code of northeastern Chula Vista, where 79 percent of house sales were foreclosures, the distressed properties actually sold for 26 percent more than nonforeclosures. But in Spring Valley, where 58 percent of house sales were foreclosures, distressed homes sold for 20 percent less than regular homes.

Downtown San Diego, which attracted a flood of investors during the recent building boom, recorded particularly big price differences between foreclosure and nonforeclosure sales in the last quarter.

The median sales price of a bank-owned condo in the 92101 ZIP code was $385,000, compared with $625,000 on a nonforeclosure condo, according to DataQuick.

“It’s not surprising that when the market gets difficult that these units are in foreclosure,” said real estate broker Jim Abbott, owner of ARG Abbott Realty Group in downtown San Diego. “These are the less-desirable units.”

Agents there speculate that the condos taken back by lenders typically are smaller, were conversions and may not have the upscale finishes and amenities of the nonforeclosure units.

Even in the same downtown high-rise, though, a foreclosure condo can sell for a significant discount, said his son Dustin Abbott, also a real estate agent. Dustin Abbott said that in Acqua Vista, a Little Italy high-rise, a one-bedroom, one-bath condo in foreclosure recently sold for $200,000, compared with $275,000 for the same model a few months earlier, which wasn’t a distress sale.

The Sullivan Group’s Dennehy said that as the number of foreclosures mounts, prospects for a quick end to price discounting dim.

“The housing market will not stabilize until we get the inventory cleaned up, and with this level of units on the market, it’s not good,” he said. “It would be a lot more stable if we didn’t have the foreclosures, I can tell you that.”

Are foreclosures a buy?

Speculators fled the real-estate market in 2006 when home prices began falling.

The bank that owns a foreclosed home is looking to recover the value of the home’s unpaid mortgage, and quickly. That presents an opportunity to get a property below market value.

But there are investors looking to make money in the battered housing market by buying foreclosures — and they may be on to something.

“You can double your money if buy and hold for 10 years,” says Ralph Roberts, a Detroit-area broker and author of “Foreclosure Investing for Dummies.”

“Interest rates are low and prices are low. Now is a good time to buy,” Roberts says.

Roberts advises buying a property near your workplace or home. After looking at several, go with the best deal. “Don’t negotiate with the bank — make an offer and then go dark,” he says.

He says most foreclosure buyers get properties for between 75 and 90 percent of market value.

If you buy at auction, the full price is often required at the event, or soon after, so be prepared with the payment.

Buying foreclosures is not without risk. “Just because it’s in foreclosure doesn’t mean it’s a bargain,” Roberts says.

Also, regular maintenance likely wasn’t done, so there may be substantial costs beyond the purchase price.

Don’t buy in a market with too many foreclosed homes — no more than a few in any area.

And don’t trust late-night TV gurus — there are scams aplenty.

“Many are simply very good sales people who know how to push your buttons to extract a tremendous amount of money out of you,” says Alexis McGee of Foreclosures.com. She lists several well-known schemes on her Web site.

“Get a good agent, good lawyer, good inspector and do your homework,” Roberts says. Then start checking the foreclosure listings.

Foreclosure surge slows system to crawl

Thousands of abandoned foreclosed homes across Massachusetts will remain shuttered for months due to a case backlog at the overwhelmed Massachusetts Land Court.

At the current pace, the court will handle nearly 36,000 new foreclosure applications this year due to the subprime-mortage mess – up from just under 30,000 last year and about 20,000 two years ago, Scheier said.

Karyn Scheier, chief justice of the Land Court, acknowledged yesterday that a deluge of foreclosure applications has swamped the court. New cases are now coming in at a rate of 145 per day.

“Staffing levels are not up and we are struggling,” she said.

The result is buyers who purchase homes at foreclosure auctions and elsewhere can’t take title to properties quickly – and abandoned and shuttered homes remain neighborhood eyesores for months longer than many had hoped.

