While foreclosure activity in the first quarter of 2008 was up on a year-over-year basis in 90 percent of the nation's 100 largest metropolitan areas, according to the RealtyTrac Q1 report issued today, there were a few notable exceptions that could prove to be a harbinger of hope for the nation's battered housing market. On the other hand, those exceptions could just turn out to be a source of false hope, perpetuated in part by short-term foreclosure solutions that are about as effective as a five-gallon bailing bucket on the sinking Titanic.

The notable exceptions included Detroit — a longtime posterchild for the foreclosure meltdown — and Philadelphia, along with a few other Pennsylvania metro areas. Foreclosure activity in Detroit was down nearly 4 percent from the first quarter of 2007, although the city's foreclosure rate still ranked No. 6 among the nation's 100 largest metropolitan areas. Philadelphia's foreclosure rate ranked No. 82, thanks in part to a 30 percent year-over-year decrease in foreclosure activity.

Dispatches from Detroit indicate that free-market forces may be the catalyst. The Detroit Free Press reported that "Detroit home sales shot up 30.8% in March, spurred by investors taking advantage of low prices on foreclosed properties." Detroit home prices have hit a low enough threshold to become appealing to bargain buyers and investors. That in turn allows lenders to start unloading foreclosure inventory, easing a heavy burden that has been weighing down the city's housing market.

Different forces may be at work in Philadelphia, helping that city's foreclosure rate remain relatively low. A moratorium on all foreclosure sales scheduled in April there has now been replaced by a pilot program that delays foreclosure proceedings on owner-occupied properties until the homeowner and lender meet in a "conciliation conference," according to the Philadelphia Business Journal. Foreclosure sales originally scheduled for April and May will be postponed until at least July.

Meanwhile, foreclosure activity continues to increase at a torrid pace in many of the now-familiar foreclosure hot spots: up 291 percent annually in Stockton, Calif., which posted the highest foreclosure rate among the 100 largest metro areas; up 134 percent in Las Vegas, No. 3 on the list; up 294 percent in Phoenix; and up 249 percent in Orlando.

View full Q1 2008 foreclosure report.

For the third month in a row U.S. foreclosure activity registered at more than 50 percent above the level it was at a year ago, according to the March RealtyTrac U.S. Foreclosure Market Report. And for the second month in a row, the number of bank repossessions, or REOs, was up more than 100 percent year over year.

The implication: while significantly more homeowners are falling into foreclosure, there is an even bigger increase in the number of homeowners already in the process who are losing their homes to foreclosure — whether through the typical foreclosure sale mechanism or whether by pre-empting the public foreclosure sale through what is called a deed in lieu of foreclosure.

In the latter case, the homeowner offers to convey ownership of the property to the foreclosing lender. The lender also has to agree to the DIL arrangement, which may involve clearing out other liens secured by the property. But that may be better than the alternative — a costly and lengthy process that will quite likely end with the bank repossessing the property anyway.

The year-over-year increase in bank repossessions was even more dramatic in some states: 619 percent in Arizona; 597 percent in New York; 557 percent in California; and 464 percent in Florida.

View full March report.

With a speech given today in Philadelphia, Sen. Hillary Clinton reinforced her standing as the presidential candidate with the most far-reaching and concrete proposals calling for government intervention to save homeowners from the sins of greed and bearing false witness that were rampant in mortgage lending over the past few years.

The payment for those sins is often foreclosure, but Clinton wants the government to become a Messianic figure for homeowners facing foreclosure — and by default also for many lenders who approved problem loans for those homeowners — by forgiving these sins and bearing the transgressions of malevolent mortgages that no other lender or buyer is willing to touch.

"That’s why I believe the Federal Housing Administration should also stand ready to be a temporary buyer — to purchase, restructure, and resell underwater mortgages," Clinton said in the speech at what was billed as the "Solutions for the American Economy" event.

Giving the FHA the ability to buy trouble mortgages would act as a safety net to legislation proposed by fellow Democratic Sens. Barney Frank of Massachusetts and Chris Dodd of Connecticut.

