Rising foreclosures reverberate across economy

The home debt crisis is changing the landscape, causing millions of vacant homes, rising for-sale inventories and downward pressure on prices.

Posted by Karen Datko Thursday, July 29, 2010 7:15:47 PM

This post comes from Marilyn Lewis of MSN Money.

 

The long middle of the foreclosure tsunami rolls on. And on.

 

The news from RealtyTrac, which counts foreclosure actions (repossessions, auctions scheduled and notices of default) nationwide, is that foreclosures are increasing in 75% of the nation's largest cities.

 

In the first half of this year, 1.6 million properties were in foreclosure, RealtyTrac reports. Since RealtyTrac has been keeping records, beginning in 2005, the fewest foreclosures -- 68,525 -- were in March that year. The record, so far, was March this year, with 367,056 properties receiving foreclosure filings in that one month alone.

 

Four states -- Florida, California, Nevada and Arizona -- are responsible for the top 20 metro foreclosure rates. (Read a recap at Listed, the MSN Real Estate blog.)

Darkness -- and a little light

The effects? Not pretty:

  • Rising numbers of homes standing vacant. "About 18.9 million homes in the U.S. stood empty during the second quarter as surging foreclosures helped push ownership to the lowest level in a decade," Bloomberg reports.
  • Fast-growing inventories of homes for sale. Supply is growing rapidly while demand is falling (despite interest rates lower than any time in the last 60 years), says Altos Research's June 2010 housing report.
  • Home price recovery pushed further out. "We're not going to see meaningful, sustainable home price appreciation while we're seeing 75% of the markets have increases in foreclosures," RealtyTrac senior vice president Rick Sharga told Reuters.

When you're in a deep, dark hole, any glimpse of light is cause for celebration. So, perhaps this is reason to party: Foreclosures may be leveling off in the worst areas.

 

Take the Miami-Fort Lauderdale-Pompano Beach metro area, hard-hit by any measure. There, 94,466 properties were in foreclosure in the first half of this year. While that's more than at this time last year, it was an improvement compared with the second half of 2009. Other hard-hit cities are also seeing a leveling off, RealtyTrac says.

Prime borrowers hit

But, with most of the rest of the country, foreclosures are growing. And they're no longer a problem confined to those with poor credit or dicey, subprime mortgages. Now borrowers with "prime" mortgages -- sold to homeowners with solid credit scores and histories -- are defaulting at an increasing rate.

Writes USA Today:

Foreclosures among borrowers with prime conforming loans have shot up 425% since January 2008, according to Lender Processing Services, which compiles mortgage data. Conforming loans are those eligible for purchase by Fannie Mae and Freddie Mac, the federal agencies that buy mortgages from lenders.
Jumbo prime loans ($729,750 and over) not eligible for purchase by Fannie or Freddie have done even worse -- foreclosures on those have increased nearly 600%.

USA Today also published a map illustrating the foreclosure problem in the states.

 

The culprits:

  • Job losses. "Jobs is a major impact. It's a huge factor," Ken Shuman, a spokesman with Trulia.com, told USA Today.
  • Strategic defaults. More homeowners are likely to strategically default when a home's value drops significantly below the amount of the mortgage. (Read "1 in 4 mortgage defaults may be 'strategic.'")
  • Banks moving faster. At first, lenders were slow to foreclose, this Washington Post story says. They were under political pressure to hold off. And it took them some time to learn how to assess which loans were salvageable. Now, they're moving ahead with foreclosures at a quicker clip.

The increase in foreclosures is likely to reverberate through the economy, says the Post:

Foreclosures tend to drag down home prices, complicating the housing market's struggle to recover. The housing rebound that economists once expected in the last half of this year will most likely not come so soon.

Prices rose nicely this spring. The S&P/Case-Shiller index of home prices in 20 cities showed prices grew 1.3% in May from the month before. Unfortunately, economists are saying the rise is due to the homebuyer tax credit "distorting" the market, reports The New York Times:

"It's encouraging to see prices edge up a little bit. Unfortunately, it's going to be short-lived,” Mr. (Ryan W.) Sweet, of Moody's Analytics, said. "More foreclosures are going to hit the market, which will put additional downward pressure on prices. Overall housing prices have been choppy, but they're not going to bottom until early next year."

Growth industry

The rest of the economy may be in a sinkhole, but the foreclosure problem helps at least one industry to thrive: Cons, scams and crooks.

 

Consumer Federation of America's report on top consumer complaints (.pdf file) says that misleading ads for auto sales generate the most complaints from consumers but foreclosure rescue scams, at No. 2, are a problem that's growing faster. In fact, scammers are making hay in all kinds of ways from the recession:

In addition to bogus offers to help consumers save their homes from foreclosure, which were the fastest-growing complaints last year, complaints that were particularly related to the recession included aggressive collection practices, debt settlement and other types of debt relief services, advance fee loans, business opportunities, business closings, landlord/tenant problems resulting from foreclosures, job scams, investment schemes, and auto dealers failing to pay off loans on trade-ins.

More from MSN Money:

Tags: economyforeclosurefraudhome buyinghome financinghomesmortgage
4Comments
5/02/2011 5:19 PM
avatar
Found a company with an interesting take on the foreclosure crisis: http://www.rebuildus.com. Your thoughts? 
7/30/2010 11:08 AM
avatar

The progressive Feds that are still in financial leadership (Frank/Dodd, etc) are responsible for relaxing lending standards! (in the interest of fairness & equality-see the record) Buyers that gambled and bought beyond there means and lied about income should be punished too!

