More than 155,000 families have lost their homes to foreclosure this year; one out of every 194 U.S. households received a foreclosure filing.
Foreclosure filings in the first three months of 2008 rose more than 112% over last year, according to a study released Tuesday.
Real estate information firm RealtyTrac reported that nearly 650,000 foreclosure filings - which include notices of default, auction sales and bank repossessions - were issued in the first quarter. That represents 1 of every 194 households and marks a 23% increase from the last quarter of 2007.
So far this year 156,463 families have lost their homes to repossessions.
"Foreclosure activity hasn't slowed down yet," said Rick Sharga, spokesman for RealtyTrac. "But I was a little surprised that foreclosure filings more than doubled since last year."
Foreclosures increased in 46 states and in 90 of the nation's 100 largest metro areas. Some regions that had been only marginally hurt by the mortgage meltdown recorded large increases in filings. In Connecticut, for instance, filings tripled compared with the first three months of 2007. Massachusetts recorded a 260% increase.
Nevada: Hardest hit
The worst hit states are still clustered in the Southwest; Nevada, California and Arizona lead the nation in foreclosure filings. Prices ran up rapidly in these areas during the bubble years as speculators snapped up single-family homes and condos as investments.
In the first quarter, 1 of every 54 homes in Nevada received some type of foreclosure filing - more than any other state. Its largest city, Las Vegas, had 1 out of every 44 homes go into foreclosure.
Stockton, Calif., had the highest foreclosure rate out of any U.S. metro area, with 1 out of every 30 homes receiving a notice - nearly seven times higher than the national average. The Riverside/San Bernardino region had the second highest rate in the quarter, with one of every 38 homes in default.
Only two metro areas in the ranks of the 20 hardest hit were outside the Sunbelt - Detroit, which ranked sixth in the nation with 1 in every 68 households in default, and Cleveland which saw 1 in every 105 homes go into foreclosure.
The news comes despite increased foreclosure prevention efforts by lenders and community organizations. Hope Now, the coalition of mortgage lenders, servicers investors and community groups, announced Monday that it helped over a half a million home owners avoid foreclosure during the first three months of the year.
And some local governments have stepped up their programs to help borrowers, according to RealtyTrac CEO James Saccacio.
"For example, in late March Philadelphia issued a temporary moratorium on all foreclosure auctions for April," he said. "The city has since adopted a program that will delay foreclosure proceedings on owner-occupied properties until the owners have met face-to-face with lenders to attempt to create a loan workout plan that would prevent foreclosure."
More trouble ahead
Additionally, lawmakers in Washington, D.C. are at work on several plans that would deliver foreclosure relief to distressed borrowers.
All of these foreclosure prevention efforts may not be able to stand up to the tsunami of foreclosures on the way. Sharga says that a record number of hybrid adjustable rate mortgages (ARMs) - worth $362 billion - will reset in 2008.
These so-called "exploding ARMs" usually have low introductory interest rates that reset much higher after two or three years, and then re-adjust as often as every six months after that. Unless these loans can be reworked, many will fail.
"We expect to see another foreclosure peak in the late third or fourth quarter of the year," said Sharga, "because of the record number of resets coming."
Tuesday, April 29, 2008
Cities with High Homeowner Debt
Matt Woolsey
It's no secret that homeowners with subprime mortgages have taken a beating.
Next up: those who have combined their mortgages with home equity loans, second loans or both.
These combinations spell especially bad news for homeowners in Sacramento, Calif., San Diego, Washington, D.C., and Colorado Springs, Colo., markets with some of the nation's highest concentrations of homeowner debt. In these spots, prices are dropping, making it very difficult for homeowners to refinance as lenders are reluctant to take on risk.
Denver, Minneapolis, Los Angeles, Boise, Idaho, Las Vegas, and Madison, Wis. round out the top 10.
In Depth: Worst Cities For Homeowner Debt
We relied on U.S. Census data to determine which of the country's largest 150 housing markets had the highest percentage of outstanding home equity and second loans. Because neither on its own signifies a homeowner's level of overextension, we combined those data with housing price trends taken from the National Association of Realtors, to gauge which markets are experiencing steep price drops. Homeowners in these areas might have the hardest time refinancing or staying afloat.
An inability to refinance makes homes more likely to fall into foreclosure because in this situation, properies enter negative equity situations more easily; this occurs when a property is worth less than the outstanding loan on it.
Of course, it's difficult to say just how these homeowners will fare in the coming months, because there's no history of these loans in a market slump.
"Second home mortgages and home equity loans are a phenomenon of the last 15 years," says William Wheaton, an economics professor at the Massachusetts Institute of Technology. "You'd be hard pressed to see their track records during housing downturns."
