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Northwest largely Bucks National Foreclosure Trend

As the national market sees a year-over-year upswing in foreclosures, the Northwest remains relatively low next to the rest of the country, even with pockets of increasing inventory.

In the Northwest, Wyoming reported the lowest amount of foreclosures with 136 foreclosed properties in the fourth quarter of 2006, up 8% from 126 in the third quarter of 2006 and up 189% from 47 foreclosures for the fourth quarter of 2005, according to RealtyTrac.

Montana reported 322 foreclosed properties for the fourth quarter of 2006, up 41% from 229 for the third quarter of 2006 and up 13% from 285 for the third quarter of 2005. Idaho reported 545 foreclosures for the fourth quarter of 2006, down 19% from 675 for the third quarter of 2006 and down 2% from 556 for the fourth quarter of 2005.

Oregon reported 1,832 properties in foreclosure for the fourth quarter of 2006, up 4% from 1,764 for the third quarter of 2006 and 28% from 1,431 from the fourth quarter of 2005.

Washington claimed the most foreclosures in the region with 4,296 foreclosed properties for the fourth quarter of 2006, up 1% from 4,243 from the third quarter of 2006 and 44% from 2,989 for the fourth quarter of 2005.

Alaska listed 284 properties in foreclosure for the fourth quarter of 2006, down just 2% from 291 in the third quarter of 2005. That amount decreased 15% from 333 foreclosed properties in the fourth quarter of 2005.

In California, there was a whopping 47,969 foreclosed properties for the fourth quarter of 2006, up 29% from 37,317 for the third quarter of 2006 and 161% from 18,404 from the fourth quarter of 2005.

In a recent study, Christopher Cagan, director of research and analytics at First American Real Estate Solutions, investigates the trends in the number of residential foreclosures and the discounts offered to sell properties repossessed by lenders.

The study finds that foreclosure discounts have been increasing, but this trend remains a ripple that has not become the tidal wave some expected would overwhelm the market.

Mr. Cagan's research investigates the correlation between foreclosures as a percentage of total sales and the size of the discount buyers typically receive when purchasing foreclosure properties.

For example, in Orange County, Calif., where foreclosure sales accounted for 0.5% of total sales during the first half of 2006, the median discount was 3.8%. While in Baltimore, foreclosures made up 8.9% of sales for the same time period, with a median discount of 20%.

By a careful process of data aggregation and analysis, the study also finds a strong tendency toward increased foreclosure prevalence and deeper discounting for properties in the lower price tiers within their markets and communities.

"The prevalence of foreclosures and the depth of discounts can be correlated," said Mr. Cagan. "Discounts tend to be deeper in markets where foreclosures comprise 8% or more of all sales, regardless of geographic location or market type."

Nationally, among the areas with few foreclosure sales and little or no foreclosure discounts during the first half of 2006 were Arizona, Nevada and Virginia. States where foreclosures were more prevalent and discounts were deeper included Colorado, Missouri, Michigan, Ohio and Pennsylvania.

"Foreclosure rates and discounts are key factors that impact real estate transactions and the performance of mortgage investments," said George Livermore, president of the First American Corp.'s Property Information and Services Group. "By closely monitoring and analyzing patterns of default nationwide, we help our clients refine their insight into risks and opportunities as they emerge."

Looking at foreclosure statistics and median discounts, foreclosure sales accounted for only 1.3% of total sales in Washington during the first half of 2006. In Oregon, foreclosure sales accounted for 22.8%, in Montana 1.3%, in Alaska 2% and in Idaho 0.9%.

In particular, in markets where foreclosures constitute 8% or more of total market sales, foreclosure discounts are likely to be particularly large, often 20% or deeper. In the Northwest, Washington reported a foreclosure median discount of -4.8% for the first half of 2006. The median discount was -9.7% for Oregon in the first half of 2006, 0.5% for Montana, -15.2% for Idaho and 4.9% for Alaska.

Foreclosing lenders do not want to incur additional costs of insurance, taxes and maintenance for their foreclosed properties. They want to resell them quickly and recoup some money through the sale. Thus, according to Mr. Cagan, lenders typically accept sales prices reduced by a percentage. "In a rapidly rising market with a low number of properties offered for sale, little or no discount needs be offered. In 2004 and 2005, foreclosure discount was essentially zero in many parts of the country. On the other hand, in markets with flat or declining prices, or with a large number of foreclosed properties for sale, lenders must offer a deep foreclosure discount, sometimes more than 20% or 30%."

In the booming years of 2004 and 2005, foreclosure rates reached historical lows. In cases where a lender did have to foreclose on a property, it could usually be sold readily at market price, without having to offer a substantial discount to encourage the sale of a foreclosed property, said Mr. Cagan.

Most economists now expect the number of residential foreclosures to rise significantly in the coming years. (c) 2007 Mortgage Servicing News and SourceMedia, Inc. All Rights Reserved. http://www.mortgageservicingnews.com http://www.sourcemedia.com