Foreclosures Rise / More Defaults Expected

By: Mike Shedlock | Wed, Feb 8, 2006
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KnowledgePlex is reporting there will be a Flood of Mortgage Defaults in the Gulf Coast as Grace Periods Expire.

Foreclosures.com, a California based investment advisory firm and nationwide publisher of distressed property information reported today that a flood of mortgage defaults could be expected in the storm ravaged Gulf Coast region. 90-day grace periods extended by many mortgage lenders expired in December.

"Borrowers could still negotiate workout solutions on a case by case basis," said ForeclosureS.com president Alexis McGee, "but they had to do it before December 1st." She added that many properties are simply gone, and that about 850,000 structures were completely destroyed or so badly damaged as to be uninhabitable.

"The impact of the hurricanes last year will distort the Gulf Coast housing market for some time," Ms. McGee said. She added that both loan originators and the secondary mortgage market were trying to accommodate borrowers suffering from hurricane related financial problems. "For example," she pointed out, "delinquencies of both mortgages and consumer debt are not being reported to credit bureaus, nor are hurricane related foreclosures."

She went on to say that the Gulf Coast housing market was strong even as defaults increase as people with insurance settlements find replacement housing, while those without insurance face foreclosure.

Ms. McGee also warned that scam artists were already at work in the devastated region. "Crooked adjusters are urging people to file bogus insurance claims for a share of the proceeds. Inexperienced and unlicensed contractors are preying on people with damaged homes, demanding money up front and then disappearing without doing the work. There have also been some suspicious house fires in cases where there was fire insurance but no flood insurance."

Foreclosures.com has been publishing foreclosure lists and assisting investors since 1992. The company expanded its foreclosure list coverage to nationwide on November 15, 2005. Ms. McGee said that they now have over 700,000 listings of distressed property in more than 900 counties across the U.S. on their website www.foreclosures.com.

"We teach our investor clients how to create win-win scenarios that benefit both the distressed owner and investor," Ms. McGee said. "The homeowner conserves some equity for a new start, and the investor realizes a reasonable profit on resale of the home. That's much better than seeing the owner lose everything in a foreclosure auction."

According to RealtyTrac's US Foreclosure Market Report National Foreclosures Increased in Every Quarter of 2005.

RealtyTrac™ the leading online marketplace for foreclosure properties, today released year-end data from its 2005 U.S. Foreclosure Market Report, which showed that 846,982 properties nationwide entered some stage of foreclosure in 2005, and a 25 percent increase in the number of new foreclosures from the first quarter to the fourth quarter.

RealtyTrac publishes the largest national database of pre-foreclosure and foreclosure properties, with more than 550,000 properties in nearly 2,000 counties across the country, and is the foreclosure data provider to MSN House & Home, Yahoo! Real Estate, AOL Real Estate and HomeGain.com.

"Overall U.S. foreclosure numbers climbed steadily over the course of the year, with more new foreclosures reported in every quarter," said James J. Saccacio, chief executive officer of RealtyTrac. "This trend appears to be moving the real estate foreclosure market back to its historic levels."

Saccacio noted that the number of 2005 foreclosures needed to be kept in context. "Even with almost 850,000 properties entering some stage of foreclosure across the country over the course of the year, this represents less than 1 percent of all U.S. households. And the increase in U.S. foreclosures from Q3 to Q4 was just below 5 percent."

Report Highlights

• Despite a 29 percent decrease in new foreclosures from the first quarter to the fourth quarter, Florida documented the nation's highest foreclosure rate and accounted for more than 14 percent of the nation's new foreclosures in 2005. The state reported 121,843 properties entering some stage of foreclosure -- 1.67 percent of the state's households.

• New foreclosures in Colorado decreased 4 percent from the first quarter to the fourth quarter, but the state's annual foreclosure rate ranked second highest nationwide thanks to consistently high foreclosure numbers throughout the year. A total of 29,630 Colorado properties entered some stage of foreclosure in 2005 -- 1.62 percent of the state's households.

• 1.5 percent of Utah households entered some stage of foreclosure in 2005, the nation's third highest annual foreclosure rate. The state reported 11,536 properties entering some stage of foreclosure during the year, but new foreclosures dropped 27 percent from the first quarter to the fourth quarter.

• New foreclosures in Texas increased 54 percent from the first quarter to the fourth quarter, and the state documented the nation's fourth highest annual foreclosure rate. A total of 115,643 Texas properties entered some stage of foreclosure in 2005 -- 1.44 percent of the state's households and more than 13 percent of the nation's new foreclosures in 2005.

