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Foreclosures Surge to Record High in 2007

Total delinquency rate highest since 1985

By Mark Huffman
ConsumerAffairs.com

March 6, 2008

An increasing number of homeowners, facing payments resetting to a sharply higher rate and having little of their own money in the house, simply walked away.

The rate of loans entering the foreclosure process was 0.83 percent on a seasonally adjusted basis, five basis points higher than the previous quarter and up 29 basis points from one year ago, according to the Mortgage Bankers Association.

The delinquency rate for mortgage loans on one-to-four-unit residential properties stood at 5.82 percent of all loans outstanding in the fourth quarter of 2007 on a seasonally adjusted (SA) basis, up 23 basis points from the third quarter of 2007, and up 87 basis points from one year ago, the report said.

The delinquency rate does not include loans in the process of foreclosure. The percentage of loans in the foreclosure process was 2.04 percent of all loans outstanding at the end of the fourth quarter, an increase of 35 basis points from the third quarter of 2007 and 85 basis points from one year ago.

The total delinquency rate is the highest in the MBA survey since 1985. The rate of foreclosure starts and the percent of loans in the process of foreclosure are at the highest levels ever, the organization said.

The survey found that the increase in foreclosure starts was due to increases for both prime and subprime loans. From the previous quarter, prime fixed rate loan foreclosure starts remained unchanged at 0.22 percent, but prime ARM foreclosure starts increased four basis points to 1.06 percent.

Subprime fixed foreclosure starts increased 14 basis points to 1.52 percent and subprime ARM foreclosure starts increased 57 basis points to 5.29 percent. FHA foreclosure starts decreased 4 basis points to 0.91 percent and VA foreclosure starts remained unchanged at 0.39.

Since the fourth quarter of 2006, the foreclosure start rate for prime ARMs increased from 0.41 percent to 1.06 percent and the rate for subprime ARMs increased from 2.70 percent to 5.29 percent. The foreclosure start rate for prime fixed loans increased from 0.16 percent to 0.22 percent and the rate for subprime fixed loans increased from 1.09 percent to 1.52 percent.

While subprime ARMs represent 7 percent of the loans outstanding, they represent 42 percent of the foreclosures started during the fourth quarter. Prime ARMs represent 15 percent of the loans outstanding, but 20 percent of the foreclosures started.

California, Florida lead

California and Florida continue to represent a disproportionate share of the foreclosure starts in the country, the report found.

Those two states represent 21 percent of all loans outstanding, but accounted for 30 percent of foreclosure starts in the US. More importantly, they accounted for 39 percent of all prime ARMs outstanding, but 47 percent of prime ARM foreclosure starts.

Similarly, they represented 29 percent of all subprime ARMs, but 36 percent of subprime ARM foreclosure starts. The rate of foreclosure starts in Florida more than tripled between the fourth quarter of 2006 and the fourth quarter of 2007, while the rate in California more than doubled.

While Michigan, Ohio and Indiana continue to have the highest percentages of loans in foreclosure, and are among the states with the highest rates of new foreclosures, those states experienced comparatively little increase over the last year or last quarter in their rates of new foreclosures started.

Falling home prices

"Declining home prices are clearly the driving factor behind foreclosures, but the reasons and magnitude of the declines differ from state to state," said Doug Duncan, MBA's Chief Economist and Senior Vice President of Research and Business Development.

"In states like Ohio and Michigan, declines in the demand for homes due to job losses and out-migration have left those looking to sell the homes with fewer potential buyers, particularly with the much tighter credit restrictions borrowers now face. In states like California, Florida, Nevada and Arizona, overbuilding of new homes created a surplus that will take some time to work through," he said.

"Of significance, however, is that the rate reset issue on adjustable rate mortgages is becoming less of an issue. The 6-month LIBOR rate, the index rate used for many subprime ARMs, has come down around 2.5 percentage points since last September, greatly reducing the payment shock on many ARM resets."

Stockton and Las Vegas are both fast-growing metros where home prices appreciated at dizzying speed over the last few years. Detroit has been hard hit by economic problems common in America's Rust Belt.

"As expected, the number of properties entering some stage of foreclosure in 2007 was up in the vast majority of the nation's 100 largest metro areas, with 86 metros reporting increases from 2006," said James J. Saccacio, chief executive officer of RealtyTrac, a firm that markets foreclosure "opportunities" to investors.

"Most of the metro areas with the highest foreclosure rates were either cities like Stockton and Las Vegas, which experienced meteoric growth and unsustainable price appreciation over the past few years, or cities like Detroit, which are undergoing a more widespread economic downturn along with higher unemployment rates," Saccacio said

California, Ohio, Florida and Michigan cities dominate top 20 metro rates.

Fifteen of the metro areas with the top 20 metro foreclosure rates were located in four states: California with six, Ohio with four, Florida with three and Michigan with two.

Detroit registered the highest foreclosure rate among the nation's 100 largest metro areas, with close to 5 percent of its households entering some stage of foreclosure during the year — 4.8 times the national average and up from about 3 percent in 2006. A total of 72,616 foreclosure filings on 41,273 properties were reported in the Detroit metro area in 2007, up 68 percent from 2006.

The other Michigan metro area with a foreclosure rate in the top 20 was Warren-Farmington Hills-Troy at No. 17.

With 4.866 percent of its households entering some stage of foreclosure during the year, Stockton, Calif., documented the second-highest metro foreclosure rate. A total of 22,184 foreclosure filings on 10,608 properties were reported in the metro area in 2007, up 271 percent from 2006.

Other California metros with foreclosure rates in the top 20 were Riverside-San Bernardino at No. 4, Sacramento at No. 5, Bakersfield at No. 7, Fresno at No. 14 and Oakland at No. 16.

Las Vegas posted the third-highest metro foreclosure rate among the 100 largest metropolitan areas in 2007, with 4.228 percent of its households entering some stage of foreclosure during the year. A total of 59,983 foreclosure filings on 30,375 properties were reported in the metro area during 2007, up 169 percent from 2006.

Cleveland's 2007 foreclosure rate — 2.972 percent of households entering some stage of foreclosure during the year — ranked sixth highest nationally and was the highest of any Ohio metro area on the list. A total of 49,071 foreclosure filings on 27,848 properties were reported during 2007, up 112 percent from 2006.

Other Ohio metros with foreclosure rates in the top 20 were Akron at No. 12, Dayton at No. 15 and Toledo at No. 19.

With 2.724 percent of its households entering some stage of foreclosure in 2007, Miami documented the eighth highest metro foreclosure rate, highest among Florida metro areas.

A total of 51,662 foreclosure filings on 25,296 properties were reported in the metro area during 2007, up 106 percent from 2006. Other Florida metro areas with foreclosure rates in the top 20 were Fort Lauderdale at No. 10 and Orlando at No. 20.

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