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Economy
Foreclosures: 'Worst three months of all time'
2009-10-16
(CNNMoney.com) -- Despite concerted government-led and lender-supported efforts to prevent foreclosures, the number of filings hit a record high in the third quarter, according to a report issued Thursday.

"They were the worst three months of all time," said Rick Sharga, spokesman for RealtyTrac, an online marketer of foreclosed homes.

During that time, 937,840 homes received a foreclosure letter -- whether a default notice, auction notice or bank repossession, the RealtyTrac report said. That means one in every 136 U.S. homes were in foreclosure, which is a 5% increase from the second quarter and a 23% jump over the third quarter of 2008.

Nevada continued to be the worst-hit state with one filing for every 23 households. But even tranquil Vermont, where the foreclosure crisis has barely brushed the housing market, saw foreclosure filings jump nearly 170% compared with the third quarter of 2008. Still, that resulted in just one filing for every 5,023 households in the state -- the best record in the country.

The RealtyTrac report also unveiled the results for September, and it found that there was slight relief from foreclosure filings. Last month, notices totaled 343,638, down 4% compared with August. Unfortunately, that total accounts for 87,821 homes that were repossessed by lenders.

That deluge contributed significantly to the quarter's record 237,052 repossessions, a 21% jump from the previous three months. So far this year lenders have taken back 623,852 homes.

"REO activity increased from the previous quarter in all but two states and the District of Columbia, indicating that lenders may be starting to work through some of the pent-up foreclosure inventory caused by legislative delays, loan-modification efforts and high volumes of distressed properties," James Saccacio, RealtyTrac's CEO, said in a statement.

Most disturbing is that all foreclosures -- not just repossessions -- are rampant despite efforts to corral them. Not only has the Obama administration's Making Home Affordable foreclosure prevention program taken a bite out of REOs but lenders themselves have scaled back repossessions over the past few months to give the program time to work.

And in some low-price markets, lenders simply aren't following through on foreclosures, according to Jim Rokakis, treasurer for Cuyahoga County, Ohio, which includes Cleveland.

"They'll even set the date for the sheriff's sale, but they don't file the final papers," he said. "They hold it in abeyance and let the residents stay in the house."

In ever more frequent cases, delinquent borrowers want out of the mortgage worse than the lenders. There are no firm statistics for it, but many industry watchers claim the percentage of REOs caused by borrowers voluntarily walking away from their homes is skyrocketing.

A study of the trend by the Chicago Booth School of Business and the Kellogg School of Management determined that when home price declines drop home values 10% below the mortgage balances, people start to give up their homes. When "negative equity" approaches 50%, 17% of households default, even when they can still afford their mortgage payments.

Posted by:Fred

#18  Would that be the great pox, Barbara?
Posted by: no mo uro   2009-10-16 21:09  

#17  A particular pox on the Chinese, John.

And the idiots who placed price above everything else. :-(
Posted by: Barbara Skolaut   2009-10-16 18:10  

#16  My nephew's son lives in south Florida and he said a lot of people just walked away from mortgages--just moved out one day and left the house. There is also a problem with a lot of these houses and that is they were made with Chinese wallboard which emits toxic fumes rendering the houses uninhabitable. The nephews son has this problem with his house. A pox on the housing market and a pox on the Chinese.
Posted by: JohnQC   2009-10-16 15:23  

#15  AlanC:
It is bad enough out here that my home's tax valuation went down by almost 10% in the last two years.

Oddly enough, it hasn't lowered my tax liability.
Posted by: whitecollar redneck   2009-10-16 13:53  

#14  My Dad was a Civil engineer, worked for State of Alabama Highway department, I remember him laughing that he bought a brand new house for exactly one year's salary $13.000.00, yup thirteen grand.

Nice house too, 2 Br 1 bath and a half basement (On a sharp hillside)the only thing that I hated was there were 27 Pine trees in the (Small) front Yard (I had to mow the Yard, I couldn't get between the trees, and this waas before weed whackers and string trimmers existed) and it was halfway up a relatively steep hill (I rode a bicycle those years) good Muscle dveloper.
Posted by: Redneck Jim   2009-10-16 13:53  

#13  P2K, forty years ago I lived in a house like the one you describe. Seven of us in a 3 bedroom ranch, 1 bathroom, small living and dining area, small kitchen, unfinished basement.

It did have a big yard.

My father definitely was looking for a place to live, and I'm not complaining.

I'd still rather have the house I have today even if I paid a lot more for it than Dad paid for his.
Posted by: Steve White   2009-10-16 13:46  

#12  P2K, and all the levels of gov't loved it because they could raise taxes.

