Foreclosures Pick Up With Midwest Hardest Hit
As home-price appreciation has
tapered off and mortgage rates have risen, foreclosures have started
to pick up, with the Midwest region hit hardest.
The rate of foreclosure -- the
process by which banks can ultimately take back the properties that
secure mortgages -- is a key indicator that real-estate analysts and
investors use as a signal of market distress.
In the past several years,
foreclosures across the U.S. have been hovering around historically
low levels, as home prices have risen nearly 50% in five years. This
appreciation enabled borrowers to sell their homes relatively easily
to resolve mortgage difficulties.
Now, a survey of the latest data
confirms, that is starting to change, with an uptick across the U.S.
in foreclosure rates and mortgage delinquencies (or late mortgage
payments). But even the new higher rates of foreclosure and
delinquencies are still low in historic terms.
Nationally, the number of mortgage
loans that entered some stage of foreclosure rose to 117,259 in
February, up 68% from the same month a year earlier, according to
Irvine, Calif., online foreclosure-data service RealtyTrac.
Delinquencies are up as well. Data
provider LoanPerformance, a subsidiary of First American Real Estate
Solutions, reported that 3% of the most vulnerable loans -- those
made to borrowers with less than a stellar credit history -- were 90
days delinquent in February. That is up from 2.84% in February 2005.
Meanwhile, 90-day delinquencies for loans made to borrowers with
better credit were up to 0.76% in February, from 0.67% a year
earlier.
The rise in delinquencies isn't
surprising, according to Doug Duncan, the Mortgage Bankers
Association chief economist. In its own quarterly survey, for the
fourth quarter of 2005, the association showed a 0.26 percentage
point uptick in the rate of mortgage delinquencies as well as a 0.01
percentage point increase in the foreclosure rate from the third
quarter.
The MBA has "been expecting an
uptick in delinquencies due to a number of factors," Mr. Duncan said
in the release, including greater prevalence of riskier
adjustable-rate and subprime mortgages, as well as higher interest
rates and energy costs.
Digging a little further into the
data shows that three states in the Midwest consistently have among
the highest rates of loan foreclosures and delinquencies: Indiana,
Ohio and Michigan.
The reasons behind the higher rates
of foreclosures and delinquencies vary somewhat, but there are two
primary drivers, said Lou Barnes, a partner with mortgage banking
firm Boulder West Financial Services in Boulder, Colo.
One is family economic distress,
often related to job loss or divorce. Another is a slowing pace of
home-price gains. And what the states hit hardest by mortgage
foreclosures have in common is relatively low home-price
appreciation (compared with the national average) over the past few
years, typically combined with below-trend job growth.
In Ohio, 3.22% of loans were in
foreclosure at the end of the fourth quarter, according to MBA data.
The national level was 0.99%. Indiana had 2.75% of loans in
foreclosure, and Michigan 1.75%. The entire "East North Central"
region of the country, which includes Indiana, Ohio, Michigan,
Illinois and Wisconsin, had 2.05% of its loans in foreclosure, the
highest regional level in the nation, according to the MBA.
Still, even with the increase in
foreclosures and delinquencies, the numbers are generally not
alarming to economists, as they are rising from historically low
levels. The market is simply returning to more typical levels, this
line of thinking goes.
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