Wednesday, May 31, 2006

A Wonder We Haven't Had More Foreclosures

The Dallas News has this on area foreclosures. "George Roddy is no stranger to real estate cycles. The president of Addison-based Foreclosure Listing Service Inc. has been collecting data on the industry for 36 years.

"As local foreclosure rates approach the heights of the savings-and-loan scandals of the 1980s, Mr. Roddy's depth of experience enables him to draw parallels – and distinctions, between yesterday and today."

"When did the last major foreclosure cycle get under way? Back in the early 1980s, we were seeing double-digit interest rates that at one point hit 16 percent. Consequently, it was just too expensive to build for a period of time. This created pent-up demand for more development. It soon became a matter of who could make the money available the quickest. So there ended up being many, many more deals done than there should have been. This led to the beginning of a real estate recession, close to depression, in the D-FW area."

"A 'recession' or 'depression' presumably led to some properties going back to the lenders? Yes, foreclosures really began to hit in 1985. But unlike today, the first impact was on the commercial side, which had been hurt by massive overbuilding. The same thing that happened in the early 1980s is happening today, but on the residential side. The common denominator is money, and lots of it."

"But didn't foreclosures peak in 1988 and 1989? Yes, but you have to remember foreclosures are a lagging indicator. By the late 1980s people were having trouble selling their homes for what they paid for them. Consequently, foreclosures peaked in 1989, when they were running at a record 2,000 postings a month in Dallas County alone."

"How does that compare with what we're seeing today? The big parallel between then and now is unemployment. In 2000 and 2001, we saw the big dot-com bust here, and unemployment started going up fast. In 2000, the Texas unemployment rate was 4.4 percent. It would peak at 6.7 percent in 2003. And just like in the 1980s, you started seeing foreclosures rise at about the same time unemployment started ticking up."

"OK, but unemployment has fallen back to about 5 percent. Based on what happened back in the 1980s, shouldn't we be starting to see foreclosures tapering off? We thought we had seen foreclosures peak in September 2005 but as things turn out, it looks like we might still be early in the cycle. For one thing, in 1989 we had a whole heck of a lot less inventory of homes on the market than we do today."

"If you go back to the years of 1985 through 1989, we saw total building permits of 12,000 for the area. But between 2001 and 2005, we've seen a total of 51,900 permits. Permits are running 328 percent higher."

"So it's an oversupply issue? No, it's more than that. The change in the bankruptcy law has impacted more people than we'd anticipated, making it even harder for people to keep their homes. Another problem is we are seeing interest rates going up. That's going to impact a lot of people who took out these crazy loans."

"But aren't people making a lot more money today than they were back in 1989? Well, yes. In 1989, the median income in Texas was $34,700. In 2005, it was $54,000. That's a 55 percent rise in median income over 16 years, which equates to a 3.4 percent increase every year. But that's only half the equation. In 1989, the average value of a home in Texas was $86,100. Today, that number is $183,000. That works out to 112 percent, or 7 percent a year."

"What that means is the cost of the home has increased at double what incomes have. And that means there must be new ways to buy homes. That must bring us back to what you call the 'crazy loans.'"

"People can qualify to buy the same house while making less because of creativity in lending, which has to exist in order for John Q. Public to be able to buy that house. These will also impact the ability of someone to stay in a house."

"Have you seen the impact of this creative lending play out in any way? In 2005, we saw 934 home equity loans posted for foreclosure, and that number continues to rise. In the first five months of 2005, there were 356 home equity postings. Over the same period in 2006, there were 429; that's an increase of 20 percent."

"So with overall foreclosures, we're only about 75 percent of the way to 1989 levels. Obviously something is better this time around? Back then we saw meaningful degradations of value, in some cases 25 to 30 percent declines. But we haven't seen that today. If you look at months' supply figures from 1989, inventories were running at 13 months, while today we're just at about seven months, so we're not at that point yet."

"When you do start seeing values affected, it just adds fuel to the fire. But if you look at this from the positive side, this could just be an adjustment."

"What's the biggest unknown as you look to the future? When you add in all of the other cost-of-living increases we've seen in the last two years, it's a wonder we haven't had more foreclosures."

"The scary part is, what happens if we don't start to see some modification in borrowing habits? We're not yet seeing a slowdown in the foreclosure figures; in fact, we're seeing higher numbers. Where's this going to take us? We could be in for a long haul."

Tuesday, May 30, 2006

Foreclosures Follow Bubble Into Lowell, Mass.

The Lowell Sun has this update from Massachusetts. "Until this spring, Northern Middlesex County had managed to buck the statewide trend of increased foreclosure filings. That has now changed in a big way, according to Middlesex North Register of Deeds Richard Howe Jr."

"In March, the foreclosure process was started on 48 homes in the region, double the number from last year in that month. In April, 58 homes were threatened with foreclosure, up 76 percent from 2005. And during the first 23 days of May, 61 properties were hit with foreclosure filings, a startling 281 percent year-over-year increase."

"'It was like a gas pump going up,' Howe said of tracking the foreclosure numbers this month."

"For more than a year, foreclosures had been increasing statewide at about a 33 percent rate, year over year. This year, through April, that number is up to 44 percent. The reason? Howe surmises that because the housing boom was late in coming to the region, the wave of foreclosures may also have lagged."

"'The amount of time from when the market peaked to when the foreclosures started spiking is kind of similar,' he noted."

Monday, May 29, 2006

Illinois Pre-Foreclosures Up 32% In First Quarter

The Chicago tribune reports on defaults in Illinois. "Foreclosures on home mortgages are on the way up. In Illinois during the first three months of 2006 nearly 13,700 properties entered foreclosure, up 32 percent from the fourth quarter of 2005. There are many reasons for the growing number of defaults, and there are suggestions that the foreclosure trend may soon worsen."

"A growing number of homeowners are relying on adjustable-rate mortgages, catching some people by surprise when their monthly payment rises. Significantly, some of those ARMs were offered with an initial three-year to five-year period in which the rate was fixed. At the end of that period the mortgages will be reset at prevailing rates, potentially upending borrowers as interest rates have been rising. For many such people that moment is approaching."

"'The increases we've been seeing in foreclosures don't even reflect the worst-case scenario that could happen when the $2.7 trillion in adjustable-rate mortgages are reset over the next 18 months,' said Rick Sharga."

"Another factor is the impact of rising property values. And in some cases people stretched to qualify for a mortgage only to be undone by higher utility and gasoline costs. 'During the refinancing boom people found themselves qualified for homes they might not have qualified for if the interest rates were higher,' said Jeff Metcalf, CEO of a Kaneville, Ill.-based collector of market data."

"In the eight-county area around Chicago the rise in foreclosure rates is expected to range from 51 percent in Will County to 23 percent in McHenry County, Metcalf forecasts."

"There were 6,451 foreclosure notices filed in the state in April. That number was strikingly higher than in any month since the beginning of last year. William Gooch, CEO of Community Bank of Elmhurst, said he suspects that lending policies are playing a role in the foreclosure trend. Some financial institutions, competing fiercely for business, are making mortgages available to marginal borrowers."

"'People think they have to loosen their restrictions, their guidelines, their policies,' Gooch said. Mortgage brokers, he added, seem to be 'springing up like dandelions.'"