Yep. Even though we have a building ceiling where I'm at [can't build new unless you can show where the developer can find new water], the outlook from the pols is no further than their nose. Instead of approving four 125k houses on a quarter acre lot, they'd rather approve a half million dollar house on an acre lot. Now while the county is OK with the wash on the property tax, the city which is dependent upon a fractional sales tax gives up four consuming households for one, but can't figure out why their revenue stream is continuing to go down.
Posted by: Procopius2k   2009-10-16 11:07  

#11  Creative loan products offered through 2007 inflated house prices. Your $2000/month went from buying $350k of house to $700k of house. Result was that prices more or less doubled. The market can't recover until prices come back down, and right now the most efficient mechanism for prices to come down is foreclosure. It is not objectively efficient -- foreclosure takes about a year start to finish. But it's the best option out of many bad options.
Posted by: Iblis   2009-10-16 10:52  

#10  P2K, and all the levels of gov't loved it because they could raise taxes. What good is a Prop 2 1/2 type limit if the assesment rises exponentially? Has anyone heard of property taxes falling because of the decrease in value? No, I didn't think so.
Posted by: AlanC   2009-10-16 10:16  

#9  Scooter,

Check the increase just in square footage over the years. That's not including the number of rooms, bathrooms and size of garage. People have been 'expecting' something bigger and tricked out more than what our fathers were looking for. Our fathers were looking for a place to live. And the banks and other lending institutions have played on that 'expectation' with developers and builders to end building 'affordable' housing, that is consistent with the economic means to payoff. Housing stop being a place to live and became an 'investment'. Builders and buyers started to play the margin game with houses.
Posted by: Procopius2k   2009-10-16 09:41  

#8  I vaguely remember my pop buying a new middle-class house for the family 30 years ago for approx. $35K. He had a middle-class salary job that paid approx. $30K/year.

Today an equivalent house would probably be priced at $250,000. And today an equivalent middle-class job would bring approx. $50-60K.

I think housing prices still have a LONG way to fall before reaching any natural equilibrium.
Posted by: Scooter McGruder   2009-10-16 08:38  

#7  The Fed and the Administration are inflating the economy. They're going to have to jack up interest rates now or later to fight it eventually. That will flatten or kill the economic recovery. The later they wait the higher the interest rates will be before they plateau. Either way, all those adjustable rate mortgages are going to be hammered and the economy will see a second major wave of defaults.
Posted by: Procopius2k   2009-10-16 08:20  

#6  If wages are not rising, then house price rises are a bad thing.

You want constant affordability, and price rises from wage gains you got falling affordability and a bubble.
Posted by: Bright Pebbles   2009-10-16 08:05  

#5  Phil nailed it.

The stock market rally is being touted as proof of recovery. It is not, for four reasons.

1. In what are called "constant dollars", the market is only worth a little more than what it was at its lowest point owing to a drop in the currency value of the dollar.

2. Real estate values have plummeted in terms of their face price, but also due, again, to the drop in the value of the dollar. Real estate will NOT have a true increase in value for many years and may experience futher declines both in face value and in real terms.

3. Unemployment will continue to grow - unless businesses are more reassured that they won't be taken over by the government or have a stable (going forward) tax environment, they will not hire, and who can blame them?

4. Business cannot trust government to resist the impulse to increase taxes or to implement regulations for which compliance is costly (a de facto tax), thus making them unlikely to engage in any large capital expenditures.

If you combine all these things, you get a lot fewer people seeking loans. Bye-bye banks in that environment.
Posted by: no mo uro   2009-10-16 06:11  

#4  This will end up with basically all banks insolvent, a collapse in in real estate financing, and a collapse in house prices.

GOOD.
Posted by: Redneck Jim   2009-10-16 06:05  

#3  hispanic and especially illegals. If the loan is to a fake ID why should they give a damn. Posted by tipover

The term "illegals" is racist. Kindly use the term 'undocumented democrats.'
Posted by: Besoeker in Duitsland   2009-10-16 03:41  

#2  I would be interesting to know the demographics of the defaults. %Caucasian, black, asian, muslim, hispanic and especially illegals. If the loan is to a fake ID why should they give a damn.
Posted by: tipover   2009-10-16 03:36  

#1  In ever more frequent cases, delinquent borrowers want out of the mortgage worse than the lenders.

As ludicrous as it sounds now, the banks' (and that is pretty much every bank in the western world) business model was that real estate prices would never decline decline significantly - enough to make borrowers walk away from the homes they had bought with borrowed money.

This will end up with basically all banks insolvent, a collapse in in real estate financing, and a collapse in house prices.

Posted by: phil_b   2009-10-16 01:25  

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