Foreclosure filings skyrocket

Filings jump 58% in first half of the year and could surpass 2 million this year as the housing market weakens, according to a report.
July 31 2007: 10:38 AM EDT


NEW YORK (Reuters) -- U.S. home foreclosure filings rose 58 percent in the first six months of the year and could surpass 2 million this year as the housing market continues to deteriorate, a report said.
Foreclosure filings in the first half spiked from the same period last year to 925,986 as many overstretched borrowers have been caught between rising interest rates and falling home prices. The Federal Reserve has cited the faltering housing market as the biggest risk to economic growth.
The foreclosure filings were also up more than 30 percent from the previous six-month period, at a rate of one filing for every 134 U.S. households, said RealtyTrac, an online marketplace for foreclosure properties.
Most ruthless foreclosure states
Foreclosure filings include default notices, auction sales notices and bank repossessions and they were reported on a total of 573,397 properties.
"Despite a slight drop in June, foreclosure activity shows no sign of slowing down," James Saccacio, RealtyTrac chief executive officer, said in a statement Monday.
"If the current pace were to continue, foreclosure filings would surpass 2 million by the end of the year, which would represent a year-over-year increase of more than 65 percent," Saccacio said.
Mortgage brokers: The salesman factor
California had the highest number of foreclosure filings in the first half of 2007. Florida was second. Nevada posted the country's highest foreclosure rate, with one filing for every 40 households.
The foreclosure spikes in prosperous states with solid economies and job growth is a continuing departure from past delinquency patterns, that have followed mass job losses and plant closings in industrial states.
The problems in California and Nevada, as well as Florida, Arizona and other hot markets stem in large part from a speculative frenzy that sent home prices through the roof.
Homeowners bet they could buy a house and "flip" it quickly to make a profit. But when prices fell, they were stuck with properties they couldn't move.
When the housing market was hot, rising home prices also enabled strapped home owners to tap into their increased equity to keep pace with their debt obligations.
They could opt for a home equity loan or a home equity line of credit for quick cash, or refinance their home for a higher amount and receive cash back.
Many buyers didn't qualify for conventional fixed-rate loans and opted for mortgages with very low "teaser rates" that lasted only for the first two or three years of their loan. Interest rates reset, often to unaffordable levels, especially for credit-damaged consumers, the subprime borrowers.
When home prices fell, owners who had already taken out all the equity in their homes no longer had a ready source of extra money. Many fell behind on their mortgage payments and their lenders moved to collect.
Foreclosures started to spike and subprime lenders, in particular, began to experience many more delinquencies.