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Foreclosure Activity Worsens

ForeclosureS.com, Bargain Network & RealtyTrac release data

October 11, 2006


photo of Coco Salazar

Foreclosures continued climbing during the latest quarter, and the outlook points to more increases.

During the third quarter, defaults and foreclosures amounted to 255,334, about 23 percent higher than the prior three-months and a whopping 74 percent above the total in the third quarter 2005, ForeclosureS.com told MortgageDaily.com in an e-mail statement.

In the West, Maricopa County, Ariz., is considered a hot spot. The number of properties that went into foreclosures statewide increased 19 percent from the second quarter to 5,348 -- of which 3,231 of those were in that county, which consists of the Phoenix/Mesa metro area, ForeclosureS.com said in an announcement.

The area has been heavily impacted by out-of-state investors -- 25 percent of home purchases being made are nonowner occupied -- who are now "trapped by a slowing market and negative cash flows," according to the Sacramento, Calif.-based foreclosure listing service, which says it tracks foreclosures county-by-county, state-by-state, in real time.

Colorado and California reportedly continue to be other western hot spots, with 16,313 new foreclosures in the third quarter and 39,896, respectively. During the quarter, in August, one of every 301 Colorado households was in some stage of foreclosure, a rate more than three times worse than the Golden State.

While Colorado suffers from a slowing economy and a cooling housing market, there is a "different problem in California because, in some communities like San Diego for example, more than 50% of purchase money loans were issued with high risk mortgage products like option adjustable rate loans with extremely low 'teaser' start rates," ForeclosureS.com President Alexis McGee said in the announcement. "Now as those loans reset to market rates, people are being squeezed out of their houses."

In the Southeast, a trouble spot with a reported third quarter increase of almost 10,000 new foreclosures to a total 33,778 properties was Florida.

"The condo market there is badly overbuilt," McGee said. "There are almost 25,000 units under construction or recently completed in Florida, more than have sold there in nine years, and speculators are trying to sell them to each other."

While the Midwest has never experienced a price boom, foreclosures increased to 19,392 during the third quarter as housing markets are cooling off. Cook County lead the way in this region with 9,950 new foreclosures, according to ForeclosureS.com.

Bargain Network estimated foreclosure activity in the third quarter went up 14 percent from the second quarter and rose 39 percent from the comparable period a year ago, according to an announcement.

Bargain, which claims it is a leading online provider of real estate foreclosure, pre-foreclosure and for-sale-by-owner properties and information, says its data includes properties in all three phases of foreclosure.

In the last month of the quarter, 103,000 properties entered some stage of the foreclosure process, decreasing 10 percent from the near-record in August but jumping 51 percent from September 2005, Bargain reported. There was one new property entering some stage of the foreclosure process for every 1,122 U.S. households during the month.

The latest foreclosure activity report announced today by RealtyTrac indicates September showed 112,210 properties nationwide entered some stage of foreclosure, a decrease of less than 1 percent from August but a 63 percent increase from a year ago. Meanwhile, the national rate was one new foreclosure filing for every 1,030 U.S. households -- the third highest monthly rate so far in the year.

Foreclosure filings have already exceeded the number in all of 2005 and, if they continue at their current pace, may exceed the 1.2 million mark by the end of the year, said RealtyTrac, which claims it publishes the largest and most comprehensive national database of pre-foreclosure and foreclosure properties.

RealtyTrac data shows that while California had the most new foreclosure filings for the month, Michigan pushed Florida out of the spot for the third-highest foreclosure rate among state, behind Nevada and Colorado -- still the top foreclosure rate state. Additionally, for the second month in a row, Greeley, Colo., posted the highest foreclosure rate among the nation's 252 largest metro areas.

Bargain Network, however, claims Florida, led the way with 27 percent of September's overall foreclosures, and that its foreclosure rate was over four times the national average. California followed with 17 percent of September's foreclosures, while Texas added 9 percent and Colorado another 7 percent. Of these states, Texas was the only one Bargain reported had slowed activity -- down 38 percent from August.

"Florida and the western states are known for their predominance of negative amortization loans in which mortgage holders pay only interest, not equity on their properties," said Tom Adams, president and chief executive of Bargain Network, in an announcement. "We anticipate that foreclosure rates will stabilize, and that foreclosures will continue to be an attractive investment vehicle as a cooling economy and slower housing market force some people who purchased real estate using sub-prime mortgages to default on those loans in the months ahead."

Bargain noted that foreclosure activity increased every month of the quarter in Kentucky, Missouri and Nevada, while Arizona and Illinois both returned to lower foreclosure activity rates that were more consistent with those seen at the onset of the third quarter.

Estimates that more than $200 billion worth of adjustable-rate mortgages will respectively reset to higher rates this year and that over $1 trillion will do so next year, along with the expected slowing of the economy and housing market, have Bargain speculating the foreclosure situation may worsen.

"Rising interest rates and higher energy prices are making it especially difficult for homeowners who relied on home price appreciation to build equity and drew upon that equity to support their lifestyles," Adams said. "This is a group that we see as most at risk for future foreclosures."

Coco Salazar is an assistant editor and staff writer for MortgageDaily.com.

e-mail: [email protected]

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