Three years ago Patricia and Milton Harper received a gift courtesy of reality television. ABC’s Extreme Makeover Home Edition came to the rescue, demolishing the Harper’s old run down home with a faulty septic tank and replacing it with a 5,300 square-foot, two-story dream home in Lake City, Georgia.

When the show first aired back on February 20, 2005, the home was the largest ever built in a week by the show. The home, built with the help of 1,800 volunteers and Atlanta-based Beazer Homes, is now scheduled for public foreclosure auction on August 5.

As so many people have done, the Harpers made the unfortunate error of using the home as an ATM machine. The couple borrowed $450,000 in equity as collateral to finance Mr. Harper’s construction business, which went bust. Now the beautiful mansion with a three-car garage on Ahyoka Drive is going to be sold next week on the Clayton County courthouse steps by JPMorgan Chase Bank, according to RealtyTrac.

A published report by the Associated Press says that in addition to building the home with $450,000 worth of donated labor and materials, the partners and employees at Beazer also contributed $250,000 for the family, including scholarships for the three children and a home maintenance fund.

For its part, the ABC television network told the AP that it advises every family on the show to consult with a financial planner after receiving their new home.

Still, for a potential homebuyer or investor looking for a newer property in a suburb of Atlanta, this is probably one of those properties that will go back to the bank as an REO. Most investors won’t touch a property like this, which probably has little or no equity, since they are looking for a discounted price. And most home buyers are looking for a deal below market value. So look for a listing on the local MLS soon.

The number of properties with some sort of foreclosure action against them (default notice, auction notice, bank repossession) has consistently risen for the past eight quarters (see chart). While there have been monthly fluctuations up and down during this time period, the quarterly numbers consistently have been up quarter over quarter, and the most recent quarter was no exception, according to the U.S. Foreclosure Market Report released by RealtyTrac today.

And while this upward trend in foreclosure activity is driven largely by a few populous states with volatile housing markets, there's no doubt the pain is spilling over into many other areas across the country.

“Forty-eight of 50 states and 95 out of the nation’s 100 largest metro areas experienced year-over-year increases in foreclosure activity in the second quarter," said RealtyTrac CEO James J. Saccacio in the press release announcing the Q2 report.

State governments that have gotten past the denial stage and actively addressed the foreclosure issue seem to be reaping the benefits of such foresight. One example is Colorado, whose foreclosure rate ranked No. 1 among the states in 2006, according to RealtyTrac. Some state officials initially took issue with the numbers, which engendered an important debate on how to accurately interpret and measure foreclosure data. But ultimately state officials took action by first investigating the foreclosure data themselves and then by working to curb foreclosures. The Colorado Division of Housing set up a foreclosure hotline to help people facing foreclosure. The state government enacted new laws addressing the issue, one of which gave homeowners more time on the front end of the foreclosure process to try to work out a way to stop or avoid the foreclosure.

Colorado's efforts appear to have had an impact. The state's foreclosure rate was down to No. 5 in the second quarter thanks in part to a 15 percent decrease in activity from the previous quarter. Activity was still up on a year-over-year basis, but at a much slower pace than the increase nationwide.

Late to the party as usual, the federal government is now trying to address the foreclosure issue as part of the mammoth housing bill making its way through Congress this week. President Bush has said he will sign the bill, which would allow many homeowners facing foreclosure to refinance into lower-cost, government-backed loans. The bill also earmarks $4 billion in grants for local communities to buy up foreclosed properties that may be negatively affecting the communities. Whether this bill will actually slow or stop the trend of rising foreclosures is up for debate. We'll certainly be watching to see if the third quarter foreclosure numbers translate into a ninth straight quarterly increase.

View Q2 state data.

View Q2 MSA data.

First-time homebuyers in California are getting help in purchasing their piece of the American Dream thanks to a public-private partnership and $200 million in bond funds allocated to the California Housing Finance Agency (CalFHA).

Gov. Arnold Schwartzenegger announced Monday that CalFHA’s Community Stabilization Home Loan Program will dole out the money, expected to help as many as 1,000 Californians obtain their piece of homeownership.

But there is a catch!

The catch is buyers have to be willing to buy their dream home in one of the designated areas approved by CalFHA — such as Alameda, Contra Costa and Riverside counties — and the foreclosure property must be specifically set aside for the program and owned by one of the participating lenders — including Wells Fargo, HomeEq, CitiMortgage and Fannie Mae.

The reward for participating in this program is actually pretty sweet, however. The lenders (and hopefully more will come forward as the program gets going) have all agreed to price the properties at 12 percent below market value.

Also, the program will offer financing at a fixed 5.5 percent interest rate for 30 years and without a down payment! However, there is the normal catch here too in that the consequence for no down payment is that borrowers will be required to pay for PMI (private mortgage insurance).They will have to meet CalHFA’s income limits as well.

Will this help slow down the onslaught of foreclosure activity in the state? No! But it could help potential homebuyers looking to RealtyTrac for bargain properties to realize their dream of homeownership if it is the right house in the right place, as determined by CalHFA and its partners.

