Foreclosures keep rising

By Justin Hunter

What was feared about a year ago is now coming true. The housing boom in the United States from 2000 to 2005 saw just about every one buying a house, even those who really could not afford one.

Special nontraditional or “exotic” mortgages became popular as they offered borrowers a chance to purchase a home with little to no money down, with the chance to have very minimal monthly payments for a specific amount of time while paying only the interest on the mortgage.

Economists began to see the housing market peaking at the end of 2005, this would stop some of the nontraditional mortgage originations but the effects of the earlier ones were about to come into full swing as borrowers began to feel the affects of an adjusting mortgage.

The article, “National foreclosures up 17% from previous quarter” provides further evidence of what happens when the housing market appreciates too fast and people obtain mortgages when they do not have the necessary finances to make the payments.

“In the third quarter, 318,355 properties entered some stage of foreclosure, up 17 percent from the previous quarter and up 43 percent from the same period last year, according to RealtyTrac.”

This related to one foreclosure per 363 households during the third quarter of 2006. Last quarter’s rate was one foreclosure per 425 households.

“‘Higher interest rates and a general softening of the real estate market are the two key factors contributing to the 43 percent increase in foreclosure filings from the third quarter of 2005,’ said James J. Saccacio, CEO of RealtyTrac.”

Saccacio continued to explain that this increasing trend of foreclosures is due to many of those adjustable-rate mortgages reaching the period when they adjust to the higher prime rate. And even more disturbing is the fact that another $1 trillion in adjustable-rate mortgages will hit their adjusting period within the next 15 months.

States that lead the way in the housing boom are also showing a high rate of foreclosures. Nevada and Florida ranked second and third highest on the list of foreclosure rates, but what is interesting is the state that topped the list.

“Colorado posted the highest foreclosure rate in the nation for the second consecutive quarter, reporting one new foreclosure filing for every 127 households -- 2.9 times the national average. After declining almost 13 percent between the first and second quarter of the year, foreclosure activity in the state was back up 24 percent from the second to the third quarter, with 14,374 properties entering some stage of foreclosure -- the eighth-highest foreclosure total in the nation.”

“States with underlying economic issues, such as high unemployment or depreciating home prices, will continue to outpace the rest of the country in the total number and rate of foreclosures.”

Mortgage companies have since tightened their underwriting guidelines on all mortgages, especially “exotic” options. Home owners and mortgage originators are struggling with a gloomy prospective when those $1 trillion in “exotic” mortgages adjust.

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