Wednesday, August 22, 2007

Boom shifts to foreclosures - U.S. activity nearly doubles in year; experts cite variety of factors

Boom shifts to foreclosures - U.S. activity nearly doubles in year; experts cite variety of factors
By Mary Umberger
Copyright © 2007, Chicago Tribune
August 22, 2007

The shriveling subprime mortgage market may be getting the lion's share of the blame, but industry experts say chaos in subprime lending is not the only factor in the financial squeeze that has pushed national foreclosure activity up 93 percent from a year ago.

RealtyTrac, a foreclosure data firm in Irvine, Calif., reported Tuesday that the nation saw about 179,600 homes in some stage of foreclosure last month, one for every 693 U.S. households.

And though the Chicago area saw a slight month-to-month decline in July, foreclosures for the first half of the year are up 42 percent here from a year earlier, according to Rick Sharga, a RealtyTrac spokesman.

The firm said many property owners with adjustable-rate mortgages who were seeing their payments rise were shut out of refinancing into better rates because of the subprime lending crisis.

"Interest rates are just one of the culprits," said Marki Lemons, a Chicago real estate agent who specializes in preforeclosure sales. She said it is one of a trio of factors she sees regularly.

Taxes are another. "We're in a city that has an abundance of new development, and people aren't fully assessing what their taxes will adjust to in 12 to 18 months -- in some cases it's double what they thought they were getting.

Assessments are a third. "And we have a large percentage of condos, and people are seeing increases in monthly assessments and special assessments. In some of those cases they have doubled, also."

The situation has grown so serious that consumer-advocacy groups in California, where RealtyTrac said foreclosures were running at three times last year's pace, on Tuesday called for the state to declare a moratorium on foreclosures. They say consumers have been victimized by predatory lending or otherwise are facing a mortgage-induced squeeze that threatens to put thousands out of their homes.

"A moratorium doesn't really fix the situation," said Lynnette Briggs, a counselor for the DuPage Homeownership Center in Wheaton. "You can postpone the foreclosure but the steam just keeps building.

"What we need in order to recover are more refinancing options and more loan-modification options."

Illinois' 5,530 homes in foreclosure in July put the state 15th in the nation, RealtyTrac said. Of those, 4,652 were in the Chicago area.

That works out to one of every 930 households in Illinois, according to RealtyTrac. In Nevada, the No. 1 state for foreclosures, it's one per 199 households.

The firm said 43 states saw year-over-year increases, with five -- California, Florida, Michigan, Ohio and Georgia -- making up more than half the total.

California and Florida suffer from high foreclosure rates because rapid appreciation led buyers to borrow huge amounts of money, while the economy in Michigan and Ohio has been weak. Many Georgia homeowners relied on subprime mortgages, and the region also saw a significant number of mortgage fraud cases.

RealtyTrac saw one small glimmer locally.

"Actually, Chicago had a good second quarter relative to the rest of the country," said Sharga. "Chicago's foreclosure activity was down 6 percent in the second quarter compared to the first quarter, while the rest of the country was going up.

"But that dropping-back by 6 percent is a number that's still almost twice last year's first-quarter number," he said.

Nonetheless, real estate professionals say the pain is widespread.

Hudson & Marshall of Texas, an auction firm that specializes in foreclosure properties, conducted a sale last week of 190 Chicago-area homes attended by hundreds of bidders.

"When we were in Chicago for an auction last fall there were about 25 homes auctioned," said Crystal Wright, a spokesman for Hudson & Marshall.

"Last year activity was creeping along, and now I would say it's almost a bulldozer effect across the country," she said. Recently the firm conducted foreclosure auctions for 200 homes in Southern California and 400 in Northern California.

Real estate agent Lemons said banks are now offering "short" sales, whereas in a balanced market they were mum about the possibility. "They're willing to take less than what's owed to them, to get it off their books. I'd say on average they're willing to go down about 20 percent."

South Holland real estate agent Daryl Russell said the wave of foreclosures is not the investment bonanza that some clients envision because loans have dried up for them, too.

"There are more foreclosures, but the buyers aren't as plentiful, and I attribute it directly to subprime mortgages," said Russell.

"I had three deals that were about to close lately, and none of them happened" because lenders changed their minds, he said.

"I'm talking about people with 740 credit scores who six months ago could have bought two properties," Russell said.



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