“It’s taking an inordinate amount of time,” said Blaise Berthiaume, a North Brookfield attorney and a member of the Massachusetts Bar Association’s Property Law Section Council.

Real estate attorneys say the paper jam is adding an extra two to three months to an already frustratingly slow process of selling off foreclosed homes.

Attorneys say the entire process for foreclosing and then selling off homes can take at least six months.

Bob Holloway, a Peabody real estate attorney, said the Land Court is “just overwhelmed” by the caseload.

But Scheier said a new computer system has allowed the Land Court to dispense with “huge amounts” of those old cases over the past year or so.

Today’s problem is caused by market conditions, she said.

In late 2006, state Auditor Joseph DeNucci issued a stinging report about the Land Court, saying it faced a giant 66,289-case backlog.

On May 1, the court could get some relief when a new state moratorium takes effect, requiring a 90-day waiting period to file foreclosures after a homeowner defaults on mortgage payments.

But that delay will give the court only a temporary respite, if the market doesn’t fundamentally change, industry experts say.

US senators offer bipartisan plan to help with foreclosures

Senior US senators published a bipartisan set of proposals Wednesday they hope to quickly bring into law to help alleviate the effect of the mortgage crisis on ordinary Americans.

“This is a solid, bipartisan start to keeping families facing foreclosure in their homes, helping other families avoid foreclosures in the future and helping communities already harmed by foreclosures to recover,” they said in a joint statement.

Democratic Senate majority leader Harry Reid and Senate Republican leader Mitch McConnell, members of the banking and housing committee, hammered out the plan in two days, after a first Democratic plan failed.

Four billion dollars has also been earmarked to help communities affected by foreclosures, by enabling the purchase and development of empty houses that otherwise could lead to falling house prices and rising crime in the area.

The proposals include a new tax credit for homeowners, demands for greater transparency in mortgage contracts, specific protection for military families facing foreclosure, counselling to help families avoid losing their homes, and a tax credit for buyers of homes in foreclosure.

“The package that we agreed to is not perfect, nor will it solve all of the problems that the economy and American homeowners are facing today,” said Democratic senator Chris Dodd, chairman of the banking committee.

Reid and McConnell said in outlining the plans that they hoped the bill would quickly move to the Senate for debate. It must then be considered by the US House of Representatives before going to the president.

It is the second time since the beginning of the year that Congress has intervened to try to cut short the mortgage crisis linked to troubles in the subprime sector, where loans are made to people with poor credit.

“But it is an important step, and sends a strong message to the American people that Congress is willing to put aside our partisan differences and come together to tackle the challenges at hand.”

In February, President George W. Bush approved an economic stimulus package which will see the Treasury mail checks to millions of Americans next month.

County foreclosures set record – again

Another month, another foreclosure record in El Paso County.

For the first quarter of 2008, foreclosures totaled 1,216, which eclipsed the number of foreclosures in all of 2001, Trustee’s Office records show.

Foreclosures totaled 488 in March, the third time since December that monthly foreclosures have set a record, according to a report today by the County Public Trustee’s Office. The previous record was 457 in February.

In addition, the number of deeds released in March was at one of its lowest monthly levels in the past three years. Releases are a positive sign; they signal a homeowner who has successfully paid off a mortgage, refinanced a home or sold a property.

“There’s not a lot of good news on housing,” said Tom Mowle, the new El Paso County Public Trustee.

There are a few things to keep in mind about foreclosures.

A foreclosure filing is the legal action by which a lender seeks to take back a home when an owner defaults on mortgage payments.

Colorado Springs and El Paso County, like other communities, have fallen victim to a foreclosure meltdown. Millions of homeowners nationwide, many of whom had risky credit histories, bought homes using non-traditional mortgages such as adjustable rate, interest-only and no documentation loans. As interest rates increased on adjustable loans, or because of financial woes caused by a job loss, illness or divorce, many homeowners were unable to make their mortgage payments and fell into foreclosure.

