When 2009 began, millions of American homeowners hoped that the worst of the real estate crisis was behind them. They were wrong.
Instead of declining, the number of foreclosed homes in the U.S. last year increased to a record 2.8 million, a 21% rise over 2008 and 120% over 2007, according to a new report from Irvine (Calif.)-based RealtyTrac. 2010 may not be much better.
The problem was that millions of adjustable-rate mortgages began to reset last year, causing monthly mortgage payments to soar while at the same time the value of these homes tanked. The help that many struggling homeowners had hoped would come from the federal government's Home Affordable Modification Program never came. Herb Allison, the U.S. Treasury Dept.'s assistant secretary for financial stability, expects fewer than half of the 3.2 million homeowners targeted by the Obama Administration to qualify for the program. Too often, facing bankruptcy or eviction, and finding they owed more than their homes were worth, people simply walked away.
Many more Americans may be joining them this year, too. According to a Dec. 8, 2009, Bloomberg story, Laure Goodman, a senior managing director at Amherst Securities Group, told Congress that unless the U.S. loan modification program was amended, 7 million of the 7.9 million property owners behind on their mortgages in the third quarter could lose their homes.
Foreclosures Up 18% in Fourth Quarter
The signs are not encouraging. Foreclosures climbed 18% in the fourth quarter over the same period in 2008. "The surprise is that the numbers weren't worse," says Rick Sharga, senior vice-president of RealtyTrac. He estimates an additional 200,000 to 400,000 homes should have gone into foreclosure in 2009 but because of delays in processing delinquent loans and legislation in state and federal government, they will only enter the process this year.
According to RealtyTrac's report—which was based on 3.9 million foreclosure filings including default notices, scheduled foreclosure auctions, and bank repossessions—half of the foreclosures in the U.S. last year occurred in Arizona, California, Florida, and Illinois. California had the most, with 632,573 foreclosed properties (up 21% from 2008); Florida posted 516,711 (up 34%); Arizona had 163,210 (up nearly 40%); and Illinois reported 131,132 (up 32%). And the pain was spread across income brackets: Research by both RealtyTrac and Zillow shows that a greater number of high-end homes also went into foreclosure last year.
Other states with high rates such as Utah and Idaho weren't on the radar a few years ago but are at the forefront of unemployment-related foreclosure activity and are setting a precedent for 2010, says Sharga.
Some markets remained relatively unscathed by the crisis, especially in Western states such as Wyoming, Montana, and North Dakota, and northern New England, specifically Maine and Vermont, which saw the lowest number of foreclosures last year.
Nevada Had Highest Foreclosure Rate
Many of the states with high foreclosure rates in 2008 continued to see homeowners default on their mortgages. On a per capita basis, Nevada had the highest foreclosure rate—112,097 properties, or more than 1-in-10 homes there, received at least one foreclosure filing. Arizona, with a 6% foreclosure rate, and Florida, with a 5.93% rate, had the second and third highest rates, respectively.
Sharga expects foreclosures to peak this year and, as employment begins to recover, start to settle in 2011.
Only two states showed decreases from 2008 as well as from 2007. Nebraska foreclosure activity decreased 42% from 2008 and 49% from 2007. North Carolina foreclosure activity decreased 16% from 2008 and 2% from 2007.
Dan Immergluck, associate professor at the Georgia Institute of Technology's School of City & Regional Planning, says this year the government and banks should look at loan modification programs, particularly ones that offer moderate principal reduction. "The slowing of a foreclosure process has been a good thing," he says. "The housing market couldn't have absorbed the number of foreclosed properties."
Click here to see which states were the hardest-hit by the foreclosure crisis in 2009.