"Also, many people have tapped into the equity in their homes, a practice that can haunt them when a financial emergency strikes. 'If people have no equity in their property, they have few alternatives if they lose their job, or have a health issue or other problem that makes it impossible to make their payments,' said Jane Garvey, president of the Chicago Creative Investors Association. 'When they fall behind on their payments they end up in foreclosure.'"

For Chicago six county area, First-quarter 2006 change from fourth-quarter 2005.

COOK +16.4
KANE +15.2%
LAKE +49.7%
MCHENRY +41.4%
WILL +109.6%

Sunday, May 28, 2006

'Minnesota Won't Be Immune' From Defaults

The Pioneer Press reports on the Twin Cities. "A record number of Twin Cities-area homeowners lost their homes to foreclosure last year. If trends so far this year continue, hundreds more will see their homes slip away."

"In 2005, sheriff's departments in the seven-county metro area sold 3,743 homes at foreclosure sales, up from 2,850 in 2004; a 31 percent increase. And data compiled by the Pioneer Press reveals that the tide of foreclosures shows no signs of abating: By mid-May, there had been 2,169 sheriff's sales in those counties, well ahead of 1,300 or so that had taken place by the same time last year."

"Rising interest rates, coupled with the growing popularity of some riskier types of mortgages, probably play a part. In Minnesota, 3.91 percent of subprime loans were in foreclosure in the fourth quarter of 2005, up from 3.62 percent a year earlier. And delinquency rates for prime loans, though still well under 1 percent, are creeping upward."

"'"I think (foreclosures) are at a level where we have to pay serious attention,' said Richard Todd, a vice president at the Minneapolis Federal Reserve Bank who works on foreclosure issues. 'I don't see an overall time bomb here. I do see that there are certain segments of the market that are probably stretched.'"

"City housing counselor Celeste Tometz said many of the people calling hold adjustable-rate subprime mortgage loans, which they're finding harder to pay as interest rates rise. Many of them refinanced their mortgages, tapping out the equity in their homes, and lost a job or faced some other crisis that leaves them unable to make their payments."

"Tometz said that in her experience, subprime lenders are less likely to revise a mortgage to help a struggling homeowner. 'The subprime mortgages are easy to get into, tough to deal with it,' Tometz said."

"Assistant commissioner Mike Haley said he suspects the profusion of riskier exotic mortgages, such as adjustable-rate products, interest-only loans and negative-amortization mortgages (where buyers make minimal payments that do not even pay all the interest due on the mortgage, driving the principal balance up) are beginning to take a toll on homeowners here."

"'This is kind of what folks have feared, as the impact of some of these instruments start rippling through the system,' Haley said. 'Minnesota won't be immune.'"

Friday, May 26, 2006

ARM Meltdown? We're Probably Already There

Foreclosures are picking up in so many markets, these posts will have to be condensed. "Nationwide, 87,582 residential properties were listed for sale as foreclosures in April, up 14% in a year. More than double that number, 218,935, were headed toward foreclosure, and an additional 326,889 homeowners were in bankruptcy court."

"Wisconsin echoed the upward trend, with 1,024 homes for sale as foreclosures last month, 6% more than a year earlier. But nearly three times that number, 2,898, were headed toward foreclosure and 3,600 homeowners were in bankruptcy court."

"'I'm certainly aware of the spike,' said attorney Peter J. Zwiefelhofer, who runs Milwaukee Bankruptcy Center. 'A lot of people overpaid for their house in this boom and a lot of properties were appraised at unrealistically high prices, mostly by subprime lenders looking to close a deal. Plus, there's a lot of unsophisticated people out there who look at a mortgage as just a payment and say, 'Oh, I can swing that.' But they can't.'"

"Until this year, most financially strapped homeowners could count on a booming housing market to provide them a quick sale at a nice price. But that's over."

"'What's startling isn't just the higher numbers, but who they represent, the affluent, not just the down and out. 'These are the ones with a bigger ability to get money, the executives, businessmen and professionals, buying more than they can possibly afford,' said Brad Geisen. 'They were banking on price appreciation continuing to go up fast, and pulling their money out in time.'"

"'One thing I've learned: The more expensive the house, the more difficult it is to unload,' said Milwaukee bankruptcy attorney Bruce A. Lanser. 'In a case where the house is upwards of $400,000 to $600,000, I used to think, 'Oh, great house.' But those houses are not selling that well anymore.'"

"In the suburbs of Dallas, Bridget Edwards comes home to uncertainty every day. She and her husband, James, are four months behind on their mortgage. The reason? 'We have an adjustable-rate mortgage,' she explains. 'I really didn't know it would change like this.'"

"'The reason homeowners have been buying properties that are probably beyond their means, is that they haven't been looking at what the house costs,' says Rick Sharga, who maintains a database of foreclosed properties. 'They've been looking at what the monthly payment was.'"

"That’s something the Edwardses admit, and now regret. 'I am sad. I'm angry. I'm confused,' says Bridget Edwards. 'I love this house,' James Edwards says."

"Last year, Jolene Garcia was one of the 9.1 percent of San Antonio homebuyers, about 3,500 people, who chose an adjustable-rate mortgage. Garcia's biggest problem, the one keeping her up at night, is a $3,000 property tax bill due in December. Her loan did not include escrow, the estimated property taxes paid monthly in most mortgages, and she didn't realize it."

"'There was some fairly aggressive lending going on. Young people and immigrants who have no background for buying a home can get led down the merry path,' said Jim Gaines, research economist at Texas A&M University. Today's lending landscape reminds Federal Housing Administration commissioner Brian Montgomery of the 1930s, when high-risk and high-interest-rate lending was common."

"'The economy is better today,' he said. 'But now you are seeing these really exotic loans done on a wide scale. Some families were steered towards loans they shouldn't have been.'"

The Memphis Daily News. "A total of 4,616 foreclosure sales occurred between May 2005 and April 2006, according to The Daily News. The number of properties foreclosed totaled 4,665 because, in some cases, multiple properties owned by one person were sold at the same time. Steve Lockwood, who is executive director of the Frayser Community Development Corp., has been keeping track of foreclosures in Frayser since he accepted the post three years ago."

"'It's an epidemic,' Lockwood said. 'Shelby County has the highest HUD foreclosure rate in the country and Frayser has the highest foreclosure rate in Shelby County."

"Valerie Smothers recently lost her Cordova home in foreclosure because she fell behind on her mortgage payments after her boss was late with her paycheck, she claims. In the beginning, her lender understood, but as a couple of weeks stretched into a couple of months, the mortgage company's patience stretched thin. When she finally had things settled at work and went to the mortgage company, officials refused to accept the $1,900 she had. It wasn't enough for her back payment."

"'They told me the adjustable rate had gone up,' she said, meaning she would need more cash."

"April 2006 foreclosures in Massachusetts were 44.35 percent higher than April 2005 and nearly 90 percent higher than April 2004 levels. April 2006 had 1,227 foreclosures started. That translates to more than 60 filings every business day in April."

"Driven by rising interest rates and high levels of debt, foreclosures on homes in the eight-county Chicago metropolitan area are sky-rocketing, particularly in the region's fastest-growing counties. The soaring rate of foreclosures is quickly transforming what has long been a seller's market into a buyer's market."

