More than 925,000 foreclosure filings were reported on more than 573,000 properties in the first half of 2007, according to the RealtyTrac Midyear 2007 U.S. Foreclosure Market Report, released yesterday. The report marks the first time that RealtyTrac has included a count of unique property addresses in some stage of foreclosure. But whether you count by total foreclosure filings or number of properties affected by foreclosure, foreclosure activity is up more than 55 percent from the first half of 2006.

“The addition of this (property count) metric to our foreclosure report was spurred by a data request for unique property addresses from the Federal Reserve Bank, which is using our data for market and risk analysis, and we believe it will serve as a valuable complement to the total foreclosure filing count that we have been including all along,” said Rick Sharga, RealtyTrac’s vice president of marketing. “It’s interesting to note that the total foreclosure filings and unique property counts reveal almost identical trends on the national level: foreclosure filings are up 39 percent from the previous six months and 56 percent from the first half of 2006; unique property counts are up 32 percent from the previous six months and up 58 percent from the first half of 2006.”

The similarity between the trends revealed by the two different counts did not end at the state level. Both counts showed the same six states — Nevada, Colorado, California, Michigan, Florida and Ohio — with the highest per household foreclosure activity. And the same five states — California, Florida, Texas, Ohio and Michigan — documented both the highest number of foreclosure filings and the highest number of unique properties in some stage of foreclosure.

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Foreclosure activity decreased 7 percent in June, backing down from a 30-month high reached in the previous month, according to the RealtyTrac U.S. Foreclosure Market Report issued today. Despite the month-over-month decrease, however, foreclosure filings were still up 87 percent from June 2006.

Nevada continued to register the nation's highest state foreclosure rate, with one foreclosure filing for every 175 households — more than four times the national average. California switched spots with Colorado to claim the nation's second highest foreclosure rate — one foreclosure filing for every 315 households.

California also reported the highest number of foreclosure filings among all the states, with 38,801. Florida's total of 21,035 foreclosure filings ranked second and Ohio's total of 11,879 foreclosure filings ranked third.

Six of the cities with the 10 highest foreclosure rates were located in California: Stockton at No. 1, Merced at No. 2, Modesto at No. 3, Riverside-San Bernardino at No. 4, Vallejo-Fairfield at No. 7 and Sacramento at No. 8. Las Vegas registered the nation's fifth highest metro foreclosure rate, Greeley, Colo. came in at No. 6, Detroit at No. 9 and Miami at No. 10.

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The FBI recently came out with its 2006 Mortgage Fraud Report, which somewhat anticlimactically concludes that there is “a strong correlation between mortgage fraud and loans which result in default or foreclosure.”

The correlation is apparent in the report’s list of the top states for mortgage fraud: California, Florida, Georgia, Illinois, Indiana, Michigan, New York, Ohio, Texas, and Utah. Six of those states also appeared in RealtyTrac’s list of states with the highest foreclosure rates in 2006. The FBI also lists Arizona, Colorado, Maryland, Minnesota, Missouri, Nevada, North Carolina, Tennessee, and Virginia as other areas significantly affected by mortgage fraud.

The report identifies the most common scam as “illegal property flipping.” This is not what many legitimate investors refer to as flipping — buying a property at a discounted price, making repairs and then quickly reselling the property for a profit. An illegal property flipping scheme involves fraudulent appraisals and loan documents for a straw buyer who never intends to pay off the loan. The property ends up in foreclosure with the bank eating the loss. If not caught, the flipper pockets the profit produced by the artificially inflated sales price (see diagram below from FBI report).

The report goes on to pinpoint “foreclosure-rescue” scams as an emerging form of fraud that takes advantage of the growing number of homeowners in default.

“The perpetrators convince homeowners that they can save their homes from foreclosure through deed transfers and the payment of up-front fees. This ‘foreclosure rescue’ often involves a manipulated deed process that results in the preparation of forged deeds. In extreme instances, perpetrators may sell the home or secure a second loan without the homeowners’ knowledge, stripping the property’s equity for personal enrichment.”