We should go the extra mile and help those that had good intent, lost jobs and are suffering through no fault! I know, I'm a far right wing wacko full of hate for suggesting such nonsense!

7/30/2010 9:49 AM
avatar

This article describes the dire situation. However, I would suggest another article on how people who lose their home can survive. Some practical advice.

 

An classic example: The bridge on I-95 is currently vacant, first come, first serve.

7/29/2010 6:09 PM
avatar

This post comes from Marilyn Lewis of MSN Money.

 

The long middle of the foreclosure tsunami rolls on. And on.

 

The news from RealtyTrac, which counts foreclosure actions (repossessions, auctions scheduled and notices of default) nationwide, is that foreclosures are increasing in 75% of the nation's largest cities.

 

In the first half of this year, 1.6 million properties were in foreclosure, RealtyTrac reports. Since RealtyTrac has been keeping records, beginning in 2005, the fewest foreclosures -- 68,525 -- were in March that year. The record, so far, was March this year, with 367,056 properties receiving foreclosure filings in that one month alone.

 

Four states -- Florida, California, Nevada and Arizona -- are responsible for the top 20 metro foreclosure rates. (Read a recap at Listed, the MSN Real Estate blog.)

Darkness -- and a little light

The effects? Not pretty:

  • Rising numbers of homes standing vacant. "About 18.9 million homes in the U.S. stood empty during the second quarter as surging foreclosures helped push ownership to the lowest level in a decade," Bloomberg reports.
  • Fast-growing inventories of homes for sale. Supply is growing rapidly while demand is falling (despite interest rates lower than any time in the last 60 years), says Altos Research's June 2010 housing report.
  • Home price recovery pushed further out. "We're not going to see meaningful, sustainable home price appreciation while we're seeing 75% of the markets have increases in foreclosures," RealtyTrac senior vice president Rick Sharga told Reuters.

When you're in a deep, dark hole, any glimpse of light is cause for celebration. So, perhaps this is reason to party: Foreclosures may be leveling off in the worst areas.

 

Take the Miami-Fort Lauderdale-Pompano Beach metro area, hard-hit by any measure. There, 94,466 properties were in foreclosure in the first half of this year. While that's more than at this time last year, it was an improvement compared with the second half of 2009. Other hard-hit cities are also seeing a leveling off, RealtyTrac says.

Prime borrowers hit

But, with most of the rest of the country, foreclosures are growing. And they're no longer a problem confined to those with poor credit or dicey, subprime mortgages. Now borrowers with "prime" mortgages -- sold to homeowners with solid credit scores and histories -- are defaulting at an increasing rate.

Writes USA Today:

Foreclosures among borrowers with prime conforming loans have shot up 425% since January 2008, according to Lender Processing Services, which compiles mortgage data. Conforming loans are those eligible for purchase by Fannie Mae and Freddie Mac, the federal agencies that buy mortgages from lenders.
Jumbo prime loans ($729,750 and over) not eligible for purchase by Fannie or Freddie have done even worse -- foreclosures on those have increased nearly 600%.

USA Today also published a map illustrating the foreclosure problem in the states.

 

The culprits:

  • Job losses. "Jobs is a major impact. It's a huge factor," Ken Shuman, a spokesman with Trulia.com, told USA Today.
  • Strategic defaults. More homeowners are likely to strategically default when a home's value drops significantly below the amount of the mortgage. (Read "1 in 4 mortgage defaults may be 'strategic.'")
  • Banks moving faster. At first, lenders were slow to foreclose, this Washington Post story says. They were under political pressure to hold off. And it took them some time to learn how to assess which loans were salvageable. Now, they're moving ahead with foreclosures at a quicker clip.

The increase in foreclosures is likely to reverberate through the economy, says the Post:

Foreclosures tend to drag down home prices, complicating the housing market's struggle to recover. The housing rebound that economists once expected in the last half of this year will most likely not come so soon.

Prices rose nicely this spring. The S&P/Case-Shiller index of home prices in 20 cities showed prices grew 1.3% in May from the month before. Unfortunately, economists are saying the rise is due to the homebuyer tax credit "distorting" the market, reports The New York Times:

"It's encouraging to see prices edge up a little bit. Unfortunately, it's going to be short-lived,” Mr. (Ryan W.) Sweet, of Moody's Analytics, said. "More foreclosures are going to hit the market, which will put additional downward pressure on prices. Overall housing prices have been choppy, but they're not going to bottom until early next year."

Growth industry

The rest of the economy may be in a sinkhole, but the foreclosure problem helps at least one industry to thrive: Cons, scams and crooks.

 

Consumer Federation of America's report on top consumer complaints (.pdf file) says that misleading ads for auto sales generate the most complaints from consumers but foreclosure rescue scams, at No. 2, are a problem that's growing faster. In fact, scammers are making hay in all kinds of ways from the recession:

In addition to bogus offers to help consumers save their homes from foreclosure, which were the fastest-growing complaints last year, complaints that were particularly related to the recession included aggressive collection practices, debt settlement and other types of debt relief services, advance fee loans, business opportunities, business closings, landlord/tenant problems resulting from foreclosures, job scams, investment schemes, and auto dealers failing to pay off loans on trade-ins.

More from MSN Money:

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