"'You have a situation now where you have these potential increases in foreclosures, and interest rates are going up, which will populate the market with more properties,' Jeff Metcalf says. 'The real estate market will be slowing the appreciation in prices. We're moving toward a buyer's market. In fact, we're probably already there.'"

Thursday, May 25, 2006

Defaults Grow Because Of 'Flattening' Market

The Sentinel and Enterprise have this update on counties in Massachusetts. "The rate of foreclosure filings in Worcester County in the past year far surpasses the previous 12 months' pace, according to a report released Wednesday. Nearly 1,900 foreclosures were filed countywide between May 1, 2005, and April 30, a 36 percent increase from the number of foreclosures that happened during the same time period the previous year."

"The foreclosure rate is accelerating because of a flattening real-estate market, sub-prime lending practices and rising energy costs, analysts said Wednesday. 'I think a lot of homeowners have been squeezed because of higher energy prices this winter and interest rates moving upwards,' Jeremy Shapiro said. 'A lot of homeowners find themselves unable to foot a bill and find themselves in trouble.'"

"A total of 728 foreclosures have been filed countywide since the start of the year, compared to 1,300 that were filed during all of 2004. There have been 56 foreclosures in Fitchburg in the past 90 days, and 22 in Leominster over the same time period."

"Thomas J. Gray of Workers' Credit Union, said Wednesday the real-estate market pushes the foreclosure rate upwards because endangered homeowners cannot pay off a mortgage by quickly selling a property like they could two years ago. 'Now that the market's slower, much slower, that option isn't working as much,' he said. 'People aren't able to sell their property and get out of a bad situation.'"

Las Vegas Defaults Increase 32%

A television station in Las Vegas has this update. "The numbers of house foreclosures in Clark County tell an interesting story. We rank tenth in the nation in foreclosures; in Clark County, the number of homes being foreclosed on rose 32-percent from last year."

"Whenever two mortgage payments are missed here, the lender sends someone to the Clark County Recorders office. A loan default paper is filed, which starts the foreclosure process. A homeowner can pay the money back at any time. If that person continues to miss payments a breach is filed. That next step gives the homeowner 35 days to settle or the foreclosure becomes final."

"Assistant Clark County Recorder Charles Harvey calls the spike in foreclosures significant. He said, 'As the interest rate increased, we have seen an increase in the number of foreclosures.'"

"Harvey says the foreclosures come from all over the county. Homeowners in trouble with their payments are not concentrated in one area like North Las Vegas or Henderson. Experts blame higher debt and reduced demand for housing as well as the adjustable rate mortgages for the higher number of foreclosures."

Listed below are the first quarter foreclosures in Clark County for 2005 and 2006:

2005 First Quarter Foreclosures:

January - 1056
February - 1007
March - 1126
April - 920

2006 First Quarter Foreclosures:

January - 1201
February - 1429
March - 1529
April - 1266

Wednesday, May 24, 2006

A 'Little Panic' In Sacramento

The Sacramento Bee has this update on area defaults. "A new survey released Tuesday confirms what steadily has become more obvious to local real estate experts: More homeowners in the four-county Sacramento region are drifting toward foreclosure. That means the area ranked higher than every other California metro area except neighboring Stockton-Lodi."

"'We're not seeing a lot of people at that foreclosure stage yet, but we're sure seeing a lot of people who are headed that way,' said Jeff Tarbell, president of Sacramento-based ATM Mortgage. Tarbell said that many people can't afford both rising mortgage payments and their cars, credit cards and other amenities. 'We're starting to see the beginning stages of a little panic about not controlling your spending,' he said."

"After a five-year boom that saw many homes double or more in value, the Sacramento-area housing market has cooled significantly. Sale prices of existing homes remain below their 2005 peaks in all four counties, while inventory of homes on the market climbed to 11,344 last month."

"Housing experts said some level of foreclosure activity at 2,514 homes in the four-county area during January, February and March likely stems from households struggling with adjustables. Last year, about three-fourths of Sacramento homebuyers used adjustables, and two-thirds of buyers were still using them in March."

"'The difference between a payment that's $1,700 a month and an adjustment that brings it up to $300 more is huge,' said Linda Bennett, a real estate agent in Sacramento. Agents are seeing more homes listed by people who are struggling with payments, she said."

"It's a similar story in the Stockton-Lodi metro area, which has swelled in recent years with Bay Area commuters priced out of their hometowns. 'It's not like it's some adverse turn in the economy,' said Sean Snaith, at the University of the Pacific. Snaith attributed the region's foreclosure activity to 'people getting caught in transition' as rising interest rates hike their monthly payments."

"'I'm not sure what else it could be at this point,' he said. 'It's not massive declines in jobs.'"

Tuesday, May 23, 2006

Foreclosure Activity Up 33% In California

A report on defaults in the west. "Foreclosure activity in California and other Western housing markets is on the increase in part because high-risk adjustable-rate loans are beginning to reset to fully amortized payment schedules, a property tracker said Monday. During the year's first three months, all types of foreclosure activity in California jumped an annual 33.6 percent, to 28,550 incidents."

"Notices of defaults, one of three indicators tracked and the first step in the foreclosure process, increased 36.5 percent, to 20,515 incidents. And the number of real estate-owned properties, the final step in the process and notification that there is a new owner, increased 27 percent, to 1,41l."

"Now home sales are softening, appreciation is not as robust as a year ago, interest rates are rising and inventory is building. Alexis McGee also said the creative adjustable loans that helped buyers jump into high-priced markets such as Southern California will continue to impact foreclosure activity as the market continues its shake-out."

"Analysts have noted that of the six Southern California counties, San Diego is the furthest along in the cycle. McGee said that in recent years more than half of home purchases were financed with interest-only adjustable loans or option adjustables with very low teaser rates."

"Someone who paid about $500,000 for a home in the San Fernando Valley last year and got a teaser rate of 1 percent would have initially paid $1,608 a month. If that loan resets next year at 6.5 percent, the payment soars 96.5 percent, to $3,160."

"Nevada foreclosure activity has more than doubled this year to 4,544 incidents versus the 2005 final quarter. The problem there is speculation, with 25 percent of new home sales going to out-of-state investors."

"Colorado has a 50 percent increase in new foreclosures in this year's first three months compared with the final three months of last year. And they are up an annual 96 percent."

Foreclosures High In Healthy Economies

Some foreclosure news from around the US. "Indianapolis, Atlanta and Dallas have the highest foreclosure rates among the nation's 100 largest metropolitan areas, according to an industry report released today. 'Indianapolis narrowly edged out Atlanta as the city with the highest foreclosure rate in Q1,' said James Saccacio. 'Most of the cities with the highest foreclosure rates have above-average unemployment rates and below-average home-price appreciation.'"

"Saccacio added that other economic factors such as decreasing affordability, rising interest rates and speculative buying can also fuel foreclosures. He cited Jacksonville, Fla., and Las Vegas, both of which documented foreclosure rates in the top 10 despite below-average unemployment and above-average home-price appreciation."

