Foreclosure Data Suggest Some 'Bubbles' Could Burst

Due to a generally weakened national economy over the last year and high rates of unemployment around the country, the mortgage industry has seen and will continue to see high foreclosure rates over the coming year, according to industry experts.

"We are seeing trends of foreclosures developing on the West Coast and, in particular, in Midwest cities. It is usually correlated with unemployment rates," said Matt McCave,

president of Foreclosure Assistance LLC, a Portland, Ore.-based provider of foreclosure resolution services to borrowers in all 50 states and Puerto Rico.

"Portland, I believe, may have the highest unemployment across the nation and we are seeing an increase as far as homeowners contacting us for help. Overall, we are seeing foreclosures increasing in that area," added Mr. McCave, whose company works with the 200 largest mortgage servicers in the country. Phil Colling, an economist with the Mortgage Bankers Association of America, said, according to his most recent data, "Ohio is rather high at 2.15% of loans in the process of foreclosure and Pennsylvania is rather high at 2.01%." Mr. Colling was unwilling to speculate as to the reason for the high foreclosure rates in those states.

Some, though, speculate that the increases in foreclosure rates in some states show that some housing bubbles are starting to burst. Among them is Alexis McGee, president of Foreclosures.com, a Sacramento, Calif.-based company publishing pre-foreclosure data.

"We are starting to see the first uptick in the foreclosures in certain markets like San Francisco, Orange County (Calif.), San Jose and Phoenix," said Ms. McGee, calling these "lesser bubbles."

Cities with "severe bubbles" would be Boston, San Diego and Fort Lauderdale, Fla., said Ms. McGee, who, on these cities, cited a report by UCLA economists. The California and Phoenix information is based on Foreclosures.com's own findings.

Regarding Ms. McGee's comments, Mr. McCave said, "I would agree with all of those expect Phoenix. While Phoenix has experienced a tremendous growth rate, I don't see it as growing as much as those other ones."

In terms of San Francisco and the Silicon Valley, Ms. McGee said, "They pretty much lead the national markets as far as the numbers of foreclosures. They have also had the highest prices as far as price per square foot, so with a lot of foreclosures, eventually it will really effect the market because the foreclosed houses will create competition for other houses on the market.

"In the Silicon Valley, we started to see more foreclosures a year ago. At the time, homes were selling for an average of $2 million and up. Now, we are starting to see them sell in the $500,000 to $1 million range. I think $750,000 is the median there."

In area such as San Francisco and Orange County, Ms. McGee said more homes are going into real estate-owned and "more properties are not getting fixed in the default stage."

Mr. McCave said during the third quarter, "Overall, of the people that came into our company who didn't qualify for a workout, 64% of those individuals were overencumbered by debt. They had very little equity, no equity or where actually upsidedown on the property," meaning they owe more than the property is worth.

"What we are seeing is an abundance of homeowners trying to do short sales, and though it is lender-specific, I would say that the majority of lenders are definitely willing to negotiate and push back the foreclosure proceedings 30 days to see what happens," he added.

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