Foreclosures are most likely to increase in the Midwest, with nonprime loans originated last year just now making their way to foreclosure. But the many of the markets with the lowest risk were in Florida.
The third quarter Core Mortgage Risk Index, which forecasts national mortgage delinquency based on fraud propensity, collateral risk, home price dynamics and the health of the local economy, increased 4.4 percent from the prior quarter, First American CoreLogic said in a report.
The upturn reflected "the underlying pressures of increased delinquency and foreclosure rates combined with a low level of house price appreciation," according to Core Mortgage Risk Monitor report, which tracks this risk in 381 metropolitan markets representing more than 89 percent of the U.S. population.
"As house price appreciation moderates to a relatively low rate, the Core Mortgage Risk Index is increasingly driven by the fallout caused by high delinquency rates in the subprime and Alt-A markets," the report said.
Fraud and collateral risk is also rising amid increasing foreclosure stocks. The Foreclosure Index jumped 12.5 percent from the previous quarter in the latest report, indicating that "many of the early payment delinquencies identified in the subprime and Alt-A markets, particularly in the 2006 vintage of originations, are ultimately making their way to foreclosure."
House price appreciation is stabilizing, while house price acceleration, the rate of change in appreciation, is moderating after 18 months of decline. These combined facts further indicate that downward house price trends at the national level are reaching their bottom, according to the report.
The top 10 riskiest markets are in the Midwest, a region where foreclosure activity is high relative to the rest of the country. The first five are Detroit-Livonia-Dearborn, Mich., Warren-Troy-Farmington Hills, Mich., Memphis, Tenn., Youngstown-Warren-Brdmn., Ohio-Pa., and Dayton, Ohio.
Florida holds 4 of the top 5 lowest-risk markets: Sarasota-Bradenton-Venice, Orlando-Kissimmee, West Palm Beach-Boca R.-Boynton, and Ft Lauderdale-Pompano-Deerfield. Wash.-Arlington-Alex., DC-Va., Md., W.V. was fifth.
The report said Midwestern markets are experiencing the negative cumulative effects of rising foreclosure rates, in part due to the increased delinquency rates in the subprime market, pressures created by adjustable rate-payment reset terms, and fundamental economic factors.
"These effects are placing upward pressure on the Fraud and Collateral Risk Index," the report said. "This upward pressure is expected to continue throughout 2007 and into 2008 as markets continue to work through the resulting foreclosures."
However, such effects are likely to be geographically concentrated to the degree foreclosures and economic stresses are concentrated in specific markets, the report continued.
While North Carolina is not among the lowest- or highest-risk markets, three bills pending signature by the governor focus on tenants during the foreclosure process.
H.B. 1374 is to protect homeowners and reduce foreclosures by requiring that servicers notify borrowers of any fees charged on the loan and requires servicers to handle the escrow fund of the borrower, among other things.
H.B. 1817 ensures that lenders analyze that borrowers are able to afford to repay a loan.
H.B. 947 protects tenants living in property going through foreclosure. It requires notice of sale in foreclosure proceedings to be sent to tenants residing in the property to be sold to allow them to terminate the rental agreement upon 10 days' written notice to the landlord. It also require that those tenants be given 30 days' notice of an application for an order for possession, and to clarify that the proceeds in the automation Enhancement and Preservation fund may be used for the preservation and storage of public records, according to the bill.