"The Frank-Dodd legislation would ... (set) up an auction system for mortgage companies that hold hundreds of thousands of these mortgages. Through this system, these companies could sell mortgages in bulk to banks and other buyers. The buyers would be willing to purchase these mortgages — and restructure them to make them affordable for families — because they know the government will guarantee them once they are refinanced," Clinton said, not long after setting up the problem by citing RealtyTrac's statistic of 2.2 million foreclosure notices filed in 2007, up 75 percent from 2006.

But because she doubts the sufficiency of this plan to help all homeowners, Clinton called on President Bush to form an "emergency working group on foreclosures" to step in and evaluate the plan along with her proposal to have the "government step in as a purchaser."

Clinton believes that her proposal to allow the FHA to purchase loans "would cost taxpayers nothing in the long run" because it would not create a new federal bureaucracy and would be designed to be "self-financing over time." Whether that is a realistic belief is questionable based on the tendency of government programs to overreach and overspend. 

The bottom-line question is this: Should government act as a savior willing to take on the foreclosures of the world, or should it take a more tough-love approach and let the market work through the consequences of its actions? Let us know what you think.

February foreclosure activity was down 4 percent from the previous month but still up 57 percent from February 2007, according to the latest RealtyTrac U.S. Foreclosure Market Report. So does the monthly decrease mean we've hit a ceiling of sorts for this cycle in terms of foreclosures?

Probably not.

The February monthly decrease is more likely a seasonal decrease helped along by a shorter-than-average month and the fact that January's numbers are often padded with some pent-up foreclosure activity from the holiday season. That premise is supported by looking at the numbers in February 2007, when U.S. foreclosure activity was down 6 percent from January. Foreclosure activity continued to climb for the remainder of that year.

The more important indicator is the year-over-year increase, which has been between 50 percent and 60 percent for both January and February. If you look back at the RealtyTrac monthly reports, activity has increased on a year-over-year basis every month since January 2006, the first month that YOY stats were available.

So the overall trend -- at least on a national basis -- is steadily upward. Eventually the bleeding will stop, and the fundamentals of a healthy real estate market will be restored. The million dollar question (or millions and millons of dollars if you're a really smart investor) is, when will that be? Will we see another series of three more lines that are all higher than the lines in the graph above, or will there be just one more year of rising foreclosures, or two? Let us know what you think.

View full February report.

Although they were up 57 percent from January 2007 and 8 percent from December, the January foreclosure numbers released today by RealtyTrac  do not appear to represent the massive wave of foreclosures that is expected to hit sometime soon thanks to the rash of risky loans given to borrowers as late as just last year.

It's too early too tell if the relatively meek January numbers mean more distressed homeowners are staving off foreclosure thanks to increasingly pro-active lenders and government intervention, or if they just represent the first few raindrops of what will prove to be a violent thunderstorm.

And in either case, does that make the current market a good one in which to buy or invest in real estate? Or is it better to wait until the market falls further? Of course, the answer will vary from region to region, but provide supporting evidence from your area.

 

View full report with state-by-state data.

As requested by Jack in a previous post, here is a fourth quarter foreclosure activity map for Montgomery County, Ala. Certainly, the activity is not as dense here as in some of the other maps we've posted, but there still seems to be a good amount of activity.

 

Per a request from Roland in our blog post about Stockton, Calif., foreclosures, below is a map showing foreclosure activity in Oklahoma County, Okla.. You may notice that this map is not as crowded as the Stockton map. That reflects a foreclosure rate in Oklahoma County that was below the national average for 2007, with 0.915 percent of its total households in some stage of foreclosure. The county's foreclosure rate was third highest among Oklahoma counties for the year despite a 19 percent year-over-year decrease in foreclosure activity.

Search Oklahoma County foreclosures.