"'Because of the high home prices in many areas, more home buyers have stretched themselves financially with creative, and often risky financing that involves adjustable interest rates, interest only and negative amortization loans' Saccacio said. 'Home buyers with these types of loans are more susceptible to default and foreclosure when interest rates move higher.'"

Top Ten Metro Foreclosure Rates:

1. Indianapolis
2. Atlanta
3. Dallas
4. Memphis, Tenn.
5. Denver
6. Detroit
7. Jacksonville, Fla.
8. San Antonio
9. Canton, Ohio
10. Las Vegas

Monday, May 22, 2006

Defaults Jump Across The US

Some reports on foreclosures from around the US. "'In Massachusetts,' said Alexis McGee, 'we saw 1551 new foreclosure filings in April 2006. As of May 13, foreclosure filings were up 35% from the same period in 2005.'"

"'According to our research, foreclosure activity in New Jersey reached a level of 4,425 filings in the first quarter of 2006 as opposed to just 459 in the same quarter in 2005. That's an almost ten fold increase,' warned Ms. McGee. She added that she expected the situation to get worse through the rest of 2006 and into 2007."

"Ms. McGee expressed concern that homeowners were still using their houses as ATM machines. She continued, 'Freddie Mac just reported that 88% percent of the loans they purchased in the first quarter of 2006 were cash-out refinances. With the real estate markets going flat, the refinance resource will dry up. And with interest rates continuing to rise, payments on so-called exotic adjustable loans would become unaffordable for many households.'"

"She added that she found it 'amazing' that some lenders were still pushing home equity loans and lines of credit up to 125% of the home's value. 'With markets cooling down and prices leveling off, that's another recipe for disaster,' said Ms. McGee."

"'The situation is particularly acute in Florida,' said McGee. She went on to say that, according to her data, foreclosure filings had increased 42.55% in the first quarter of 2006 over the fourth quarter of 2005. 'Prices have gone completely flat in Miami and have even started to slide a little,' said Ms. McGee. She added that the inventory of unsold homes in Miami had jumped more than 88% in the last six months, while in Tampa the inventory had climbed more than 64% in the same time period."

"'Prices have gone flat in Tampa as well,' Ms. McGee said, 'and this growing number of unsold homes is a harbinger of price corrections to come. Speculators are dumping their properties and moving on.'"

"Ms. McGee said that other southern markets such as Atlanta were stabilizing at relatively normal price and inventory levels. 'Nevertheless,' she pointed out, 'foreclosure activity in Atlanta jumped to 6256 filings in the first quarter of 2006 from 3668 in the fourth quarter of 2005.'"

"'In Illinois, we saw a total of 13,273 foreclosure filings in the first quarter of 2006. That's way up from 1,873 in Q1 of 2005. And we saw 4,012 new filings in April alone. It looks like the default rate in Illinois is growing rapidly,' said Ms. McGee."

"She went on to say that things were even worse in Michigan where GM and Ford have made massive job cuts. 'Michigan experienced 22,742 mortgage default filings in the first quarter of the year,' said Ms. McGee. She added, 'The Midwest never got caught up in the feeding frenzy that skyrocketed prices in the overheated coastal markets. We suspect that job loss is the major factor for foreclosure increase in the region.'"

"Ms. McGee said that Ohio, another state heavily dependent on the manufacturing sector of the economy, also saw a tremendous year over year increase in foreclosure activity. 'The first quarter of 2006 saw more than 22,800 foreclosure filings. That's more than a 165% increase from the same period in 2005.'"

Friday, May 19, 2006

North Texas Defaults Continue Growing

The Dallas News has this on area defaults. "North Texas home foreclosure postings jumped by 13 percent for June. One of the biggest increases is in Dallas County, where the number of homes facing forced sale is up 16 percent from a year ago."

"For the four-county area, 3,215 homes are posted, up from 2,842 in June 2005. Analysts attribute the growing number of foreclosures to consumer debt problems and rising costs. And the number of people facing mortgage woes will probably grow now that interest rates are moving higher, said George Roddy."

"'The increase in payments on adjustable-rate mortgages is going to start killing people with the bump-up in interest rates,' Mr. Roddy said. 'The cost of living, gasoline, electric bills, everything, all adds up and pushes people over the brink.'"

"Years of low home price increases in North Texas add to the woes, he said. 'They try and sell their house and find out it has unfortunately not appreciated by much,' Mr. Roddy said."

"For the first six months of 2006, 18,551 homes have been posted for foreclosure in North Texas. That's an increase of 12 percent from the same period of last year."

Thursday, May 18, 2006

Houston Foreclosures Up 50%

The Houston Real News has this update. "According to a foreclosure data provider, Harris County foreclosures in Houston's most populous county in June increased by nearly 50% over May's foreclosures."

"We reported 1,070 Trustee Foreclosures in May, and as the data shows below, there are 1,570 foreclosures scheduled to go on the block in the upcoming auction. The Houston foreclosures are being auctioned on June 6."

And here is a television report on rising foreclosures in Texas and elsewhere due to interest rates and ARMs.

Wednesday, May 17, 2006

Chicago Area Foreclosures Up 57%

One city bucked the trend last month. "Foreclosures on Chicago-area homes spiked 57% in April while the national rate moved in the opposite direction. There were 6,102 residential properties in the 14-county area that were in some stage of the foreclosure process in April. That was higher than March’s figures and the third straight month of increases for the Chicago area."

"In Illinois,, the April rate was 40% higher than March. Chicago’s foreclosure rate was higher than Philadelphia, Los Angeles and New York, but lower than Dallas-Fort Worth. In Illinois, 2.32% of the 1.2 million mortgages tracked by the MBA were late in the fourth quarter."

"'Deliquencies tend to reach their peak three to five years after origination,' said Michael Fratantoni, a senior director at the Mortgage Bankers Association. 'We had an enormous refinance boom in 2002-2003 and those loans are just hitting peak deliquency rates.'"

"Nearly all, 95%, of the homes in the foreclosure process in April were in the Chicago metro area. Of those homes, nearly 66% were in Cook County. April’s home foreclosure rate in Cook County was also 66% higher than March and 2.4 times higher than the national average."

"Grundy County had the lowest total number of homes in foreclosure of the nine Illinois counties in the metro area with 12, however, the figure marked a 71% increase from March. Kane County had highest percent increase of 143% from March with 170 properties in the foreclosure stage."

"DuPage County’s 1,161 homes in the foreclosure process in April was a 59% increase from March while Lake County’s 606 homes represented a 26% increase."

Foreclosures 'Saturate' Low End Market: Denver

The Denver Post has this update on Colorado. "Colorado has reported the nation's highest foreclosure rate for the second month in a row. Even so, the number of Colorado homes at some stage of foreclosure fell to 3,706 in April from 5,392 in March, a 31 percent decline."

"Colorado has one foreclosure filing for every 494 households, the highest rate of any state. Nationally, the foreclosure rate is one of every 1,268 households."

"Adams County continued to lead the state with the highest foreclosure rate, followed by Arapahoe, Denver and Weld counties. Adams County counted 299 foreclosures initiated in April, down from 343 in March, Adams County Public Trustee Jeannie Reeser said."

"The bulk of the new foreclosures are coming from homeowners who used mortgages with adjustable interest rates to stretch and buy more home than they could otherwise afford, Reeser said. As interest rates have risen, so too have payments, often by several hundred dollars. 'A lot of elderly, a lot of young people borrowed way too much. It is just devastating,' she said."

