Foreclosures Are Up 81%

The 2008 U.S. Foreclosure Market Report from RealtyTrac in Irvine, Calif., shows a total of 3,157,806 foreclosure filings were reported on 2,330,483 U.S. properties during the year, an 81% increase from 2007 and a 225% increase from 2006.

Filings were reported on 303,410 properties in December, up 17% from November and up nearly 41% from December 2007. Despite the spike in December, foreclosure activity for the fourth quarter was down nearly 4% from the third quarter but still up nearly 40% from the fourth quarter of 2007.

“State legislation that slowed down the onset of new foreclosure activity clearly had an effect on fourth quarter numbers overall, but that effect appears to have worn off by December,” said James J. Saccacio, chief executive officer of RealtyTrac. "The big jump in December foreclosure activity was somewhat surprising given the moratoria enacted by both Freddie Mac and Fannie Mae, along with programs from some of the major lenders and loan servicers aimed at delaying foreclosure actions against distressed homeowners."

Nevada, Florida and Arizona posted the top state foreclosure rates. More than 7% of Nevada housing units received at least one foreclosure notice in 2008, giving it the nation’s highest state foreclosure rate for the year. A total of 77,693 Nevada properties received a filing, an increase of 126% from 2007. Florida registered the nation’s second highest state foreclosure rate in 2008 with 4.52% of its housing units receiving at least one foreclosure filing during the year, and Arizona registered the nation’s third highest state foreclosure rate with 4.49% of units with a filing during the year. California, Florida and Arizona posted the highest foreclosure totals. California saw a total of 523,624 properties receive a filing in 2008, the nation’s highest state total. Activity in the state increased nearly 110% from 2007 and 498% from 2006. With 385,309 properties receiving a foreclosure filing in 2008, Florida documented the second highest state total. Florida foreclosure activity increased 133% from 2007 and nearly 412% from 2006. Arizona’s 2008 total of 116,911 properties receiving a foreclosure filing was third highest among the states. Activity in the state increased 203% from 2007 and 655% from 2006.

“Clearly the foreclosure prevention programs implemented to date have not had any real success in slowing down this foreclosure tsunami,” added Mr. Saccacio. “And the recent California law, much like its predecessors in Massachusetts and Maryland, appears to have done little more than delay the inevitable foreclosure proceedings for thousands of homeowners.”

He said SB 1137, which required lenders to provide written notice of their intent to initiate foreclosure proceedings 30 days prior to issuing a notice of default, resulted in a reduction of NODs from 44,278 in August to 21,665 in September. Notice of default filings then surged by 122% to over 42,000 in December. The same pattern has occurred in other states, such as Massachusetts and Maryland, where similar foreclosure prevention legislation has been enacted, according to RealtyTrac.

Sun Belt cities plus Detroit landed on the top 10 metro foreclosure rates list, the company said. With 9.46% of its housing units receiving a foreclosure filing during the year, Stockton, Calif., registered the highest foreclosure rate among the nation’s 100 largest metropolitan areas in 2008. Other California cities in the top 10 were Riverside-San Bernardino, Bakersfield and Sacramento.

Las Vegas documented the second highest metro foreclosure rate in 2008 with 8.89% of its housing units receiving a filing during 2008. More than 6% of Phoenix housing units received a foreclosure filing, giving the city the fifth highest metro foreclosure rate in 2008. Fort Lauderdale, Fla., ranked No. 6 with 5.95% of the area’s housing units receiving a foreclosure filing in 2008. With 4.52% of its housing units receiving a foreclosure filing during the year, Detroit had the 10th highest metro foreclosure rate in 2008.

Another California company expressed frustration over SB 1137. Notices of default in California have rebounded from the stall caused the California legislation, according to the latest California foreclosure report and year-end summary from ForeclosureRadar in Discovery Bay, Calif., which says the bill temporarily slowed foreclosures by imposing new requirements on lenders.

“While a number of lenders have announced significant loan modification programs to reduce payments to affordable levels, these plans fail to address the fact that the average foreclosure in California now has $180,000 in negative equity,” said Sean O’Toole, founder of ForeclosureRadar.

“While State Senate Bill 1137 was well intentioned, forcing lenders to talk to homeowners won’t fix this problem.”

ForeclosureRadar.com, which tracks foreclosures in the state with daily auction updates, says with 42,421 filings in December, notices of default are back to the record levels reached in the second quarter of 2008, nearly doubling the 21,557 notices recorded in November. In 2008, California saw 249,940 foreclosure properties sold at trustee sale auction, representing $107.8 billion in combined loan value. Of those properties 96.4% went back to the lender after no bid was received from a third party.

For the year, there were a total of 437,955 notices of default filed, an increase of 56% over the 279,821 filed in 2007. Notice of trustee sale filings increased 122.9% over 2007, rising from 157,273 filings in 2007 to 350,514 filings in 2008. Properties sold at auction increased by 158% by volume, and 179% by combined loan value. Lenders took back a total of 241,093 properties, with a combined loan value of $103.9 billion, the report said.

In January 2008, only 3% of properties taken to auction were deeply discounted (bidding started at a discount of 50% or more from the loan balance). By December, 40% of sales were deeply discounted. Properties taken to sale at auction increased only slightly between November and December to 16,298 sales, a 72.6% increase from the same time in 2007. Third-party purchases at trustee sale auction decreased 12.5% from November 2008, but were still 156% above third-party purchases in December 2007. Lenders took back nearly 95% of the 16,298 properties sold at auction, with a combined loan value of $8.95 billion.

According to Mr. O’Toole, lowering payments may provide a temporary fix for borrowers, “but lenders simply don’t have sufficient reserves to lower principal balances enough to help homeowners in foreclosure escape the prison of debt their home now represents.”

In December, the average estimated value of a home sold at foreclosure auction was $283,624, with an average total loan balance of $464,270. Of these, 60% had second mortgages for which little or no equity remained to secure their interest in the property. By not foreclosing, he said second-mortgage holders often retain their ability to collect on loans even after their secured interest is wiped out by the foreclosure of a first mortgage.

“This issue often impairs the ability of first mortgage lenders to modify their loan sufficiently to help the homeowner, a simple fact that further curtails the effectiveness of SB 1137.”