More states are enacting legislation to protect homeowners against such fraud, and justifiably so. Unfortunately some of that legislation swings the pendulum too far the other way and all but prohibits legitimate investors from purchasing pre-foreclosure. These investors will forgo jumping through the legal loopholes to help distressed homeowners and just wait for the public auction, or until the property has been repossessed by the lender.

The report acknowledges that "no single regulatory agency is charged with monitoring this crime" and that "combating mortgage fraud effectively requires the cooperation of law enforcement and industry entities." So maybe what is needed more than new laws is a more concerted effort to catch and punish perpetrators of mortgage fraud.

Mounting mortgage defaults by American homeowners with shaky credit have claimed their first Wall Street casualty, as investment banking giant Bear Stearns shuffled the leadership of its asset-management division and lost billions in the risky hedge fund market last month.

Two Bear Stearns hedge funds that invested heavily in subprime mortgage securities racked up huge losses last month after they made bad bets on complex securities backed by risky mortgages. The meltdown of the two funds has sent tremors through financial markets, causing investors to reassess their appetite for this type of risk.

Alarmed by the huge losses, Bear Stearns stepped in to bail out one of the two funds (and its many creditors) by providing a $1.6 billion line of credit. Bear Stearns does not plan to bailout a $1.1 billion struggling fund, according to a Reuters story. Furthermore, to contain the damage, Bear Stearns brought in Jeffrey Lane on June 29, from rival Lehman Brothers and named him chief executive officer to replace Richard Marin, who gets the courtesy title of senior adviser to the asset-management division.

The near-collapse of the two Bear Stearns hedge funds proves that the depth of America’s foreclosure fiasco is far from over. While it is unlikely to bring down the savvy Wall Street firm, the firm may become a potential target for government regulators, class-action lawsuits and expose the investment bank to a hostile takeover. Moreover, the episode is a black eye to the firm’s reputation — and to Wall Street overall.

The wizards on Wall Street — worried that the subprime mortgage debacle will blow up another hedge fund or a bank, or a bunch of them — fear that financial instability can spread into blind panic. Fear and anxiety could trigger a massive sell-off, exposing other Wall Street financial institutions to the same excesses of America’s housing bubble on Main Street.

Ironically, the rapid expansion of risky subprime lending has linked the fortunes of Wall Street to the fortunes of Main Street. While struggling borrowers are left to their own fate, Bear’s subprime blood bath might be a dress rehearsal for something bigger and scarier.

According to RealtyTrac, subprime loans made a major contribution to the more than 430,000 foreclosure filings reported during the first quarter of 2007. As for the remainder of the year, should this trend continue, RealtyTrac expects the number of foreclosure filings nationally to exceed 1.7 million by year’s end.

No one denies for a moment that some of this country’s most expensive real estate lies along its coastlines — Pacific and Atlantic. While that is true, the fact of the matter is that although it may be beachfront property, homeowners can nonetheless end up in foreclosure there as often as anywhere else. Thus, foreclosure bargains can be had even on the coasts.

What it comes down to in order to successfully purchase beachfront property is identifying good potential markets to invest in, and doing some legwork and research to analyze what it is going to take in order to put together a deal with the homeowner or lender involved in the foreclosure.

Recently, RealtyTrac published its own list of potential beachfront investment communities ripe for the purchase of vacation homes on the home page of Yahoo!  The list enumerated in that article is based upon an initial list created in 2006 by its business partner Neighborhood Scout. The list was further analyzed, taking into account the present number of foreclosures found at each location until the original 40 communities were boiled down to a final list of 10 highly desirable communities. The list is compiled in no particular order other than going down the east coast first followed by going down the west coast of the U.S.

The cities/towns featured in the “10 Bargain Beach Towns” article are:

               • Clinton, CT
               • Rocky Point, NY
               • Somers Point, NJ
               • Carolina Beach, NC
               • Mount Pleasant, SC
               • Melbourne Beach, FL
               • Englewood, FL
               • Oak Harbor, WA
               • McKinleyville, CA
               • Cambria, CA

Check it out, and good luck in your search for a vacation home on the beach.

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