"Bank repossessions, or REOs, jumped 21 percent from the second quarter to the third quarter, corresponding to jumps in defaults and scheduled auctions in the previous two quarters," said James J. Saccacio, chief executive officer of RealtyTrac. "REO activity increased from the previous quarter in all but two states and the District of Columbia, indicating that lenders may be starting to work through some of the pent-up foreclosure inventory caused by legislative delays, loan modification efforts and high volumes of distressed properties."
We're not only seeing lenders work through the pent-up foreclosure inventory, we're also seeing foreclosures move to the higher end of the market. In the early stages of the downturn, subprime mortgages were the hardest hit, but now we're seeing more and more foreclosures among prime mortgages, as well as Alt-A and Option ARMs. In 2006, about 55 percent of foreclosures were on subprime loans; in 2009, subprimes represent just 35 percent of foreclosures, while another 35 percent are in the middle tier and 30 percent are in the top tier.
Foreclosure filings were reported on 343,638 properties in September, a 4 percent decrease from the previous month but a 29 percent increase over September 2008. Despite the month-over-month decrease, September's total was still the third-highest monthly total since the RealtyTrac report began, behind only July and August of this year.
More than 60 percent of all foreclosures in the U.S. happened in six states -- California, Florida, Arizona, Nevada, Illinois and Michigan. The total number of foreclosures in these six states was 579,541. California alone had nearly 27 percent of the nation's total with 250,054 properties receiving foreclosure filings during the quarter. But there was some good news for California -- the state's foreclosure activity decreased nearly 2 percent from the previous quarter thanks to a 10 percent drop in default notices.
Nevada maintained its position as the state with the highest foreclosure rate in the third quarter, with one in 23 housing units receiving a foreclosure filing. That's nearly six times the national average. Foreclosure filings in Nevada totaled 47,925 during the third quarter, which is an increase of nearly 10 percent from the previous quarter and an increase of nearly 59 percent from the third quarter of 2008. The only good news for Nevada was that defaults decreased 8 percent from the previous quarter, so maybe Nevada will finally start see a slowdown in the number of foreclosures in future quarters.
Arizona posted the nation's second-highest foreclosure rate in the third quarter, with one in every 53 housing units receiving a foreclosure filing. California was No. 3, also with one in every 53 housing units receiving a foreclosure filing during the quarter. Other states with foreclosure rates ranking among the top 10 in the third quarter were Florida, Idaho, Utah, Georgia, Michigan, Colorado and Illinois.According to the Amherst Security Group, this problem won't go away any time soon, because:
• Loans are transitioning into delinquency/foreclosure at a rapid pace, but moving out at a slow pace;
• Cure rates are low. In other words, fewer people are paying their past-due amounts and getting back on track.
• Loans are taking longer to liquidate. In other words, the length of time between the start of the foreclosure process and the point when the lender gets control of the property is growing.
The Amherst Mortgage Insight report notes that there are currently 7 million homes in a shadow market -- homes that are either in delinquency or in foreclosure, but not yet on the market. This number translates into 135 percent of a year of existing home sales, which means that whatever numbers you're seeing now about homes sales, they don't truly reflect the storm that's yet to come. So you can expect house prices to continue to drop in the hardest hit states.
Lita Epstein has written more than 25 books, including The 250 Questions Everyone Should Ask About Buying Foreclosures and The 250 Questions You Should Ask to Avoid Foreclosure.