• Other states with foreclosure rates ranking among the 10 highest nationwide were Georgia, Arizona, Indiana, New Jersey, Ohio and Tennessee. All of these state documented annual foreclosure rates of at least 1 percent of total households and reported new foreclosures increasing from the first quarter to the fourth quarter

• Although their foreclosure rates ranked below the nation's 10 highest, California, Illinois, New York and Michigan were among the 10 states reporting the most new foreclosures in 2005. California reported 61,563 properties entering some stage of foreclosure, and new foreclosures increased 16 percent from the first quarter to the fourth quarter. Illinois reported 46,723 properties entering some stage of foreclosure, and new foreclosures decreased 14 percent from the first quarter to the fourth quarter. New York reported 37,068 properties entering some stage of foreclosure, and the state reported more than twice as many new foreclosures in the fourth quarter as in the first quarter.

"Over the past few years, we've seen historically low mortgage rates, consistently escalating home prices and steady, strong employment," Saccacio said. "This has translated into relatively low levels of foreclosure properties -- particularly bank-owned properties. With interest rates rising and an apparent slowing of property valuations in most markets, we'll be watching closely to see if there's a material effect on the number of foreclosures in 2006."

Click on the above link for a nice chart of state by state foreclosures. I found the following snip rather interesting.

"Even with almost 850,000 properties entering some stage of foreclosure across the country over the course of the year, this represents less than 1 percent of all U.S. households. And the increase in U.S. foreclosures from Q3 to Q4 was just below 5 percent."

Is that supposed to make people happy?

1% may sound low but that means every 100th house you see will have been foreclosed in 2005. 2006 will be much worse. The bubble states have not even turned yet.

Frorida had a decrease in foreclosures of 39% and California only rose 15%. Despite a 29 percent decrease in new foreclosures from the first quarter to the fourth quarter, Florida documented the nation's highest foreclosure rate and accounted for more than 14 percent of the nation's new foreclosures in 2005. The state reported 121,843 properties entering some stage of foreclosure -- 1.67 percent of the state's households.

When there are mass defaults on Florida condos I expect those numbers to skyrocket. More interesting is the claim I keep hearing that Florida's economy is strong and job growth is vibrant. If the Florida economy is so vibrant why is it leading the nation in foreclosures? Where is the job growth anyway? Construction? What happens when construction heads south? It will not take much to reach the 2% level in foreclosures. If that happens, and I expect it to, 1 out of every 50 homes in Florida will go into foreclosure in 2006. Does that sound like a lot of foreclosures? It does to me.

On that note a telepathic question just came in:
Mish how are those homebuilders doing?

Good question Lets take a look at Toll Brothers.
Luxury builder TOLL Brothers Inc. reported a steep 29% decline in orders in its fiscal first quarter that ended Jan. 31 and slashed its delivery projections for 2006.

Toll tweaks forecast downward again.

Toll Brothers Inc. said Tuesday that selling houses during its fiscal first quarter was more "difficult" than a year ago and lowered its sales forecast for fiscal 2006.

It was the second time since November that the Horsham, Pa., residential developer reduced its forecast for this fiscal year and could be another indicator that the nation's housing market is losing steam after being red hot the last five years.

Toll, which was reporting preliminary results for the quarter, attributed the decline to problems finishing houses as well as a cooling of demand. The company said there have been delays in receiving certificates of occupancy, construction inspections and utility hook-ups.

Signed contracts were down 21 percent to $1.14 billion compared with the same period a year ago. Demand for new housing in a number of the markets in which it builds is softening.

Toll attributed the weakness to "Finishing Problems".
Did Toll all of a sudden forget how to finish houses and get occupancy permits and construction inspections? It would seem to me with declines in housing everywhere that there should be fewer problems getting timely inspections.

Meanwhile, things are doing so well for Centex now that they have increased their discount to $150,000.

How long will it be before we see the first $200,000 reduction for Centex? How many people that paid $150,000-$200,000 too much just a few short months ago will be tempted to walk away?

Remember that the uptick in foreclosures has just started. Now is not the time to be thinking about bottom fishing. It's a long, long way down from here for the bubble areas.


 

Mike Shedlock

Author: Mike Shedlock

Mike Shedlock / Mish
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Mike Shedlock

Michael "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Visit http://www.sitkapacific.com/ to learn more about wealth management for investors seeking strong performance with low volatility.

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