2007 foreclosures expected to be up 33%

From BusinessWeek:

The Forecast for Foreclosures

Michele Johnson is no stranger to desperate phone calls, but lately they’ve become an even more regular occurrence. Johnson, who is chief executive of the Consumer Credit Counseling Service of Southern Nevada & Utah, says that these days, homeowners facing foreclosure are seeking out the agency’s help in droves.

“There was just so much creative financing that was going for the last few years with consumers not understanding fully the potential ramifications,” she explains. “Our goal here now is to mitigate their losses.”

The U.S. fared much better as a whole: RealtyTrac measured a total of 130,786 filings nationwide in February, down 4% from January’s level.

February’s decline, however, may prove fleeting. “A 4% decrease, for all intents and purposes, is flat,” says Rick Sharga, RealtyTrac’s vice-president of marketing. Foreclosures were still up 12% year-over-year, and February’s total marked the first time there have ever been two back-to-back months with U.S. foreclosure numbers over 130,000, Sharga notes. January’s total foreclosure figure—136,113—was the highest monthly number ever recorded by RealtyTrac.

RealtyTrac still expects 2007 foreclosure activity to be 33% higher than in 2006 based on trends in the first two months of this year. “It appears that as subprime and FHA loans default at higher-than-anticipated rates, and lenders tighten their underwriting standards, we’re going to continue to see a spike in the number of homeowners facing foreclosure,” said President Jim Saccacio in a statement.

Many borrowers with adjustable-rate mortgages are simply not prepared when the rates on those loans shoot up. Low-income borrowers and those with weak credit have felt the sting of the market slowdown the most, and now tighter lending standards brought about by increased defaults are ruling out refinancing for many who may have qualified for a better loan a year ago.

A record number of people could face the emotional trauma of losing a home in 2007, but some good may come of it. Long term, tighter lending standards will weed out possible foreclosure candidates.

“Assuming they don’t reverse their progress, I’d give the market a year or two to clear out most risky loans,” says Sharga. “Three years from now, we will likely see a significant foreclosure decrease.”

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6 Responses to 2007 foreclosures expected to be up 33%

  1. James Bednar says:

    From Bloomberg:

    U.S. Homeowners Entering Foreclosure Process Climbed Last Month

    U.S. homeowners are falling behind on their payments 33 percent faster than they did last year, according to a report by California-based RealtyTrac, which researches data on Americans entering the foreclosure process.

    In February, foreclosure proceedings — from default notices for late payment to auctions and repossessions — rose 12 percent from a year earlier, affecting 130,786 properties, or one in every 884 U.S. households, RealtyTrac said.

    Falling or little-changed home prices are making it difficult for homeowners to sell or get new mortgages on homes they bought or refinanced with adjustable-rate mortgages.

    “It appears that as subprime and FHA loans default at higher than anticipated rates, and lenders tighten their underwriting standards, we’re going to continue to see a spike in the number of homeowners facing foreclosure,” RealtyTrac Chief Executive Officer James Saccacio said in a statement.

    The interest rates on about $775 billion worth of subprime loans — those given to borrowers with bad or incomplete credit — are scheduled to rise in the last nine months of 2007, according to Bear Stearns & Co. The Federal Housing Administration also lends to low-income borrowers.

  2. James Bednar says:

    From Empire State News:

    New York on “tip of foreclosure crisis,” says Schumer

    As the subprime mortgage market goes from boom to bust, Senator Schumer said Sunday that foreclosures will soar in New York in the next two years, with nearly 100,000 families throughout New York at risk of losing their homes by the end of 2008.

    The senator unveiled a plan that he believes will ensure that the subprime lending market, which has been able to operate with little oversight from federal regulators – is finally scrutinized on a federal level. Schumer outlined a plan to regulate these rogue mortgage lenders, eliminate “liar” loans and establish a foreclosure prevention task force.

    The impending large volume of mortgage foreclosures in the New York City metropolitan area and across the nation can be directly tied to the exploding popularity of costly non-traditional mortgage products over the past decade, he said. These non-traditional mortgage products, which include hybrid adjustable-rate mortgages with intricate interest rate terms and conditions, have been sold to middle and lower-income families in record numbers. While they offer attractive and easy lending terms, they also include excessively high interest rates that can sharply spike, leaving new homeowners struggling to meet rising mortgage payments, Schumer said.

  3. James Bednar says:

    From the NY Daily News:

    Subprime is big-time bind

    More than 91,000 New York families could lose their homes by the end of next year because of unscrupulous mortgage lenders who offer “affordable” loans with rates that quickly balloon, according to Sen. Chuck Schumer.

    “For thousands, the American dream of homeownership has turned into an un-American nightmare,” said Schumer at his Manhattan offices yesterday.

    A little more than half of the endangered homeowners, or 46,546, live in and around New York City, according to Schumer’s figures.

    “Thousands of middle-income and lower-income New Yorkers were tricked into borrowing these loans, and they are loans designed to fail,” said Schumer.

    Subprime lenders have come under fire for offering borrowers adjustable rate mortgages with an initial low “teaser” rate.

    This rate changes after a fixed period, usually two to three years, and can even double, causing the homeowner’s mortgage to balloon.

    Two months ago, Frank Ruggiero refinanced the mortgage on his Queens home in hopes of saving $100 a month.

    “It sounded so honest,” said Ruggiero, 69, recalling how a mortgage broker sold him a deal that was supposed to cost him $1,240 a month for the mortgage on his house in Ozone Park.

    A few days later, he learned he had been wrangled into accepting a subprime mortgage.

    Ruggiero, who lives on the $3,540 a month he gets from a pension fund and disability payments, fears he will lose the home he’s lived in for 32 years when his mortgage payments jump to $3,000 a month in three years.

    “If it happened to me, it’s going to happen to somebody else,” he said. “It’s not fair. I want something done to these people, so they can never do it again.”

  4. Pat says:

    It’s not fair? Why is it not fair? Did he state anywhere that he DID NOT KNOW at signing that the payments would jump to $3,000K in three years? How can you not know that? That’s like saying “I didn’t know I was taking out a seven-year car loan..I didn’t know.”

    What he didn’t gamble on was flat home prices and not being able to refinance again. Bad gamble.

    I’d love to get that quote in an article like this. “It’s not fair…nobody told me that my house’s value could drop!”

  5. Clotpoll says:

    Pat (4)-

    Bingo. I have no sympathy for these morons, either. Caveat emptor.

    BTW, the vast majority of these people knew exactly what they were signing on for. As for those who didn’t…they shouldn’t own homes, anyway. And pretty soon, they won’t.

  6. InvestorDavid says:

    “Assuming they don’t reverse their progress, I’d give the market a year or two to clear out most risky loans,” says Sharga. “Three years from now, we will likely see a significant foreclosure decrease.”

    I can see that real estate market bottoming out 3 years from now at 2010. Then market stays the same for 3 years and the price started moving up starting 2013.

    Pat, Great point. Most of them knew what they were getting into. They just didn’t count on the housing price going down.

    Greed. Greed. Greed.

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