Foreclosure "Crisis" is Overblown

A recent list of year-end mortgage foreclosure rates in 100 top metropolitan areas drew a lot of attention. Released by RealtyTrac, a company that compiles data on home foreclosures, the list showed the number of foreclosure filings in each metro area, the percentage of homes being foreclosed and the percentage change from the previous year.

Though the report had some dismal news -- such as the nearly 4.9% foreclosure rate in the Stockton, Calif., area -- a close look at the data also provides some reassuring information. It tells me, for instance, that the foreclosure crisis is a regional problem, not a systemic one. It could become a systemic problem, of course, but we're a long way from that now.

This news will disappoint the gloom-and-doom crew and all those seeking the excitement of financial upheaval. But it may be time to temper our worry and take a closer look at some of the year-over-year foreclosure statistics:

• Though the national rate of foreclosure increased by a whopping 79% between December 2006 and December 2007, the rate was still only 1.033%. Because about 30% of all homes are owned mortgage-free, this means that for all the noise about a crisis, only seven-tenths of 1% of all homes were in foreclosure.


• 
  In the top 100 housing markets, the average foreclosure rate was somewhat higher -- 1.38% -- and it was up 78% over the previous year. But if you rank-ordered the list of the top 100 areas, only 34 had foreclosure rates above the group average. Fifty-one areas had rates of 1% or less.


• 
  Foreclosure rates actually fell in 14 of the 100 areas. More important, many of the areas with the highest increases in foreclosure rates were rising off rates that were tiny. The Bethesda, Md., area, to offer the most extreme case, saw foreclosures rise 1,288% -- to a rate of 0.682%. In other words, foreclosures there were virtually nonexistent the year before. Today they are still well below the national average. The same can be said for the Albany, N.Y., area (up 638% to 0.25%), the Baltimore area (up 544% to 0.73%) and the Providence, R.I., area (up 354% to 0.41%).

Another pattern emerges if you cross the foreclosure rates with the Office of Federal Housing Enterprise Oversight (OFHEO) index of home prices. It shows that the top 10 foreclosure areas in America are areas of extreme price change -- changes far from the national average of 46.92% over the past five years.

Talk back: Do you think the foreclosure crisis is overblown?
Seven of the top 10 foreclosure areas had experienced major price spikes in the past five years. Three of the top 10 foreclosure areas had experienced price increases that were dramatically lower than the national average. That pattern continues when you examine the top 25 foreclosure areas.

The seven areas with the top price appreciation for the past five years averaged a stunning 91.6% increase, nearly double the national average. The national average, in turn, was about triple the inflation rate for the period.

Small wonder the foreclosure rate is booming as well. Anyone who bought in the past few years with a 5% or 10% down payment has a good chance of being upside down as froth comes off the market. In those areas the problem is about irrational price spikes and the hazards they bring to homeownership.

Information taken from CAR Market Matters

Down Payment Assistance Program

We are excited that the down payment assistance program is still available after the court ruling earlier this week. The down payment assistance program was about to expire. This means that the 3% minimum down payment requirement for FHA loans can be paid by the seller using the program. How this works is that the 3% down payment is shown as a gift from a non-profit entity such as Nehemiah or Ameridream. The funds for the gift actually come from the seller and these monies are transferred in escrow. This allows the borrower to purchase with no money down and can even move in with no money if the seller also agrees to pay closing costs. In this marketplace, if the seller were willing to take 6% less than the asking price, in effect, the borrower would have a 3% down payment from the seller and 3% to cover all closing costs.

With FHA, no cash reserves are required and less than perfect credit is acceptable. A buyer could purchase a property without any funds or cash reserves. This strategy is now commonly used in short sales negotiations with banks. A new FHA modernization bill is expected to come out over the next couple of months which may eliminate the down payment assistance program but the new changes would likely reduce the down payment requirement to only 1-1/2% instead of 3%. We are hopeful that the new higher FHA loan limits will be in effect within the next 2-3 weeks. The new conforming loan limits may not be available for many weeks beyond that.

FHA loans are becoming the number one financing option for many borrowers. Last month, 25% of the volume of Cherry Creek Mortgage was attributed to FHA loans. We expect that percentage to increase to 40% over the next three months.

If you are not 100% comfortable with FHA financing at this time, give me a call and I will put you in touch with my lender to help you out.

Information from Don McGlinchy at Cherry Creek Mortgage

An Old Irish Blessing

May love and laughter light your days, and warm your heart and home.

May good and faithful friends be yours, wherever you may roam.

May peace and plenty bless your world with joy that long endures.

May all life's passing seasons bring the best to you and yours!

Happy St. Patrick's Day!

Foreclosure Reality Check

City Staff get Foreclosure Reality Check: On Thursday (2/28) Bay East staff made a presentation to the Tri-Valley Affordable Housing Committee on the status of homes in foreclosure. This committee includes housing deparment staff and elected officials from the cities of Danville, San Ramon, Dublin, Pleasanton and Livermore. On their agenda was a discussion of "jurisdition responses" to foreclosures.

Bay East was invited to provide a fresh perspective on how foreclosures are impacting (or not) home sales in the Tri-Valley area. During the presentation we were able to show that while the number of foreclosures have increased in these communities they are nowhere near as siginificant as in other areas of Alameda and Contra Costa counties. Bay East staff made the case that cities could best address the foreclosure issue by continuing to support (and fund) home ownership assistance programs to ensure that new home owners aren't getting into trouble in the first place.

REALTOR® Impact: REALTOR® concern about this issue is that local cities may adopt policies that could impact private property rights and the ability for homebuyers to secure financing. C.A.R. is tracking proposed state legisltation that would make it more difficult for banks to foreclose. At the same time, some cities in Southern California have considered local ordinances that would require banks to maintain foreclosed properties in an effort to maintain property values. These types of requirements could raise the costs of financing, impact the willingness of banks to make loans in these cities and, ulitmately, make home ownership less attainable.

Next Steps: There's not much a local city government can do regarding foreclosures since they have no jurisdiction over bank lending (and foreclosure) practicies. That said, some local leaders may still be looking to do something about foreclosures. We'll continue to provide information about how foreclousures are impacting the resale market and options city leaders can explore that won't negatively impact homeownership.

Compliments of the Government Affairs Director, Bay East Association of Realtors

Bay Area Housing Snapshot for February

Here is the housing snapshot for Alameda and Contra Costa Counties.

For the entire Bay Area here is the link for a more complet picture.

http://www.pamwinterbauer.com/add_page/category.cfm?categoryID=340&clientid=378&agentid=1668