"Distressed home sales are saturating the market for properties under the metro area's May median home price of $250,000, said Ed Jalowsky, a broker in Denver. A large number of homes at risk of foreclosure are being sold for less than the mortgages on them, adds Jalowsky, who was involved in one such 'short sale' in Thornton on Tuesday."

"Of Colorado foreclosures in April, 2 percent were in the notification or preforeclosure stage, 80 percent involved properties headed to auction and 18 percent were properties owned."

"The large number of distressed properties is boosting the inventory of homes for sale in the metro area, making it even harder for sellers looking to get out of mortgage payments they can't afford. The number of homes for sale in the metro area hit a record of 29,045 last month, surpassing the previous high of 28,043 reached in June 2004."

"'We will see more inventory and more pressure on the low end,' Jalowsky said. 'I don't see any immediate relief in the near future.'"

Tuesday, May 16, 2006

South Texas Has Nations Worst Credit

A report on the credit conditions in south Texas. "Here's a Top 10 ranking San Antonio could do without: Bexar County, along with four other South Texas counties, made the nation's list of places where residents have the lowest credit scores. The San Antonio, Brownsville, McAllen, Corpus Christi and Laredo areas had average credit scores below 600 in 2004, according to a study by the Brookings Institution. Lenders consider a sub-600 score the riskiest credit rating."

"The dubious distinction stems from reasons including thin credit files, low rates of medical insurance, and even failure to pay health club dues. From there, finances just keep going downhill. 'Without a doubt, consumers with those scores are paying more for credit cards,' said Greg McBride."

"The report should be a wake-up call, experts say. 'In a quiet, Brookings way, they are saying, 'Yikes! Something must be done,' said Ed Mierzwinski, consumer advocate at the Texas Public Interest Research Group."

"In the Brookings study, Bexar County dropped from 613, in 1999, to 597, which carries a 'D' rating, the lowest credit score. Nationwide, scores dipped from 661 to 655 during the same period. But the local area declined four times as much as the rest of the country. 'What sets San Antonio apart is this fairly dramatic drop in credit scores,' said Matt Fellowes."

"Some lenders question how the scores are generated. For instance, a big factor in the low credit scores is unpaid medical bills, lenders say. South Texas may suffer from a higher level of unpaid bills because of the high percentage of uninsured residents. Removing medical claims can generate a more accurate measure of whether a borrower will repay a loan, said Carolyn Ozcan, Fannie Mae communications director."

"'A lot of times, when you take medical claims out of the picture you see a willingness to pay on everything else,' Ozcan said. 'Not paying your medical bills on time is not a measure of whether you will pay your mortgage on time.'"

"San Antonio's steady but slow growth in home prices also may have contributed to the drop. 'On the East and West coasts, people could count on property values going up 20 percent after just one year, and so could hide their financial problems by selling their houses and using the cash to pay off debts,' said Gregg Stanley, owner of Real Estate Foreclosures. 'San Antonio didn't see that level of appreciation.'"

"As a result, South Texans were stuck with more delinquent mortgages. In the Brookings study, mortgage delinquencies were 3.3 percent in Bexar County in 2004 compared with 1.4 percent nationwide."

Monday, May 15, 2006

San Diego Defaults Jump 60%

The Union Tribune reports on defaults in San Diego. "A recent spike in default notices may be a sign that some homeowners are struggling to pay the adjustable-rate mortgages that now dominate lending in San Diego County's residential real estate market, analysts warn."

"Notices of default, the first step toward mortgage foreclosure, jumped 60 percent in the San Diego region in the first three months of this year, compared with the first quarter of last year, DataQuick reported. Neighboring Riverside County had a 64 percent jump in default notices over the last year."

"David Berson, chief economist for mortgage-investment giant Fannie Mae. However, Berson is troubled that foreclosure activity is rising during a period of economic growth. 'Normally this is a situation in which housing problems tend to go down, not up,' Berson said. 'If it continues, it could be a sign that borrowers are in financial distress.'"

"Longtime San Diego mortgage broker Ed Smith Jr. Smith has seen too many people who are willing to take financial risks for their slice of the American Dream. 'You have a hardworking family trying to buy home in a market where a starter home costs $500,000 to $550,000,' said Smiths. 'They are all looking for the lowest monthly payment. They don't plan for when the freight comes due on that ticket.'"

"In La Mesa, Erik Weichelt, a real estate agent who specializes in marketing or real estate owned properties acquired through foreclosure, said business is good. 'We have more REOs now than we have in the past three years,' Weichelt said. Until recently, 'there was no need for the foreclosure process; appreciation was so strong. People were able to refinance or sell the property and get a fresh start. Now, because of limited appreciation and some stagnation in the market, that is just not available.'"

Saturday, May 13, 2006

Foreclosure News From Across The US

A round up of foreclosre news across the US. "According to a Framingham company that tracks foreclosure proceedings, the number initiated in the Bay State for the first three months of the year increased to nearly 3,800, up 30 percent from the number of proceedings that began in the first quarter of 2005. 'What we’re looking at is the number of properties being foreclosed upon, and that’s increasing tremendously,' said Jeremy Shapiro."

"The number of homes transferred through foreclosure auctions in Plymouth County in the first four months of this year more than doubled over the first four months of last year, according to the Plymouth County Registry. In Norfolk County, the number of homes rose to 58 in the same period, from 19 last year."

"The American dream is in tatters for record numbers of southeast Michigan homeowners, leaving the dreaded dandelion and annoyed neighbors in its wake. Spring is barely here, but a winter of soaring home foreclosures has left thousands of abandoned, weed-choked lawns in neighborhoods from Downriver to West Bloomfield and St. Clair Shores."

"'It's everywhere. People are just walking away, absolutely walking away, from their properties,' said D. Wayne O'Neal, city manager of Eastpointe."

From New Hampshire. "Strafford County Register of Deeds Leo Lessard said the number of advertised foreclosures has tripled in the last few years. There were 44 foreclosures in his county in all of last year, and 36 so far this year. 'We'll probably have about 100 this year,' Lessard said."

North Carolina. "Charlotte homeowners are losing their houses in record numbers. The clerk’s office in Mecklenburg County told 6NEWS they get about 200 foreclosure filings a week. A look at the bigger picture reveals that foreclosure filings have increased almost 300 percent since 1998. The trend is heartbreaking to some home owners and an opportunity to some of the businessmen."

From Alabama. "'Alot of people actually financed homes they could not afford,' says economist Dr. Mike Daniels. And now some economist say the local housing bubble could burst. Experts say forclosures in Columbus are up 25 percent from last year. The culprit, rising mortgage rates. Something a lot of homeowners didn't budget for."

"'I don't think people really read the fine print about what was going to happen to their payment when the interest rates went up,' says Daniels. Many home buyers opted for high risk interest only loans that allow a low down payment and low monthly payments, that is until interest rates soared. So far they've gone up 16 times since June of 2004."

"The Consumer Credit Counceling Service says 200 people filed for bankruptcy last march mostly caused by foreclosures.'

