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 A moratorium on all foreclosure sales scheduled in April there has now been replaced by a pilot program that delays foreclosure proceedings on owner-occupied properties until the homeowner and lender meet in a "conciliation conference," according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.

At present it does not appear that there is enough evidence yet to declare that a market comeback is in the offing. The bottom line is that no one can say anything with 100 percent certainty given the current state of our national economy.

Even the National Association of Realtors, which has come out with its latest report documenting a two percent decline in existing home sales for March 2008, down 19.3 percent from March 2007, can’t be certain. Although industry analysts were anticipating this monthly decline, according to Mortgage News Daily.

The NAR tried to be positive about the nation’s situation earlier this month in stating that, “Existing home sales could start to show a sustained increase within the next few months.” But, obviously, it’s too soon to make such a bold statement.

The median home price nationally also declined for the month, down 7.7 percent from $217,400 in March 2007 to $200,700 last month. Home inventory continues to be a huge problem for the Realtors, currently up to a 9.9 month supply (that’s up from a 9.6 month supply in February).

While everyone is worrying what the Federal Reserve is going to do next to try and stabilize the economy and keep it from falling deeper into recession, a slight bit of good news also came out this week with the announcement that home prices rose 0.6 percent in February.

According to the official statement of the Office of Federal Housing Enterprise Oversight (OFHEO), a monthly increase in prices was reported between January and February 2008 for seven out of the nine census divisions tracked by the agency. Only the Mountain and South Atlantic regions documented price depreciation for the period, while the Pacific, West North Central, West South Central, East North Central, East South Central, New England and Middle Atlantic regions all reported an upswing in prices.

Still, prices nationally are down 2.4 percent on a yearly basis from February 2008, and down 3.1 percent from their peak back in April 2007.

Given the overall mood of the nation at this time, and the lack of consumer confidence reported by many analysts, investors and prospective home buyers don’t need to worry about a market comeback anytime soon. There will be plenty of time and a large selection of properties to choose from when deciding which ones are in the right locations for them and at the best bargain prices.

In a statement delivered before the Committee on Financial Services of the U.S. House of Representatives earlier this week, John M. Reich, Director of the Office of Thrift Supervision (OTS), offered an alternative foreclosure prevention plan to the one under consideration from the Federal Housing Administration (FHA).

Representing the interests of the 826 thrift institutions under his agency’s supervision, Reich began by explaining to committee members just how much of a stake the thrift industry has in loan originations in this country and how much the subprime meltdown has impacted its members’ businesses.

Having such a vested interest in how many borrowers will continue to go into foreclosure as more and more subprime loans reset to higher interest rates in the immediate future (the OTS report estimates that 1.3 million American families with 2/28 and 3/27 mortgages are scheduled to reset by the end of 2008), Reich relied on a number of sources to support his point, including foreclosure numbers from RealtyTrac.

Reich used these figures to back up his claim that more than one foreclosure prevention plan is needed in order to assure lenders they will receive as much of their money back as possible given the current state of the nation’s economy.

“We continue to stress that prudent workout arrangements conducted in accordance with safe and sound lending practices, are generally in the long-term best interest of both borrowers and lending institutions,” Reich said in his report.

Unlike workout arrangements, loan modifications — by contrast — are not working as well as originally anticipated. Reich pointed to the FHASecure program as an example, where 116,000 loans have closed since the program was launched in September 2007, but only 1,500 of them were made to refinance delinquent conventional loans.

Now with the new OTS plan, there are at least two options on the table to be considered. Although there are some similarities between the two plans, there are enough differences when it comes to the eventual outcome for lenders.

Under the FHA Housing Stabilization and Homeownership Retention Act of 2008 (the HSHR Act), the FHA proposes to guarantee up to $300 billion in new mortgages to refinance existing eligible mortgages originated between January 1, 2005 and July 1, 2007, the report notes. Loan-to-value ratio cannot exceed 90 percent of the current fair market value of the property, and FHA is requiring a 5 percent fee payable to it at the time of origination, PLUS an exit premium payable at the time the property is either sold or refinanced.

By contrast, the OTS Foreclosure Prevention Proposal does ask for FHA guaranteed loans for distressed borrowers in owner-occupied homes. Basing the loan on the current fair market value of the property is the same as well. Using the proceeds of the new FHA loan for existing loan holders via a short sale or a partial payment to pay off the existing mortgage is likewise similar.

However the way the two plans go about paying off the existing loan is where the similarities end.

The intent of their plan, the OTS says, is to “provide a negative equity position to the original loan holders in an amount equal to what they are giving up by taking the partial pay-off or short sale from the proceeds of the new FHA-guaranteed loan.”

In essence, the OTS believes that the FHA backed plan allows for the possibility of a windfall to the borrower down the road, by enabling him to recoup the entire gain on the sale of the property after five years.

Under the OTS plan, however, there is no time limit on when the original loan holder can recover the amount of the initial shortfall. Basically, the OTS feels it is a proper incentive for borrowers to show responsibility and accountability for their financial affairs by allowing them to keep any proceeds in excess of the amount due the original loan holder upon the eventual sale of the property.

In either instance, borrowers who fell victim to the excesses brought on by the lending industry would have a viable option to get out from under a potential foreclosure and stay in their home, so long as they can continue to make timely mortgage payments.

The bottom line is: since neither of these plans has received outright approval by the federal government yet, the steady stream of foreclosures addressed by the OTS statement will continue forthright until such time as the problem works its way through the system — either bureaucratic or economic.

In the meantime, investors and potential home buyers have plenty of time to sort through an abundance of bargain properties nationwide that can satisfy their investment or personal lifestyle criteria.

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.

It doesn’t take a mental giant to do the new math of the foreclosure crisis. As a matter of fact, it’s as easy as two plus two.

Here’s all you have to factor into the equation in order to successfully perform the new math:

1) There are many areas around the country where foreclosures are abundant. Pick your favorite.
2) Commodities prices are soaring — especially for metals like copper, bronze, platinum and aluminum.

Add the two together and what do you get? A steal!

In this case literally. Stories are starting to appear from all over the country, particularly from areas where foreclosure saturation is pretty heavy, about metal scrappers breaking into vacant foreclosures and ripping out copper plumbing, stealing kitchen stoves, and anything else metallic they think they can take and sell for a profit.

The problem is so rampant in areas like San Bernardino County, Calif., and Cleveland, Ohio, that homebuilders are putting out signs stating that the homes are built with PVC plumbing and no copper in order to dissuade the thieves.

Public officials have taken notice as well and are proposing legislation to deal with the situation, including holding lending institutions financially responsible for the upkeep of their REO properties until such time as they sell. Some places have even proposed that the lenders pay a registration fee for every foreclosed property when it comes back to the bank.

In any case, foreclosures have obviously spurned a cottage industry of the sort that public officials fear will further bring down local property values. In the process, the thieves have turned off prospective homebuyers and lenders from dealing with properties in those neighborhoods.

And this is a trend that is not good for real estate investors and would-be homebuyers looking for bargain properties to purchase. It just doesn’t add up to their advantage.