Though delinquencies continue to mount in Detroit, Stockton, Calif., and Las Vegas, markets where the number of foreclosures are relatively low, but rapidly rising, are also causing concern.
Take the Washington, D.C., metro, the Baltimore metro and many spots that fall between the two. While the sheer number of foreclosure filings in Bethesda, Md., (a metro that includes Frederick and Gaithersburg) are about a quarter of those in Detroit, they’re up a whopping 1,288% in 2007, according to a RealtyTrac’s year-end report, released today. In addition, they’re up 574.9% in Washington, D.C., which includes the Maryland and Virginia suburbs, and up 544% in the Baltimore metro.
While Project Lifeline, the Bush administration’s plan to give delinquent borrowers 30 days to renegotiate the terms of their loans, should help, U.S. Treasury Secretary Paulson, in announcing the initiative yesterday, said that “the worst is just beginning,” as “the loans resetting over the next couple years–that vintage was done under the most lax underwriting standards.”
In places that are beginning to see meteoric rises in foreclosure rates, such as the Washington, D.C., metro, a large share stem from the overbuilt ex-urbs, or commuter towns, where price drops have put people’s mortgages into the red. When prices spike and then fall, the first areas affected are the “drive to qualify” exurbs.
“There’s been a ton of development, and a lot of people just flat out overpaid in the ex-urbs,” says Cullen Watson, a real estate broker and settlement attorney in Washington, D.C. “Those properties have become less valuable, and a lot of people found themselves upside down thanks to 95% or 100% financing.”
Compounding the problem, says Watson, are banks asking market rates, or the full amount owed on a mortgage note, at foreclosure auctions, hardly a recipe for a quick sale.
“It’s hard to say which bank … it’s all of them,” he says. “It’s gotten to the point now where I’ve stopped taking clients to auctions.”
Among those cities in deep foreclosure trouble are Stockton, where the 2007 year-end foreclosure rate was up 271.3% over the year before. In Bakersfield, Calif., foreclosures jumped 244.8%. As a matter of perspective, foreclosures in Detroit grew by 68% last year.
Behind The Numbers
RealtyTrac’s report measures foreclosure activity, or homes in three phases of foreclosure: properties in default, those with a notice of trustee or foreclosure sale, and homes known as REOs (real estate owned), which have been foreclosed and repurchased by the bank.
These distinctions are especially important following Paulson’s announcement Tuesday that the government’s Project Lifeline would temporarily halt foreclosures and provide refinancing and rewriting assistance for homeowners in conjunction with JPMorgan Chase (nyse: JPM ), Wells Fargo (nyse: WFC ), Countrywide Financial (nyse: CFC), Washington Mutual (nyse: WM ), Bank of America (nyse: BAC ) and Citigroup (nyse: C ), who together hold about 50% of outstanding mortgages.
For example, a homeowner faced with a notice of default–or the subsequent “lis pendens,” or suit pending–can still avoid losing his home by restructuring payments or simply catching up on overdue ones. For those with no equity as the result of a zero-down payment or piggy-back loans, it’s going to be harder, since they have nothing invested in the home and may find it difficult to work with lenders.
It’s important to note that these figures are the percentage change in foreclosures. In absolute terms, foreclosures in Baltimore only represent only 0.7% of the total households, while those in Detroit represent 4.9%.
What’s more, foreclosures are not an invention of the last three years. Any jump in foreclosure rates is troubling, though in any healthy market there will be delinquencies.
“I always thought that an acceptable range was 1% to 3%,” says Jonathan Miller, research director at Radar Logic, a New York-based real estate firm. Meaning that only a handful of markets on this list are significantly outside of what he calls the normal foreclosure range. “It’s definitely a real issue in certain markets, but I think that it’s being overhyped overall.”