"The rate is rising and some people can't handle the payment and it's sad but it's true. So again The American Dream is still here some will have to struggle to make it happen,"says Bill Enfinger American Equity Associates.

Friday, May 12, 2006

2,000 Bankruptcies Per Day In The US

A foreclosure report from Atlanta. "Georgia leads the country in the rate of foreclosure, RealtyTrac said. The number of Georgia homes in some stage of foreclosure has more than doubled since the end of 2005. Currently, there is one foreclosure for every 127 households, almost 25,000 homes statewide."

"The Mortgage Bankers Association is forecasting a national rise in the number of home loans that will become delinquent or enter foreclosure over the next two years. And the loans that (credit counselor) Suzanne Boas calls 'aggressive,' bankers call them 'innovative,' are among the chief causes for the increase. These loans include mortgages that charge a lower interest rate in the early years of the loan and adjust to a higher rate after the initial period."

"Foreclosure was not even a remote prospect on Debi Steedley's mind when she moved into her three-bedroom, three-bath Woodstock home with her two children in the spring of 2001. The triathlon competitor had just gotten her graduate degree and was launching a business as a freelance nurse practitioner."

"But an unforeseen health crisis two years ago rendered her unable to work full time, with no unemployment insurance or disability income to bridge the gap. Steedley turned to her mortgage lender which gave her an interest-only loan and an equity line of credit that initially lowered her monthly payment by hundreds of dollars."

"But Steedley's health struggles continued, and her loan payments all too quickly began to spike. 'With all the refinancing and interest rates going up, it really climbed,' Steedley said. 'All of a sudden, boom, it was maxed out.'"

"Steedley missed her first payment in November 2005. By the time she approached a loan officer with a payment in January, her home had been recommended for foreclosure and slated for sale in June. '"I wish I understood finances better, but when I talked to [the HomeBanc loan officer], it made sense,' Steedley said. 'The chart I was looking at showed [the loan payment] didn't move all that much.'"

And MSN Money has this updaet on bankruptcy filings. "The lull in bankruptcy filings may already be a thing of the past. Consumer bankruptcy cases plunged to a 20-year low in the first three months of 2006, reflecting the passage of a tough new bankruptcy law last year. But the pace of new filings is already on the rise."

"Courts now see an average of 2,000 new filings a day, four times the number that were filed in November 2005 after the bankruptcy law went into effect, according to Chris Lundquist, who tracks bankruptcy trends."

"'I would look to things like more delinquencies on revolving credit as well as home mortgage delinquencies and foreclosures as pre-indicators, if you will,' said Sam Gerdano, head of the American Bankruptcy Institute."

Households Going Into Debt For The 'Basics'

The Washington Post looks at what is causing debt levels. "Why are Americans so deeply in debt? It's not because they are using credit cards to buy plasma TVs and premium coffee drinks at Starbucks. The real culprits, according to a new analysis, are the rising costs of housing, health care and education."

"The debt of the typical American family earning about $45,000 a year rose 33.1 percent from 2001 to 2004, after adjusting for inflation, according to a study based on data compiled from the Federal Reserve Board."

"Real wages, after adjusting for inflation, have been flat since 2001, according to the study, while the cost of big-ticket items for which families pay the most rose. In the past five years, the costs of medical care, housing, food, cars and household operations rose 11.2 percent, the study said. Many families are trying to make up the difference by borrowing, according to (economist) Christian E. Weller, author of the report."

"Housing debt has climbed notably because home prices have risen and people have borrowed against the equity in their homes. From 1989 to 2004, for example, the median mortgage debt more than doubled, from $46,900 to $96,000."

"Education debt, meanwhile, rose 127 percent between 1992 and 2004, from $3,427 to $7,800. Health-care costs rose, too, because insurance has become more costly and employers are shifting more of the expense to workers."

"Many families, particularly middle-income households, aren't acknowledging that declining incomes mean they must radically adjust their standards of living, according to Weller and Elizabeth Warren, a law professor at Harvard University. Warren suggested that families that can no longer realistically afford their single-family houses should move to condominiums, consider limiting their families to a single automobile, get second jobs to pay off debt, or move to less expensive school districts that may not have the highest test scores but where children perform acceptably well."

"'Parents need to consider whether a three-point difference in reading scores translates into a wholly different educational experience for their children,' Warren said."

"At their news conference, Weller and Warren urged Washington policymakers to consider the implications of consumer debt before families are crushed by rising costs and damaged credit. They predicted that otherwise, many families will lose their homes through foreclosure when bankruptcy law changes make it more difficult for households to escape debts."

Thursday, May 11, 2006

New England Home Prices Flat For Years: Study

The Stamford Advocate reports on home prices in the northeast. "Connecticut, New Hampshire and Vermont will be the pacesetters for New England's slow-growing economy through 2010, with Maine, Massachusetts and Rhode Island bringing up the rear, a regional forecast organization predicted Thursday. The forecast group says the recent slowdown in New England's housing market will persist, with prices expected to appreciate an average of less than 1 percent through 2010."

"The New England Economic Partnership said New Hampshire will be the only state in the region to post faster job and overall economic growth than the nation through 2010, while Connecticut will lead the six-state region for growth in personal income and gross state product."

"Massachusetts will continue lagging the nation and the region in employment growth, with Maine suffering continued erosion in manufacturing jobs and Rhode Island's economy slowing after recent growth."

"Ross Gittell, a University of New Hampshire economist, said expectations are lower because unemployment has climbed higher than forecast, fewer people are moving into the region, and New England's manufacturing sector and its leisure and hospitality businesses are lagging. 'There's little hope of a manufacturing employment recovery,' Gittell said. 'Those jobs are not going to be recovered.'"

"The recession that began in 2001 persisted longer in New England than in the rest of the nation, and recovery has come more slowly. After eight consecutive quarters of declines beginning in 2001, the number of jobs in the region finally began to increase in the second quarter of 2003. Housing prices continued to climb in New England during the recession, and have risen well above the national average in recent years. But that is quickly changing."

"The forecast organization predicted housing price growth in New England will decline from an annual average of more than 10 percent in 2000 to 2005 to less than 1 percent through 2010. U.S. housing prices are forecast to rise 3.2 percent per year through 2010."

"The only New England state expected to experience housing price appreciation at a rate higher than the nation's is Vermont. The three states with the highest recent increases in housing prices - Rhode Island, Massachusetts and New Hampshire, are expected to have the slowest growth in housing prices, with Rhode Island expected to experience a slight decline through 2010."

Wednesday, May 10, 2006

Boston May Be A 'Different Scenario'

The Boston Globe reports on rising defaults in the state. "Foreclosure filings against Massachusetts homeowners increased 30 percent in the first three months of 2006 and have doubled in the past three years, as homeowners in one of the nation's most expensive real estate markets struggle to cope with high prices and rising interest rates."

"Rising interest rates and a softening real estate market have put a squeeze on homeowners who sometimes can't make the higher payments on adjustable-rate mortgages or refinance their loans to lower their payments."

"'These are numbers everybody should be paying attention to,' said Thomas Callahan, executive director of the Massachusetts Affordable Housing Alliance. 'There are things that could happen like further increases in interest rates and or more serious decreases in [house] values that can make this a lot worse than it is now, and it's pretty bad right now.'"

