Bleak Outlook for Bad Loans Plagues Midwest

The future for the Midwest doesn't look too bright as industry insiders forecast a likely rise in 2006 foreclosures for the economically challenged region and the rest of the United States. Michigan is among states in the Midwest with the worst outlook. Detroit's regional economy continues to take a dive as home appreciation is almost nonexistent and jobs in the once-vibrant auto industry continue to decline here.

Across the country foreclosures rose at the end of 2005, but foreclosed properties were modest for the year when compared to previous years. According to online foreclosure property inventory giant, Foreclosure.com, the number of foreclosed residential properties for sale rose more than 12% from November to December of 2005. The Midwest had the second-highest number of new foreclosed properties for sale. The South took the No. 1 spot for the most foreclosures during the period. Among the Southern states were areas affected by the recent hurricane devastation.

For the month of December, Michigan had 7,955 total foreclosed properties for sale and 2,064 new foreclosures listed. Ohio continues to top the Wolverine state with 8,419 total foreclosed properties listed for sale and 2,380 new properties listed.

Brad Geisen, president and CEO of Foreclosure.com, said over the past several years foreclosures in the U.S. saw a slow decline. Mr. Geisen predicts that decline will end in 2006. "Last quarter we saw foreclosures increase in every area of the country," he said. "We're starting to see the same level of inventory increase in the month of January."

Among the high level of foreclosures in the U.S., vacation homes are increasing among properties as consumers try to save their primary residence.

"Layoffs in the Midwest are a big contributing factor to foreclosures in that region," Mr. Geisen said. "Interest rates going up are another big factor. Interest rates are a problem for buyers who bought more property than they can afford."

Top foreclosure competitor RealtyTrac also credits interest rates with the increase in December foreclosures. RealtyTrac reports October and December as top months for foreclosures in 2005. The online foreclosure listing provider reports that during December there was one new foreclosure for every 1,422 households in the U.S.

Ohio and Indiana were highlighted among RealtyTrac's top five hot spots for foreclosures.

Rick Sharga, vice president of marketing for Irvine, Calif.-based RealtyTrac, said three factors that could potentially drive up the foreclosure rate in any region include unemployment, supply and demand, and the price of real estate.

"We've seen foreclosures up and we think they will continue to go up in 2006," he said. "We think that regional issues, unemployment and property value will cause one region to have higher foreclosure rates over another."

Property value is an increasing concern in Detroit. The winter 2005 PMI Mortgage Insurance Risk Index calculated a 16.1% chance of an overall housing price decline in the top 50 markets in the country. Detroit scored 274 on the index with a 27% chance of seeing a decline in the area. Home value depreciation, median household income, impacted by the unemployment rates and affordability based on the median family income, were used to calculate the rankings on the index.

The slim chance of a value decline is good news for the Motor City, but it does not mean that home appreciation will grow.

As the Midwest and Detroit continue to have higher-than-average foreclosure rates, areas with a high appreciation rate like California and New York have fewer foreclosures than most areas of the country.

RealtyTrac said California had a 27% increase in foreclosures while New York had only a 4% increase in its rate of foreclosures.

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