Foreclosure activity has picked up this year and the outlook isn't rosy.
Across 918 counties nationwide, first quarter foreclosures amounted to 217,849, rising 23% from the fourth quarter and 31% above the level a year earlier, according to ForeclosureS.com, a nationwide foreclosure lists publisher.
In the West, high-risk adjustable-rate mortgage resets to fully amortized payment schedules, in combination with rising interest rates, flattening price appreciation, and growing inventories of unsold homes are responsible for the increased levels of foreclosure activity, the distressed property investment advisory firm reported.
ForeclosureS.com recorded 28,550 notices of default and foreclosures in California during the first quarter, and 9,222 new defaults this April.
With coastal markets "badly" overheating for over five years, more borrowers used "exotic" mortgages to qualify for more and more expensive homes. For example, during recent years in San Diego, more than half of purchase money loans consisted of interest-only ARMs or option ARMS with very low teaser rates, ForeclosureS.com said.
"Someone paying $800 per month on an option ARM could see their payment jump to $3000 per month," company President Alexis McGee said in the announcement. "That's likely to result in default."
For Colorado, ForeclosureS.com said there was a 50% quarter-to-quarter upturn in new foreclosures and a 96% year-over-year increase.
In Nevada, foreclosure activity has more than doubled this year from fourth quarter of 2005, as first quarter foreclosures amounted to 4,544 and April alone added 1,700, the foreclosure listing service reported.
"That market was in the hands of speculators with over 25% of new home sales going to out of state investors," McGee said. "Now they're being washed out of the market."
Meanwhile, Northeastern foreclosure activity is up sharply from 2005 levels, ForeclosureS.com said.
Massachusetts saw 1551 new foreclosure filings in April and, as of May 13, foreclosure filings were up 35% from the same period in 2005, according to an announcement.
Foreclosure activity in New Jersey reportedly reached 4,425 filings in the first quarter -- almost a ten-fold increase from 459 in the same period a year earlier -- and McGee expects the situation to get worse through the rest of 2006 and into 2007.
"With markets cooling down and prices leveling off, that's another recipe for disaster," said McGee, referring to activity by some lenders who are still pushing home equity loans and lines of credit up to 125% of the home's value.
A wave of mortgage defaults could ensue in the Southeast as demand for housing slows and increases the inventory of unsold homes.
"The situation is particularly acute in Florida," where foreclosure filings increased 42.55% in the first quarter over the fourth quarter, the ForeclosureS.com president noted.
"Prices have gone completely flat in Miami and have even started to slide a little," and the situation in Tampa is similar, McGee said.
In the last six months, the inventory of unsold homes in Miami surged more than 88%, while in Tampa the inventory climbed more than 64%, according to the announcement.
"This growing number of unsold homes is a harbinger of price corrections to come," McGee said. "Speculators are dumping their properties and moving on," and will cause mortgage defaults to rise as they become trapped by negative cash flows and declining prices.
Worst Foreclosure Markets
During the first quarter, Indianapolis ranked as the metropolitan area with the highest foreclosure rate. And the chief of the firm reporting the data has a frank warning about borrowers with nontraditional loans.