Friday, December 29, 2006

How Many Go All The Way?

The Atlanta Journal Constitution reports from Georgia. "The jump in the number of people whose home mortgages are foreclosed on and its potential impact on struggling families and local economies is news. The headlines are especially big in Georgia, which now has the nation's third-highest rate of foreclosure."

"But of the thousands of Georgians each month who land in the line to the courthouse steps, many manage to slip out of the queue. The question that is not often asked or answered is: How many go all the way?"

"There's no central repository for the data that would answer that question definitively, but estimates hover at less than half."

"The number matters. Foreclosures take homeowners' biggest investments and taint their credit ratings; they cost lenders time and money. If foreclosures are truly epidemic, they also threaten the real estate market and the economy. They undermine a community's home values and eat away at buying power that underpins the economy."

"More than 7,000 properties were listed in Georgia for foreclosure in November, up 60 percent from a year earlier, according to RealtyTrac. Some say the increase in foreclosures is far less grievous, Equity Depot of Alpharetta says it is closer to a 15 percent increase, but everyone agrees that foreclosures are rising."

"But those numbers represent homeowners who enter foreclosure, not those who lose their homes. 'To my knowledge, there is not any national or even state system of tracking the filings that actually go to sale,' said Marty Stone, vice president of foreclosure operations at Atlanta-based McCalla Raymer, which represents national lenders. 'But I think that it can be no more than 40 to 50 percent.'"

"McCalla Raymer's number carries a lot of weight: The firm handles more than half the foreclosures in metro Atlanta, Stone said."

"Some lawyers say the percentage of properties actually sold is lower, a few say it is closer to 20 percent or 25 percent. None put the number as high as one-half, although it might occasionally spike that high."

"Philip A. Hasty of Atlanta law firm Shapiro and Swertfeger said the percentage of listed properties handled by his firm that were sold has swung from a low of 30 percent in November 2005 to a high of 53 percent in June. 'I'd say it averages somewhere between one-third and 40 percent that make it all the way through to a sale,' he said."

"The rising pool of foreclosed homes costs lenders money in lost payments, in lawyers' fees and in lower sales prices in what is increasingly a buyers' market. So they are more willing to dicker with struggling homeowners."

"That means the percentage of houses that go all the way through to a foreclosure sale is probably decreasing, even though the total number is going up, Hasty said."

"If 40 percent of those filings ended in sales, that would mean 2,822 families lost their homes."

"On the road to foreclosure, there are several possible exits. Among them are filing for bankruptcy, which stops the process and protects homeownership; coming up with the overdue mortgage payments, or paying off the mortgage. Another route is working out a payment plan meant to gradually get the borrower back in the lender's good graces."

"With foreclosures mounting, lenders are increasingly willing to make such deals, said Hasty."

"Among reasons for the growing number of foreclosures is that home mortgages have become a lot easier to get. Not only are terms more generous, as with interest-only and adjustable-rate loans, for example, but qualifications for buyers are less stringent. Lenders often have not required savings or down payments. They have made a record number of 'subprime' loans to borrowers with spotty credit histories."

"'Subprime lenders are selling the most dangerous loans to the most vulnerable borrowers,' said Michael Calhoun, president of the Center for Responsible Lending, a Durham, N.C.-based nonprofit research and advocacy group. 'About 80 percent of all subprime loans are adjustable-rate mortgages.'"

"Borrowers in those circumstances tend to be less able to negotiate deals or find ways to get up to date on delinquent payments, so they account for many of the properties that do go all the way through the process. A study by the Center for Responsible Lending shows that the rate of foreclosures for subprime loans is roughly 10 times as high as for the rest of the market, Calhoun said."

"Based on the center's survey, a prediction is possible for the subprime loans of the past two years, he said. 'One out of three will ultimately lose their home.'"


At 5:24 PM, Blogger mort_fin said...

There's a paper by Ambrose and Capone published maybr 10 years ago, I think in the Jrnl of Real Estate Finance, that showed about 25% of loans that went 90+ days delinquent ended up all the way to foreclosed within a year. They only had data on FHA loans, but FHA delinquency rates are pretty close to subprime rates. Since Notice of Disclosure is farther down the road to ruin then is serious delinquency, I would expect the ratio of foreclosures to NODs to be above 25%, although probably well under 50% - anecdotally, a lot of people do pull it out of the fire at the last minute.

At 6:22 PM, Blogger Rich Steffen said...

You fail to mention that bankruptcy, be it Chp. 7 or 13, only postpones the foreclosure process. It doesn't eliminate it.


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