Not every filing results in the loss of a home, however. Sometimes, homeowners come up with money and catch up on their missed payments; other times, they work out a payment plan with a lender, who withdraws the foreclosure action.

Meanwhile, home construction wasn’t much better last month in the county.
In addition, El Paso County’s foreclosures are being spread out over a greater number of households because of the county’s growth. Even as foreclosures rise, the rate of foreclosure per household is much lower than 20 years ago.

Single-family building permits totaled 136 in March, down nearly 50 percent from the same month a year ago, according to the Pikes Peak Regional Building Department. For the first quarter, single-family permits totaled 359, down 43.5 percent from the same period in 2007.

Crime woes grow with foreclosures

The foreclosure crisis is taking a toll on local communities, as the problem breaks down past the economic level and in to the area of crime.

“Foreclosure is a nationwide phenomenon that’s starting to hit Winston-Salem. We’re looking at over 50 foreclosures a week in Forsyth County,” explained Tom Keith, Forsyth Co. district attorney. “That means, maybe 200 people will be out on the street if there’s two children in a family.”

Experts say there is a direct link between increased foreclosure rates and increases in violent crime. Members of the legal community in Winston-Salem are calling on their colleagues to help stop crime before it starts by keeping people in their homes.

Keith says for each 1 percent increase in foreclosure, there’s a 2.3 percent increase in the violent crime rate within an 0.8 mile radius of that location.

Keith says legal help gives people the advantage they need to wade through the financial terms and keep their home.

“It’s of tremendously important [that] this community and the bar association step up to the plate and we’re trying to get attorneys to come forward and represent these poor people in foreclosure so they can renegotiate, not litigate their way out of this sub-prime mess,” said Keith.

“Talking with the people in the clerk’s office, we’re looking at all income levels — half-a-million-dollar homes, small home owners, everybody, white, black, Hispanic — it cuts across all parts of our society,” said Keith.

Police in the Mecklenburg County town of Matthews are also taking steps to prevent criminal fallout in the wake of foreclosures. Last month they started tracking the houses people have had to give up.

Officials say empty homes can sometimes be a haven for criminal activity. They enter foreclosed houses into their database and keep an extra eye on them on patrol.

Top 10 List. Nashville on Best Places to Buy Foreclosures

Forbes has ranked the Nashville metro area the number three best place in the nation to buy foreclosed properties. Check out the whole article here.

This is actually a good thing for all of Middle Tennessee, including Rutherford County for several reasons.

Also, “only cities on Forbes’ best places list, which measures criteria such as quality of life and the local economy (labor and energy costs, the regulatory environment, taxes) to find markets … where foreclosures aren’t symptomatic of local economic ruin, were measured.”

Forbes says distressed properties are a strong investment here because the real estate market is stable with the average home price rising 3.88% from 2006 to 2007. Additionally, the foreclosure rate is below one percent (0.86%) meaning the marketplace is not being overrun with foreclosed properties like some other areas of the country.

This article confirms what we’ve been saying for a long time: residential real estate in Rutherford County is a strong investment.

Group to offer assistance for those facing foreclosures

The Minnesota Home Ownership Center begins a series of free mortgage counseling workshops this week for families facing foreclosure.

Executive Director Julie Gugin said some consumers are too embarrassed to ask for help early in the process. Gugin said by the time they meet with her staff, it’s often too late to help them hang onto their homes.

The first workshop is Tuesday in St. Paul. The workshops are designed for homeowners who are worried about making mortgage payments or who are already on the brink of losing their homes.

“The sooner that people seek help when they’re facing mortgage crisis, the more options there are for them, and the more likely their lenders are going to be able to work with us,” Gugin said.

Those who attend tomorrow night’s workshop will be able to meet with foreclosure specialists and lending companies.

The event is from 4:30 to 8:30 at Arlington Hills Lutheran Church in St. Paul.

More workshops will take place next month in Brooklyn Park and Minneapolis.