What is clear is that the popularity of these loan products has grown in that time period. By the Federal Reserve Board's count, the total amount of outstanding home equity loans grew from $260 billion in 1995 to $970 billion in 2005. Homeowners love these sorts of loans in an up market because they get cash in hand, and they can deduct the interest.
It's when you start to combine home equity loans, second mortgages and a falling market that things get dicey.
Cloudy Skies Over Parts Of Colorado
Consider Denver, where 29% of mortgage holders have either a home equity loan or a second mortgage, or both--the highest rate in the country. Like home equity loans, second mortgages are often taken out for immediate cash or, in many cases during the housing boom, as a way to cover a down payment. Borrowers armed with such "piggyback loans," bought homes without any money, only credit.
That's a good deal when values are rising. When they fall, these homeowners are particularly vulnerable to foreclosures because without any equity in their homes, market downturns put them underwater. Denver has the country's ninth-highest foreclosure rate, despite a healthy economy in which the job market is growing.
"In these communities it's going to be much harder to keep people from losing their house to foreclosure," says John Vogel, an Adjunct Professor of Business Administration at Dartmouth's Tuck School of Business.
When homeowners in a negative equity situation try to short a property, they have to negotiate with all of their lien holders (first mortgage, second mortgage, home equity loan). Vogel says homeowners "have to get more people to sit around a table and agree to a deal. The more people, the more complicated it is to get things worked out."
Slumping home prices mixed with home equity lines of credit and second mortgages also signal a slowdown in local economies, since the loans are often used for home improvements or big-ticket items.
"People took money out of their homes to spend it," says Scott Hoyt, director of consumer economics at Moody's Economy.com. "There are significant, negative implications for contractors and retailers because consumers will be drastically cutting back on their spending."
It's no secret that homeowners with subprime mortgages have taken a beating.
Next up: those who have combined their mortgages with home equity loans, second loans or both.
These combinations spell especially bad news for homeowners in Sacramento, Calif., San Diego, Washington, D.C., and Colorado Springs, Colo., markets with some of the nation's highest concentrations of homeowner debt. In these spots, prices are dropping, making it very difficult for homeowners to refinance as lenders are reluctant to take on risk.
Denver, Minneapolis, Los Angeles, Boise, Idaho, Las Vegas, and Madison, Wis. round out the top 10.
In Depth: Worst Cities For Homeowner Debt
We relied on U.S. Census data to determine which of the country's largest 150 housing markets had the highest percentage of outstanding home equity and second loans. Because neither on its own signifies a homeowner's level of overextension, we combined those data with housing price trends taken from the National Association of Realtors, to gauge which markets are experiencing steep price drops. Homeowners in these areas might have the hardest time refinancing or staying afloat.
An inability to refinance makes homes more likely to fall into foreclosure because in this situation, properies enter negative equity situations more easily; this occurs when a property is worth less than the outstanding loan on it.
Of course, it's difficult to say just how these homeowners will fare in the coming months, because there's no history of these loans in a market slump.
"Second home mortgages and home equity loans are a phenomenon of the last 15 years," says William Wheaton, an economics professor at the Massachusetts Institute of Technology. "You'd be hard pressed to see their track records during housing downturns."
What is clear is that the popularity of these loan products has grown in that time period. By the Federal Reserve Board's count, the total amount of outstanding home equity loans grew from $260 billion in 1995 to $970 billion in 2005. Homeowners love these sorts of loans in an up market because they get cash in hand, and they can deduct the interest.
It's when you start to combine home equity loans, second mortgages and a falling market that things get dicey.
Cloudy Skies Over Parts Of Colorado
Consider Denver, where 29% of mortgage holders have either a home equity loan or a second mortgage, or both--the highest rate in the country. Like home equity loans, second mortgages are often taken out for immediate cash or, in many cases during the housing boom, as a way to cover a down payment. Borrowers armed with such "piggyback loans," bought homes without any money, only credit.
That's a good deal when values are rising. When they fall, these homeowners are particularly vulnerable to foreclosures because without any equity in their homes, market downturns put them underwater. Denver has the country's ninth-highest foreclosure rate, despite a healthy economy in which the job market is growing.
"In these communities it's going to be much harder to keep people from losing their house to foreclosure," says John Vogel, an Adjunct Professor of Business Administration at Dartmouth's Tuck School of Business.
When homeowners in a negative equity situation try to short a property, they have to negotiate with all of their lien holders (first mortgage, second mortgage, home equity loan). Vogel says homeowners "have to get more people to sit around a table and agree to a deal. The more people, the more complicated it is to get things worked out."
Slumping home prices mixed with home equity lines of credit and second mortgages also signal a slowdown in local economies, since the loans are often used for home improvements or big-ticket items.
"People took money out of their homes to spend it," says Scott Hoyt, director of consumer economics at Moody's Economy.com. "There are significant, negative implications for contractors and retailers because consumers will be drastically cutting back on their spending."
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