Arguably the most influential television news magazine, 60 Minutes, last night spent more than 15 minutes — an eternity in television — focusing on the so-called Subprime Meltdown. The town they chose to use as a backdrop not surprisingly was Stockton, Calif., which ranked No. 1 in terms of nationwide metro foreclosure rates in both the third quarter and November, according to RealtyTrac.

Much of the 60 Minutes piece stuck with the standard storyline: greedy lenders offered piles of money to anyone who could fog a mirror without really caring if the loan could or would be repaid. That's because the lenders could easily turn around and sell the loans to greedy Wall Street firms who wrapped up the loans in pretty packages and sold them to investors.

However, to their credit, the producers of the piece also included one contributing factor to the unfolding debacle that is not emphasized much in the media: the greed of the homeowners and investors who took advantage of these loans, and the ability of many of those people to walk away from the properties without feeling much immediate pain in their pocketbooks. That's because many of these buyers took out 100 percent financing, so the only money they've shelled out for the property is the monthly mortgage payments — which of course they have stopped paying if they are now in foreclosure. View video.

RealtyTrac will be releasing its December, fourth-quarter and year-end numbers tomorrow morning, and we'll have the full details posted on this blog immediately when they are released (5 a.m. EST, 2 a.m. PST). But for now, here's a little taste of what to expect from Stockton. Below is a map showing fourth-quarter foreclosure filings in the area, broken down by type of filing. We'd like to hear from folks in and around Stockton about whether this represents what they're seeing in the area. And if you'd like a similar map of your area, submit your request via comment and we'll try to provide it for you.

 

A state law that took effect Jan. 1 gives Colorado homeowners who enter foreclosure more time to “cure” the loan in foreclosure before the public foreclosure sale.

In the past, Colorado homeowners had 45 to 60 days from the commencement of foreclosure proceedings — initiated by what is called a notice of election and demand — to cure the loan by making all past-due payments along with late charges and other costs. Under the new law, created by H.B. 1387, most homeowners now have 110 to 125 days to cure the loan (owners of agricultural property have 215 to 230 days).

The law also eliminates the 75-day redemption period previously available to homeowners. This redemption period allowed homeowners who had been foreclosed on to buy back their homes after the public foreclosure sale by paying the winning bidder the amount of the winning bid.

“For that reason, about the only way to pull off a redemption is to sell the property, accomplish a miracle refinancing, bag a timely inheritance or win the lottery,” writes attorney Jim Flynn in the Colorado Springs Gazette. “The new law, in recognition of the fact that owner redemptions have been few and far between, has done away this right. As a trade-off, however, the period of time in which a cure can be accomplished has been extended.”

The Colorado Division of Housing told DSNews that it did not think the new law would affect the number of initial foreclosure filings, but would at least give homeowners more time to avoid losing their property at the foreclosure sale. Colorado’s foreclosure rate of one foreclosure filing for every 320 households in November ranked fourth highest among the states, according to RealtyTrac.

The longer upfront time to cure also gives real estate investors more of a chance to work out deals with homeowners in foreclosure who want to sell. And with the federal government removing the tax on forgiven mortgage debt last month, more short sale opportunities may also be available during the pre-foreclosure grace period.

Many foreclosure investors consider MERS a four-letter word. That’s because when they see MERS —  or its expanded manifestation, Mortgage Electronic Registration System — listed as the lender for a property, it often means extra work finding contact information for the actual lender who is foreclosing.

MERS is a system used by many in the finance industry to track loans and the lenders in charge of servicing those loans — including any foreclosure proceedings — without all the paperwork.

Foreclosure documents often list MERS as the lender even though it is not able to answer any questions about the property, let alone entertain offers from interested buyers or investors. But a new online search is allowing anyone to lift the MERS veil and find names and contact numbers for the “real” lenders. This new search, which was created by MERS, is available on the MERS website or directly from any MERS-registered property listed on RealtyTrac.

To access the search from RealtyTrac, users can click on the “Mortgage Electronic Registration System” hyperlink in the Contact area of the property details page. Clicking on that hyperlink will open a new window that allows them to search for the current lender using the property address.