A new study released yesterday by the Center for Responsible Lending projects that one out of five subprime mortgages originated in the past two years will end in foreclosure, costing homeowners as much as $164 billion.

“This rate is nearly double the projected rate of subprime loans made in 2002, and it exceeds the worst foreclosure experience in the modern mortgage market, which occurred during the “Oil Patch” disaster of the 1980s.

The study, which cites RealtyTrac numbers as one of its sources, looked at subprime foreclosure rates from 1998 through 2006 and closely ties those rates to house price appreciation. The projection of an accelerating subprime foreclosure rate is based on the expectation that house price appreciation will continue to slow.

The study argues that subprime foreclosures will heavily impact the overall housing market because subprime loans now make up a quarter of all home loans. It warns cities in California, Nevada, New Jersey, New York and Michigan, as well as the greater Washington, D.C. area, to expect a high rate of subprime foreclosures.

The center offers up proposed solutions to curb increasing foreclosures, including due diligence by lenders before a loan is approved to make sure the borrower is qualified to repay, regulation of predatory lending practices, and coordinated programs to help delinquent homeowners. The center also endorses “strong laws against foreclosure ‘rescue’ scams, banning predators from targeting struggling homeowners.”

Absent from the study's executive summary and proposed solutions are any mention of the borrower’s role in preventing foreclosed subprime loans. While this is somewhat understandable given that the study is published by a group focused on responsible lending, it is still a regrettable omission.

That’s because the borrower is the only party who is purely motivated to avoid foreclosure. Everyone else — from lenders to lawmakers to nonprofit counseling services — is motivated by other agendas, be it revenue, reelection or relevance. Foreclosure prevention may often fit with those agendas, but it’s rarely the driving force.

Foreclosures hit their highest level of the year so far in November, with 120,334 new foreclosure filings reported nationwide during the month, according to the RealtyTrac U.S. Foreclosure Market Report released last week.

The report shows increases in all three phases of the foreclosure process — default, auction and bank repossession. Defaults and auctions each accounted for about 40 percent of the total, while bank repossessions accounted for about 20 percent of the total.

The national foreclosure rate of one new foreclosure filing for every 961 households represented a 4 percent increase from the previous month and a 68 percent increase from November 2005.

With one new foreclosure filing for every 346 households Nevada moved past Colorado to claim the top state foreclosure rate. California reported more than 19,000 new foreclosure filings, the most of any state for the second month in a row.

View full report.

The number of delinquent mortgage payments and foreclosures jumped in recent months, according to a new survey released today by the Mortgage Bankers Association. The MBA’s quarterly report — surveying more than 42 million mortgages nationwide — found that the rate of delinquencies and foreclosures rose to 4.7 percent from July through September.

Among subprime borrowers, the rate of delinquencies and foreclosures were much higher, rising to 12.6 percent in the third quarter. The study also revealed that 13.2 percent of all subprime adjustable mortgages were delinquent or going through the foreclosure process in the third quarter.

“Third quarter delinquency rates increased across the board,” said Doug Duncan, MBA’s chief economist. “Increases in delinquency rates were noticeably larger for subprime loans, particularly subprime ARMs.”

Looking ahead to 2007, the mortgage association expects delinquencies and foreclosures to continue on the rise at a “modest increase” over the next several quarters “as the housing market bottoms.”

The MBA survey mirrors recent research conducted by RealtyTrac. More than 120,334 properties nationwide entered some stage of foreclosure in November, an increase of 4.1 percent from the previous month, according to RealtyTrac’s U.S. Foreclosure Market Report.
 
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Probably the biggest downside to dealing with a property sited in a judicial foreclosure state is the tedious length of the process involved. Just ask any homeowner, investor, lender OR JUDGE for that matter.

Well, the judiciary in Cuyahoga County — Ohio’s most populated county — has taken the disturbing backlog of foreclosure cases in their courts as a call to action and took it upon themselves to actually do something about it.

Reporting 2,294 properties entering some stage of foreclosure, Cuyahoga County accounted for 31 percent of all foreclosures in Ohio during October, according to the RealtyTrac U.S. Foreclosure Market Report. The county also reported the state’s highest foreclosure rate for the month with one new foreclosure filing for every 269 households — 2.4 times the state average and 3.7 times the national average — in the state with the seventh highest foreclosure rate in the country.

Being in a judicial foreclosure state, the foreclosure law in Ohio is prolonged and tedious. As set by the state supreme court, it calls for a seven month timeline for the process to be completed. But just because the process is supposed to end in seven months, that doesn’t mean the courts will adjudicate the cases in a timely manner. In fact, Cuyahoga’s court system had an 18 month backlog of foreclosure cases before the judges decided to take matters into their own hands.

