Foreclosures Up, But Not Dramatically (But See Update)
Mortgage foreclosures climbed in the spring as higher interest rates and energy prices made monthly payments harder for some homeowners.
The Mortgage Bankers Association, in its quarterly mortgage survey released Wednesday, reported that the percentage of mortgages that started the foreclosure process in the April-to-June quarter rose to 0.43 percent. That was up from 0.41 percent in the first quarter and was the highest in just over a year.
The association’s survey covers 42.5 million loans.
Even with the increase, the new foreclosure figure is still low by historical standards and thus not overly worrisome to lenders. But it suggests that some borrowers are feeling pinched.
One potential trouble spot for the housing industry and home prices I am concerned about would be a raft of foreclosures brought on against people who, before Bankruptcy “Reform” took effect last October, might in many cases have been able to file for Chapter 7 bankruptcy and avoided losing their homes. The reason foreclosures against families on the brink could increase would be their reluctance to go into the new law’s overly onerous “Means-Tested” partial-payments regimen under Chapter 13, their avoidance of filing because of higher costs, delays in being able to file because of pre-filing counseling requirements, and a misguided belief that bankruptcy is almost impossible.
But so far, the bad-news scenario isn’t materializing (crossing fingers). Even the 30-day late numbers, which if rising might foreshadow an increase in foreclosures down the road, are holding steady.
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UPDATE: Tracy makes some very good points in her comment below, especially that you can’t file for Chapter 7 unless you are current with your mortgage.
I also paid a visit to RealtyTrac.com, a site for people looking to buy foreclosed properties. Though it may be a marketing item that’s not kept up to date, the bottom left at RealtyTrac’s home page indicates that there are 650,000 foreclosed properties nationwide.
RealtyTrac told the press that over 115,000 properties entered foreclosure in August. Even though that was the highest monthly total in 6 months, I have reason to believe that Tracy’s cite of 500,000 foreclosures in the first half of 2006 (83,000 per month average) needs to be looked into — because it may be low.
Though I saw it after I put up this post yesterday, the testimony of FDIC economist Richard Brown at the U.S. Senate’s Committee on Banking Housing, and Urban Affairs gave me some comfort that it’s not time to sound the alarm — yet. You can find and download a PDF of his testimony by going here. Though the items charted are not the same as actual foreclosures, Brown’s graphs on Pages 20 and 21 of charge-offs and non-current loans are still flat or declining.
All of that said, Tracy is closer to the action on the ground than I can ever hope to be, so it’s worth noting that someone in her position (able to pick up warning signs sooner than me, the FDIC, or anyone else in the government) is painting a much less than rosy picture.
Tom, Tom, Tom. Despite the ‘rosey’ nonissue from the Bankers Association, foreclosures are up 25% this year over last year according to RealtyTrac. Some states are up significantly (my own is up 62%). States like California, Kansas, Mass, Michigan, Minn, Oregon and Rhode Island are all up over 100% (Nevada is up 94%). Yes some are down significantly - strangely enough, most of the Gulf Coast including Florida, Lousiana and Mississippi. The change in the Bankers report suggested an increase of 87,000 foreclosures. The more comprehensive RealtyTrac report indicates over 250,000 new foreclosures in the second quarter. Over 500,000 homes were foreclosed on in the first half of this year. Half a million families. If a report came out that showed 500,000 people lost their jobs in the first six months, it would be serious news. If a report came out recalling 500,000 cars, it would be serious news. A report showing that over 500,000 families are more than 90 days past due on their mortgages…ah…it’s an improvement.
Oh. Last point. Chapter 7 does not save a home for a homeowner in trouble with the mortgage, only a chapter 13 does that. Your mortgage would have to be current to benefit from a chapter 7. Also, as foreclosures are usually not filed until after 90 days late, most of the foreclosures filed in the first quarter were against people already in trouble when the new law too effect.
Comment by Tracy Coyle — September 15, 2006 @ 3:02 pm
To clarify the 500,000 figure: from RealtyTrac (http://www.realtytrac.com/ContentManagement/PressRelease.aspx?ItemID=712)
323,102 properties entered foreclosure in the first quarter and an additional 272,109 entered in the second quarter, a total of 595,211. A small percentage would be a second mortgage entering the process or someone resolving the problem in the first but relapsing in the second (someone getting a tax refund to cure the arrearage but not enough to cure the problem that led to the foreclosure in the first place). Also, a small percentage of foreclosures are against business property. All together those would probably be less than 5%, hence my 500,000 figure would be a little low. On a separate but related note, the Census Bureau has released its numbers for median incomes for use in calculating the bankruptcy means test. The new numbers take effect on October 1st and in 39 states, the numbers are DOWN…with D.C down almost $10,000. This will make it a little harder for people to qualify for chapter 7 bankruptcy but it also says that in a large chunk of the country, incomes have fallen at the same time expenses, like gas and mortgage payments, have increased.
Comment by Tracy Coyle — September 15, 2006 @ 9:10 pm