"In the first three months of the year, lenders filed notices against 3,762 Massachusetts borrowers who were at least 30 days delinquent on their mortgage payments. That is more than double the 1,858 filings in the first quarter of 2003, when the housing market was booming."

"'We have seen a real increase in numbers of foreclosures in Boston,' Mayor Thomas M. Menino said yesterday, noting that the city has recorded 58 foreclosures so far this year, almost as many as the 60 filed for all of 2005. 'The sky isn’t falling yet, but it’s really a cause for concern.'"

"'We've got to stop having these mortgage companies give these loans out for people who shouldn't get loans,' Menino said."

The Fannie Mae chief is worried, too. "Fannie Mae's chief executive said on Wednesday the U.S. housing market will face significant resetting of adjustable rate mortgages over the next two years and he worries about this sparking foreclosures in some locations."

"Daniel Mudd told Reuters in an interview that Fannie Mae models suggest a couple of reset 'spike periods' in the next two years, based on past originations of mortgages with adjustable rates and other features such as low initial 'teaser rate' periods."

"'If jobs are pretty stable, if home prices have come up underneath the mortgages to support them and if there's not any incidence of appraisal fraud, it could be just fine,' Mudd said. 'If in certain geographies, some of those factors are different, there's some appraisal fraud, or there's an economic downturn or home prices have declined, it could be a very different scenario.'"

"He said underwriting standards still vary widely among lenders, with some maintaining their share of a shrinking mortgage market as they tighten standards while others are still applying 'exuberance' to credit risk. Products such as interest-only adjustable rate mortgages, payment-option mortgages and loans that require no property appraisals create multiple layers of risk that are difficult to model and predict, he said."

Tuesday, May 09, 2006

'Buying Borrowed Time' With A Credit Card

Ms. DiMartino at the Dallas News has this interview. "Carl George is on a mission. The chairman of the American Institute of Certified Public Accountants' Financial Literacy Commission says he's determined to insulate American homeowners against the dangers of the deflating housing bubble. 'One of life's stages is buying a home,' Mr. George said. 'Extend that logic, and it becomes all about keeping a home.'"

"Because so many U.S. households are living on the razor's edge, 43 percent spend $1.22 for every $1 they earn, there's a real risk that the housing downturn will bring on financial disaster. 'It's kind of like buying a new car and being upside down the minute you drive off the lot,' Mr. George said. 'These people are going to be in serious trouble because the housing market is going to get worse before it gets better.'"

"Homeowners should do is change their way of thinking about their homes. 'The idea that you can wait to sell your house because it's going to keep rising in value is awfully dangerous,' Mr. George said. 'You just can't put your house in the same category as you do a stock, especially if it's your primary residence.'"

"Mr. George says he's worried that he has much more work to do. He's recently seen a big increase in people putting their house payments on credit cards. (I didn't know you could even do that.) 'These families' balance sheets are quickly become cockeyed, assets are going down while liabilities are going up,' Mr. George said. 'People are literally buying borrowed time.'"

Monday, May 08, 2006

A 'Recent Spike' Of Defaults In San Diego

The Voice of San Diego has this report. "The rate at which borrowers are foreclosing on their mortgages has doubled since last year, as high-risk financing has become the norm for home buyers in San Diego County. Local experts wonder whether the recent spike in foreclosures is a harbinger of horrors to come or of the much-hyped 'soft landing' for the local real estate market."

"In January 2005 no properties were seized by lenders through the foreclosure process in San Diego County. Every one of the homeowners who had defaulted on their loans managed to offload their property without the bank closing in on them. But last month, lenders seized 66 properties through foreclosure processes. That's almost as many as in the whole of 2005."

"'I anticipate that we're going to have substantially more foreclosures in the future, that's going to continue for a couple of years,' said Erik Weichelt, owner of San Diego REO Realtors. Experts also agree that intrinsic to the rising foreclosure rates is the preponderance of non-traditional loans being used to finance home purchases in San Diego County."

"In 2005, more than 70 percent of home loans in the county were interest-only or negative-amortization loans and 26.7 percent of loans made to homebuyers and those refinancing their mortgages were negative-amortization loans, according to Loan Performance. In 2004, that number was 9.9 percent. In 2003, it was 1.1 percent. In addition, the vast majority of loans issued in San Diego County in recent years have been adjustable-rate mortgages."

"Because the wide use of interest-only loans and negative-amortization loans is a new phenomenon, nobody really knows what will happen to all those loans if the real estate market continues to cool off.'

"Charles Jolly, president of the San Diego Association of Realtors, said most foreclosures are likely to result from the high number of speculators who invested in the real estate market. Only about two percent of all the homes in San Diego are bought and sold each year, he said, and increased numbers of foreclosures will only affect the small minority of people who have to sell their homes."

"There's little question that if the number of foreclosures continues to rise exponentially there will be an impact on local housing prices, the question is, then, how much the rates will rise and therefore how much prices will be impacted. Those are questions nobody can answer just yet, and the next few months in San Diego real estate will be the time for experts to watch what happens very closely."

Friday, May 05, 2006

Foreclosures A Problem For Solvent Owners

Realty Times has a look at foreclosures. "The lending community will plainly tell you that foreclosures are on the rise, in part because of rising interest levels, but don't worry. The 30 percent of all owners with adjustable-rate and interest-only loans may want to watch interest levels with care."

"In many cases we're not talking about established ARM programs. Too often we're discussing what I call 'toxic' financing, meaning 'nontraditional' loans such as option ARMS. We usually see that about 1 percent of all loans are in the 'process' of foreclosure."

"However, the coming number of loan foreclosures may be far higher, and they may be far higher precisely because toxic loans are now used so widely. USA Today reports that as many as 1 million of the 7.7 adjustable loan products issued in the past two years may be foreclosed, that's a foreclosure rate 13 times higher than normal."

"The official line is that if the number of foreclosures goes up that's not really worrisome because even a bigger number of distressed properties would still represent just a small fraction of all homes. Such logic avoids the reality of the marketplace."

"Consider what happens in a new subdivision with 1,000 condo units where the builder begins offering a few at a $50,000 discount to clear out inventory. Can anyone in the subdivision sell units for more? Have not the value of all units fallen, including those owned free and clear of any mortgage debt? Do not low-ball prices show up when comparables are checked?"

"Most owners in the subdivision will continue to meet their monthly mortgage payments and not sell, thus the fact that large numbers of homes have been devalued will not show up in foreclosure statistics. While this may please lenders and regulators, owners, especially those who had hoped to sell or refinance, may not be too thrilled."

"To believe that an increasing number of foreclosures will not have a marketplace impact is neither logical nor believable. Just ask the people in the subdivisions and condo projects where developers have recently cut prices on just a few units."

Thursday, May 04, 2006

Riverside CA Defaults Up 64%

The North County Times has this on area defaults. "More lenders moved to foreclose on homes in Riverside County, reflecting continued cooling in a market that was still sizzling a year ago. Mortgage lenders sent 2,148 notices of default to property owners in the first quarter, up from 1,607 in the fourth quarter, and 1,307 in the first quarter of 2005, according to DataQuick."

"That year-on-year increase of 64 percent was more dramatic than in any other large county in California. And the number of notices issued was larger than any other county except Los Angeles."