Thanks to the hiring more magistrate judges, computerization of county records, and expanding the court and sheriff’s department staffs, that case backlog has now been reduced to under 12 months — down 13 percent.

At a time in the real estate cycle when various cities and counties around the country are stretching their resources looking for solutions to increasing levels of foreclosure activity, Cuyahoga is a prime example of a potential solution that may work for other judicial foreclosure states.

Still, when these solutions fall short, RealtyTrac is a source of relief that hopefully offers homeowners in Cuyahoga and other counties like it, another viable alternative to their financial distress that will allow them a way out with the potential upside of leaving with cash in their pockets and their credit rating intact.

Thanks to delinquent mortgage payments totaling more than $1 million, singer Whitney Houston faces the possibility of foreclosure on a home in New Jersey, according to the Associated Press. The news service reports that one of two lots owned by Houston was scheduled for public auction on January 4 by the Morris County’s Sheriff’s office.

Houston’s publicist told a local newspaper that the property is not in foreclosure and later was not available for comment to the Associated Press. A property owned by Whitney E. Houston in Mendham, N.J., was listed as a pre-foreclosure on RealtyTrac in June with an original loan amount of $975,000.

Houston is one of several celebrities in the past year to face foreclosure action of some kind. Actor Don Johnson narrowly avoided foreclosure by selling a property at the last minute, and Michael Jackson received a notice of default for an Encino, Calif., home where his parents reside.

These celebrity-related foreclosure filings — which will probably become more frequent as market conditions soften — demonstrate that almost every income bracket is susceptible to foreclosure. Home buyers can get in over their heads, whether they’re in a $60,000 or $6 million home.

Third-quarter house price appreciation figures released last week by the Office of Federal Housing Enterprise Oversight provide more evidence of a cooling real estate market and further foreshadowing of a continued rise in foreclosures — all pointing to more opportunities for real estate investors to buy low.

The OFHEO report shows national house prices rose 7.73 percent from the third quarter of 2005, down from a 10.06 percent increase in the second quarter and down from a high of a 13.9 percent increase in the spring of 2004. Home prices rose just 1.3 percent from the previous quarter, the lowest quarterly increase since the second quarter of 1998.

Michigan home prices declined 0.6 percent from the third quarter of 2005, making Michigan the first state to report a year-over-year decline in more than six years.

Several of the states with the 10 lowest appreciation rates also posted foreclosure rates among the nation’s 10 highest in the third quarter, according to the RealtyTrac U.S. Foreclosure Market Report. These states included Michigan, Ohio, Indiana and Colorado.

Massachusetts and Rhode Island both saw quarterly declines in home prices and also reported the two biggest percentage increases in foreclosure activity in the third quarter, further demonstrating the correlation between house price depreciation and rising foreclosures. New York and New Hampshire home prices also declined on a quarterly basis.

Debt! No word better describes why millions of Americans are now facing foreclosure. Last year, the average American receiving financial counseling earned $27,000 annually and had $38,500 of unsecured debt spread over eight credit cards, according the National Foundation for Credit Counseling, a nonprofit group representing 115 counseling organizations. The study showed that consumers carried debt loads that substantially exceeded their income and, as a result, bankruptcy — or foreclosure — were their only reasonable options.

Add mounting mortgage payments to the credit card debt and a gloomier picture emerges for overextended borrowers — in part because so many homeowners are now trapped by payments that are about to soar, even as the real estate market slumps.

Not surprisingly, more than 115,568 properties entered some stage of foreclosure nationwide in October, according to RealtyTrac’s U.S. Foreclosure Market Report. Among the hardest-hit states were California, Florida, Texas, Michigan, Illinois and Ohio. Of course, that could change as interest rates on adjustable-rate mortgages rise next year and beyond.

Rising interest rates have caught many homeowners in a “can’t pay, can’t sell, can’t refinance” vise, in which their ARM payments are outpacing their incomes and their homes have not appreciated enough to help cover the cost of a refinanced mortgage or to allow them to sell and walk away. For them, foreclosure looms.

Considering that the housing market is expected to continue to be slow through 2007, there could be increases in mortgage delinquencies — especially among high risk subprime loans.

Do you think debt is the primary reason why Americans are increasingly falling into foreclosure or do you think other factors are at work? We want to know your opinion. Feel free to either post a comment directly to this blog, or send us your thoughts and feedback to editor@foreclosurepulse.com.