News Details
More Florida homes headed for Foreclosure
09/08/08 -
MIAMI – Sept. 8, 2008 – The number of failing Florida home loans continued to rise in the second quarter, with more than 78,500 new homes in jeopardy of being repossessed by lenders, according to an industry report released Friday.
The percentage of Florida home loans in foreclosure was higher than in any other state in the country and almost double the national average.
The Mortgage Bankers Association survey, which tracks only first mortgages, painted a dark portrait of the state’s housing market after more than five years of overbuilding and heavy speculation.
Florida’s rate rose to 6 percent as of June 30, up from 4.61 percent in the first quarter. Nevada ranked second with 4.92 percent.
In all, more than 213,000 Florida properties were mired in the lengthy legal process in which a lender takes back title to a home for nonpayment of debt.
An additional 273,000 homeowners were behind in their mortgage payments by a month or more, about 25,000 more than in the previous quarter, signaling a rough road ahead.
Unemployment
Job losses expected through the end of the year may compound the problem, according to Sean Snaith, an economist at the University of Central Florida.
“In a typical market, foreclosures and defaults occur when somebody in the family gets ill or loses their job. In this unusual market, that’s just going to be on top of all the problem mortgages that are out there,” Snaith said. “This is probably not the end of this trend . . . for several more quarters.”
Defaults in Florida and California, the two worst hit states, drove up the national percentage of loans in foreclosure to 2.75, the highest rate in the survey’s 39-year history.
Jay Brinkmann, chief economist for the MBA, said delinquencies in Florida and California were worsening and accounted for roughly three-fourths of the increase in foreclosures nationally between the first and second quarters of 2008.
Diane Cantor, executive director of Centro Campesino Farmworker Center in Florida City, said the numbers of people visiting their offices was still increasing.
“Many of the people who come to see us have waited too long before getting help. They are very desperate. We have people who become very upset in our office. We have to refer them to counseling services because they are in such stress.”
A small consolation is that there is an indication that subprime foreclosures may have hit their peak in Florida. For the first time, the delinquency rate among borrowers with less than perfect credit in adjustable-rate loans dipped slightly between quarters from 19.71 to 19.31.
However, about 29 percent of the state’s subprime adjustable-rate loans were in foreclosure, representing about 92,000 properties. On the other hand, borrowers with good credit, or so-called prime borrowers, who took out adjustable-rate loans and loans requiring little evidence of income or assets, showed significant signs of buckling. Among them, both the percentage falling behind and entering foreclosure rose significantly.
Brinkmann said foreclosures over the next several quarters would be dominated by credit-worthy borrowers in these loans.
Some analysts have pointed to the heavy concentration of pay-option adjustable-rate loans in Florida as posing problems for the future.
These so-called exotic mortgages, and others with adjustable rates, made up one in five home loans written in the region between 2005 and 2007, according to data from McDash Analytics, a company that gathers information from nine of the 10 largest loan servicers in the country.
‘Destined to fail’
“Housing markets were so insane at the peak of the boom that a lot of people, some wittingly and others unwittingly, got into mortgage instruments that were really destined to fail,” Snaith said.
Option ARM loans, also called negative-amortization loans, allow a borrower to choose one of four payments each month. The minimum payment is usually a fraction of a full payment.
The unpaid difference is folded back into the principal of the loan; the debt grows.
Once the debt hits 110 percent to 125 percent of the original balance, payments are adjusted to ensure the loan amount can be paid over the remaining term.
A report by Fitch Ratings last week predicted that of $200 billion in outstanding option ARMS nationwide, some $29 billion would be recast to full monthly payment schedules by the end of 2009, with the average new monthly payment jumping to $2,725 from $1,672.
If not, most are set to adjust after five years.
“Delinquencies could more than double after recast,” said Huxley Somerville, a group managing director for Fitch Ratings in New York, “As we’ve seen in subprime, if the value of their house is less than their mortgage, we would expect them to default and walk away.”
Billy Ingersoll who manages the finances of his mother-in-law, Lydia Soto, and pays her option ARM mortgage on a home in Miami Lakes, said she will soon face a reset that will be unaffordable if she can’t get her loan restructured.
When she got the loan in 2005, she was able to make the full payment, though a rising tax burden forced her to drop to the minimum.
“She’s going to keep paying,” Ingersoll said. “But in the end, she’s going to be out of time and out of money.”
Copyright © 2008 The Miami Herald, Monica Hatcher. Distributed by McClatchy-Tribune Information Services.