"Analysts have said the recent trend underscores buyers' tendency into last year to use risky mortgages. Interest payments on variable-rate loans are beginning to rise while home values are rising at a slower pace, providing less cushion for homeowners who have little equity to bail themselves out of a defaulted mortgage before foreclosure proceeds."

"Analysts have generally said that Riverside County's higher number reflects its status as a prime destination for first-time home buyers, who are, on average, less financially stable."

Bad Loans A Big Global Business

The Financial Times has this report on the after-market for bad loans. "The global business of trading non-performing loans (NPLs) has exploded in recent years, as banks have been forced to deal with mountains of bad debt created by reckless lending, a report from Ernst & Young has claimed. Markets such as China could provide even better opportunities for traders, as regulators finally force the banks to offload their bad loans."

"Indeed, the scale of the Chinese bad loans that have been created by reckless lending could now reach $900bn in total, the E&Y report concludes; three times the level of bad loans seen in Germany and larger than China's total volume of foreign exchange reserves."

"'A combination of poor lending practices, inadequate regulation and failures to reform banking systems has created huge losses for [global] banks over the last 20 years,' says Jack Rodman, one author of the report. 'We estimate the average recovery of NPLs worldwide to be about 33 cents on the dollar.'"

"The explosion of the global NPL business reflects a two-decade effort by American investment bankers to export a set of highly profitable techniques that were first developed in the US to trade bad loans."

'These practices emerged in Texas in the 1980s, when a host of small US financial institutions became insolvent after a property bubble collapsed. They cleaned up their balance sheets by selling these bad loans to outside investors, such as investment banks and hedge funds, who then created the infrastructure needed to trade these assets in a manner that was often profitable for the investors."

"In the mid-1990s, bankers took these techniques to Asia, where the Japanese banking system was also burdened with a vast overhang of bad loans and countries such as Thailand were suffering financial distress following the Asian crisis."

"NPL traders are moving into new markets, such as India, which is estimated by E&Y to have the fourth-largest level of NPLs in the world. However, the focus of activity in recent months has been Germany, which is believed to have the third-largest pile of NPLs, worth about €300bn."

"China's bad debt total arguably exceeds this German figure by a wide margin: the report suggests that the big four Chinese banks alone have $358bn of bad loans."

Wednesday, May 03, 2006

Former Homeowners Turn To Apartments: CO

The Coloradoan has this update on that state. "With Colorado topping the nation for foreclosure rates, some homeowners are returning to the rental market, one that has tightened in Northern Colorado during the first quarter of this year. Some first-time homeowners who signed adjustable rate mortgages have struggled to keep up with house payments that have increased by up to 50 percent."

"'Vacancy rates have gone down a bit, but owners are still behind the power curve,' economist Gordon Von Stroh said. 'To attract residents and bring vacancy rates down, apartment owners had to offer incentives or discounts, despite their costs increasing.'"

"Colorado had the highest foreclosure rates in the nation in March and one of the highest in the nation during the first quarter as national foreclosure rates also increased. Von Stroh's data, collected from nearly all apartment managers in the state, shows more homeowners returning to the rental market."

"With zero-percent down-payment loans, and adjustable rate mortgages popular in the past couple years, it has probably been too easy to qualify for loans, said Carrie Ann Gillis of the Colorado Apartment Association in Fort Collins. 'With zero down, people have been led to believe it was an affordable dream for them. But then their furnace breaks or they have a health issue,' Gillis said. 'It's a crime to offer the American dream to those who just aren't ready for it yet. They get into a situation they can't get out of.'"

"The ideal vacancy rate in a market is about 5 percent, Von Stroh said. Loveland had the lowest percentage of apartments available in the region, with a 6.3 percent vacancy rate. Before Loveland's retail boom, the city had reached a peak vacancy rate of 29 percent at one point in the past several years, Von Stroh said."

"Typically, Fort Collins and Greeley mirror each other in apartment vacancy rates. Greeley's vacancy rate was 8.1 percent during the first quarter. Vacancy rates are dropping across the Front Range for a number of reasons. Interest rates are rising, narrowing the pool of qualified candidates for homeownership."

Tuesday, May 02, 2006

Houston Foreclosures Triple In Three Years

The Houston Business Journal has this update. "Houston is positioned to escape most of the negative economic consequences that a number of housing markets throughout the nation will feel as a result of a predicted correction of the nation's housing market, a Houston economist said Tuesday."

"During his annual real estate symposium, University of Houston economist Barton Smith pointed to excessively high prices and extremely low affordability in about a quarter of the nation's housing markets as well as a dangerous rise in sub-prime lending that is already producing high levels of foreclosures."

"He pointed out that local foreclosures are three times higher than they were just three years ago."

"The economist hopes there is only one more quarter-point rise before the Fed pauses for the rest of this year."

"'We have now finally reached the point where further interest rate hikes could really get the housing market correction going,' Smith said. 'Already, home sales are weakening. Bringing the housing market back down to earth slowly is going to require real finesse, perhaps a level of monetary fine-tuning that is beyond the Fed's abilities, especially at a time when they are preoccupied with the inflationary implications of high energy prices.'"

California Defaults Up 28%

A report on California. "First-quarter foreclosure activity in California increased to the highest level in more than two years, the result of slower home-price increases. Lending institutions sent 18,668 default notices to California homeowners during the January-to-March period. That was up 23.4 percent from 15,122 for the prior quarter, and up 28.7 percent from 14,501 for 2005's first quarter, according to DataQuick."

"'A number of factors are driving defaults higher,' said Marshall Prentice, DataQuick's president. 'The main one right now is that home values are rising more slowly than they have been the past couple of years, which makes it more difficult for homeowners to sell their homes and pay off the lender.'"

"Last quarter, San Diego County saw home values rise 4.8 percent, while its default activity jumped 59.7 percent. San Bernardino County saw defaults increase 17 percent."

"The median first-quarter default amount on a primary mortgage last quarter was $9,220 on a loan of $280,000. On second mortgages and lines of credit the median amount owed was $3,386 on a loan of $56,760."

From the table at the bottom of the link: Orange County, up 42.8%. Riverside up 64.3%. Ventura up 65%.9%. Napa up 62.1%. Santa Barbara up 43%, and Sacramento up 48.9%

Defaults Up 300% In Seven Years: NC

An update on foreclosure in North Carolina. "In Wake County, an average of 80 homes are foreclosed on each week. 'It's at least 50 percent of an increase in the last five years. Five years ago, there would have been half the foreclosures there are today,' said attorney Timothy Peterkin."

"In fact, in the past seven years the number of foreclosure filings on homes and businesses has jumped 300 percent statewide. In Wake County, filings have risen 263.5 percent."

"Carolyn Buie went through the horror of foreclosure. She didn't realize she'd signed a high-cost loan with high interest and fees. When Carolyn became disabled, the mortgage became too much. 'It's a very confusing process, you know, get a loan closing and you have 100 pages to sign,' Peterkin said."

"Confusion, mortgage fraud, creative financing, balloon loans, interest-only loans are some of the reasons why in seven years, North Carolina foreclosure filings are up 300 percent. 'That's terrible. That says to me there's something wrong with our system,' Buie said."