New foreclosure filings increased to 740,000 in the second quarter, up 14 percent from the first quarter, according to RealtyTrac. The foreclosure nightmare is not over; several small quarterly increases are still possible before the total begins to subside.
The new foreclosure data provides three blunt reminders: The Obama foreclosure prevention programs are working far less well than promised. Much of the housing problem is concentrated in a few states. The housing recovery will be relatively sluggish.
One of every 175 homes in the U.S. received a foreclosure filing during April to June. Nevada remains the foreclosure capital, where one home in 43 received a foreclosure filing. One of every 16 Nevada homes was somewhere in the foreclosure process in the second quarter. This does not count homes previously foreclosed nor homeowners in default and headed for foreclosure.
The foreclosure filing rate was one in 65-80 homes in California, Arizona and Florida. The rate was about 1 in 135 in Michigan and Ohio which have been in a deep recession for several years. Also, 203,000 California homes received a foreclosure filing in April through June. Eleven states had less than 1,000 foreclosure filings. Vermont, North Dakota and South Dakota had fewer than 100.
The five cities with the highest foreclosure rate are:
For comparison, the Detroit rate was 1 in 66. Detroit has been in a recession for six years. The rate in much overbuilt Atlanta was 1 in 91.
The common element in the top five foreclosure cities was the combination of irresponsible borrowers and irresponsible lenders. Many borrowers were unable to or never intended to pay their mortgages. They knew that foreclosures take longer than evictions. Many lenders simply pocketed their fees and accepted no liability for the future foreclosures they created. We have now prohibited the worst abuses on the part of private lenders but have done nothing to make borrowers responsible for their behavior.
Most mortgage lending has now shifted to the federal housing finance agencies. It is now the government that is making bad mortgage loans and subsidizing mainstream private mortgage lenders to make bad subprime loans and mortgage adjustments. The government now offers 125 percent loan to value ratio loans and special low interest rates for preferred people. Experience to date suggests the default rate on these loans will be near 50 percent.
This explains why Obama’s foreclosure prevention programs are falling well short of promised results. As many as 25 percent of foreclosure filings are against homeowners who can not carry a reduced rate, extended term mortgage. Another substantial share of filings is against speculators who refuse to put more money into a failed investment.
Foreclosures far above normal for several years assure a sluggish housing recovery in cities that dominated the new home market in 2004-06.
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