As it has in times past, real estate has led this nation into recession, and it will lead us out as well — when the signs are there for a recovery. We’re now mid-way through 2008 and the signs aren’t there yet to say for certain that we’re over the hump and on the way out of recession. But a recession it is nonetheless.

But real estate — housing prices to be precise — is the sign that forecasters at the A. Gary Anderson Center for Economic Research at Chapman University are looking to lead the way back to prosperity.

In their June 2008 issue of the Economic & Business Review, the U.S. Forecast article for 2008-2009 is entitled, “The Recessionary Outlook: Housing Prices Will Determine Its Length and Intensity.”

“The Fed has moved aggressively into a stimulation mode,” said Chapman University President James L. Doti in presenting the national forecast to attendees of the university’s forecast update conference. “There’s no question that the Fed needs to dig in because of the potential for inflation.”

Banks are holding back on all types of lending, the report notes, and probably for good reason considering the $300 billion in write downs already taken by the nation’s financial institutions, with the prospect of more on the way, depending on which direction home prices go in the future.

Median home prices have already dropped 13.6 percent from their peak of $227,333 back in Q3 2005. “The most dramatic decrease since the Great Depression,” Doti noted.

The housing “bubble” which occurred due to the abuse of subprime and other exotic financial vehicles has now burst, causing home prices to decline back to the level where housing affordability is back to the level it was before the subprime boom hit (a home price to income ratio of  3.3), the Chapman report notes.

Other highlights of the Chapman forecast update are:

• The annual number of housing starts has reached a recent low of one million units. So pent-up demand for housing will increase and quickly cut into the 10+ month inventory of vacant and unsold housing
• The lagged effects of the housing price drop has reduced household wealth by $2 trillion. This is expected to reduce consumer spending by about $100 billion.
• The overall impact of the administration’s stimulus checks will be minimal as consumers use a good share of the money to pay down debt
• Housing prices will depreciate 6.1 percent in 2008 with a mild uptick in 2009
• The Fed will raise the Federal Funds Rate by 100 basis points (1 percent) in 2009 which will be mirrored in other short-term interest rates
• Stable to moderately increasing long-term interest rates

“I think it’s going to be a mild recession followed by a mild recovery,” Doti said.

Chapman also has a econometric model in their computer system to predict the outcome of the national election which has a very good record at correctly predicting the next president based on certain economic factors.

As for election 2008, the winner (according to Chapman) will be…..

Barack Obama by a 2.4 percent margin of victory.

What this means for the future of foreclosures in this country? As for the election, it’s hard to tell. As for the economic outlook, if it comes to pass the way the Chapman forecasters are predicting, a mild recovery could lead to a bit of a softening in foreclosure levels. However, this most likely will be countered by the expected reset of interest rates on many more option ARMs this year and next.

Bottom line: we’re not over the hump yet. Foreclosures are here to stay for the foreseeable future.

What do you think? We’d like to hear from you and get your opinions on these economic projections.

At present, approximately two percent of the outstanding mortgage loans in the U.S. are in some stage of foreclosure, according to RealtyTrac. And who knows how many more may be on the verge of going over the edge anytime soon as subprime loans adjust up to higher interest rates in the next couple of years.

Taking all those people into consideration, it makes for a very large potential pool of distressed homeowners to choose from when judging any kind of a contest offering to pay off someone’s mortgage.

And that is probably what Columbia Pictures is counting on.

According to the Reuters news service, the movie studio, in promoting it’s soon to be released picture “Hancock” starring Will Smith as a “flawed but good-hearted superhero” has decided to hold an essay contest to select one lucky family to have their mortgage paid off.

Offering to pay off up to $360,000 of the winning family’s mortgage debt, the contest requires the entries to be no longer than 200 words on the subject of why they believe they deserve to win the grand prize, Reuters reports.

Considering that any movie of this caliber coming out of a major Hollywood studio garnered a multi-million advertising budget, offering only $360,000 may seem like peanuts.

But to a family facing possibly losing their home to foreclosure, that kind of money can make a huge difference. In some areas of the country it could pay off their entire mortgage, while in others it could mean paying off enough of the debt owed to let them remain in the house and to refinance the balance at a lower interest rate.

Kudos to Columbia Pictures for trying something fresh and different. And good luck to them in choosing the winning entry. Word of this gets around they could be facing thousands if not millions of submissions.

Hopefully Will Smith is on board with the concept. Maybe he will even hand over the check to the winning family. Wouldn’t that be something!

We’re interested in what you think about this kind of “publicity stunt.” Do you see it as totally self-serving on the studio’s part to draw audience to the movie? Do you think they are taking advantage of people who are down and out on their luck?

In any case, you can’t deny there are plenty of cash-strapped families out there that are hurting and could use a quick influx of funds to save their homes.

For more information, and to submit an entry, check out the movie's official website and click on the "Hancock's Helping Hand Mortgage Payoff Contest" button.