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Sunday, November 15, 2009
Foreclosure Escalation
By Richard Metcalf
Of the Journal
Foreclosure activity has intensified in the Albuquerque metro area as the recession's grip tightens on the local economy.
Some sort of delinquency, default or foreclosure notice was sent to 1,447 homeowners in the third quarter, a 73 percent jump from the same period a year ago, according to Irvine, Calif.-based RealtyTrac.
The jump in local foreclosure-related activity is consistent with the jump in the metro's unemployment rate from 4.6 percent in September 2008 to 8 percent in September of this year. Rising unemployment is gradually replacing subprime home loans as one of the chief causes of mortgages going bad.
"In many respects, the subprime market that started our problems has been taken care of," said John Courson, president and CEO of the Mortgage Bankers Association, in a conference call last month with the Journal and other media. "Now it's joblessness."
The rate of foreclosure actions has increased steadily in Albuquerque over the past two years, according to RealtyTrac. The increase reflects a national trend of foreclosure activity spreading out from hot spots in states like Arizona, California, Florida and Michigan.
Locally, one of every 244 households had received a notice as of the third quarter this year.
The current nationwide foreclosure rate is one of every 136 households.
Small percentage
Despite the jump in foreclosure activity in the third quarter, homes with troubled mortgages are a tiny minority in the metro area.
The 1,447 homes with a foreclosure-related filing represented only 0.41 percent of all housing in the metro, the same percentage as areas like Des Moines, Iowa; Austin, Texas; and Louisville, Ky. Albuquerque ranked 113 out of 203 metros for having the highest foreclosure rate in the country, according to RealtyTrac.
The top metro region for foreclosure activity in the third quarter was Las Vegas, Nev., where 5.1 percent of all housing had troubled mortgages. El Paso had one of the lowest levels of foreclosure activity, with a mere 0.1 percent of its housing somewhere in the foreclosure process. The national average was 0.73 percent of all housing.
Two reasons stand out as to why Albuquerque doesn't have the level of foreclosure activity seen nationwide. First, the metro's unemployment rate of 8 percent in September, while significant, was still better than the national rate of 9.8 percent. As a result, there's proportionately fewer out-of-work homeowners here at risk of not making their mortgage payments.
The second reason is the fact that home prices have held up better here than in many major markets around the country. That means financially strapped homeowners may still be able to sell their houses at a price high enough to pay off their mortgages.
For example, in September the median sales price of a detached, single-family house in Albuquerque dropped 3.7 percent to $179,900 from a year earlier; nationwide, the average median price dropped 8.1 percent to $174,900. Median means half of the houses sold for more, half for less.
Local home prices have held up comparatively well because Albuquerque missed the inflated home values that characterized the housing bubble, observed Jim Folkman of the Home Builders Association of Central New Mexico. Between 2000 and 2005, the median price of a home increased 23.8 percent in the metro, compared to a national average of 47.7 percent.
Nationwide, speculators account for about one-third of all home foreclosures, according to both RealtyTrac and the Mortgage Bankers Association.
"We're slow and steady, rather than robust and erratic," Folkman said about local home prices from year to year. "Robust and erratic is what speculators thrive in."
Avoiding foreclosure
Most homeowners who fall behind on their mortgage payments find some way to avoid seeing their house sold in a foreclosure sale.
Only about one of every four homes in New Mexico with delinquent mortgage payments winds up in the foreclosure process, according to Hope Now, a Washington, D.C.-based alliance of mortgage servicers, investors, counselors and other mortgage market participants.
During the first six months of this year, only 810 houses statewide were actually sold in a foreclosure sale, Hope Now reported. Statistics indicate roughly two-thirds of foreclosure sales in New Mexico occur in the Albuquerque metro.
Somewhere in the vicinity of 540 foreclosure sales spread over six months is insignificant for a metro the size of Albuquerque, which has around 340,000 houses, condominiums and apartments.
"If you have a substantial number of foreclosures, it makes one wonder. It turns off buyers," said Albuquerque appraiser John F. Howden. "But we don't have that problem."
Between July 2007 and July of this year, Hope Now reports that 20,620 homeowners in New Mexico avoided foreclosure by working with the companies that service their mortgages. They did so in one of two ways:
• 12,104 homeowners received repayment plans, which means they agreed to make additional payments to pay down past-due amounts while still making regularly scheduled payments. Repayment plans are common when the homeowner suffers a temporary financial problem.
• 8,516 homeowners received loan modifications, which means one or more terms of the original loan are changed. Mortgage terms that are often changed include interest rate and duration of the loan.
One way to get a loan modified is through the Home Affordable Modification Program or HAMP. Set up by the Obama Administration, the program involves 16 pages of documents and is time consuming for both the homeowners and the mortgage servicer. The dropout rate is high among participating homeowners because of the paperwork.
Many companies that service mortgages have their own loan modification programs, which have a 10 percent higher success rate than HAMP in resolving problem home loans, according to the Mortgage Bankers Association. The in-house loan modification programs are generally more streamlined than the federal version.
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