Foreclosures hitting major urban areas, Middle America hard

WASHINGTON – Aug. 15, 2007 – A central California agricultural town, the automobile capital of the world and a down-on-its-luck gambling hotspot had the nation’s highest rates of foreclosure filings for the first half of 2007, according to real estate data released Tuesday.

Stockton, Calif., Detroit and Las Vegas – three areas with vastly different economies and demographic trends – have all been hit hard by the nation’s growing foreclosure crisis, which is ravaging both major urban areas and Middle America.

Averaging one foreclosure filing for every 27 households during the first six months of 2007, Stockton had the highest filing rate among the 100 largest metro areas of the United States, according to RealtyTrac, a real estate data firm.

Located in the heart of California’s famous Central Valley, where tomatoes, almonds, apricots, grapes and cotton are grown, Stockton and the surrounding area have become a respite for Bay Area and Southern California residents seeking cheaper housing costs.

In the Stockton metro area of San Joaquin County, foreclosure filings were made on 4,239 properties – more than double the number of the previous six months and more than three times that in the first six months of 2006, RealtyTrac reported.

Placing second with a rate of one filing for every 29 households was Detroit, where job losses in the auto industry have wreaked havoc on the local economy and housing market.

Las Vegas had the third-highest rate, with one foreclosure filing for every 31 households, as a glut of new homes and condominiums and a rash of speculative buyers walking away from properties continued to drive down home values despite the area’s record population growth.

The nation’s foreclosure crisis is being driven by homebuyers with shaky credit who took out subprime loans. Many of these borrowers are now unable to make the higher mortgage payments required after the rates on their adjustable-rate loans reset. The ripple effect has caused several mortgage companies to fail, others to stop providing subprime loans and many more to tighten lending standards on all loans.

The percentage of subprime, adjustable-rate mortgages in foreclosure jumped to 3.23 percent in the first quarter of 2007. Compounding the foreclosure problems are predatory loans, mortgage fraud and speculative homebuyers with properties whose values have fallen below their purchase prices, leaving owners unable to sell them for a quick profit.

“At one time, you basically could put a small down payment on a condo, take ownership before it was even built and sell it a few months later at a significant profit, and people were doing that. This led to a glut of construction and now an excess of condo properties,” said Sean Snaith, director of the Institute for Economic Competitiveness at the University of Central Florida in Orlando.

The subprime loan problem has caused massive swings in the U.S. stock market, leading the Fed to add $64 billion to the banking system since last Thursday to shore up investor confidence. There’s also international concern about the subprime loan problem because U.S. mortgage debt has been packaged into securities that were sold around the world.

Rounding out the areas with the top foreclosure filing rates are Riverside-San Bernardino, Calif.; Sacramento, Calif.; Denver; Miami; Bakersfield, Calif.; and Memphis, Tenn. Cleveland and Fort Lauderdale, Fla., tied for 10th place.

Other cities near the top include Fort Worth, Texas, at No. 13 with one filing per 57 households and Fresno, Calif., at No. 14 with one per 60 households.

The problem was less severe in areas such as Charlotte/Gastonia, N.C., which averaged a foreclosure filing for every 101 households. Kansas City, Missouri -Kansas, averaged one filing per 111 households, while Raleigh, N.C., logged one filing for every 158 households.

Not all local areas are being flooded with foreclosures, said James J. Saccacio, chief executive of RealtyTrac. “While foreclosure activity has skyrocketed over the past year in many cities, particularly in California, Ohio and the Northeast, foreclosure activity seems to be subsiding in parts of Texas, South Carolina and other states,” Saccacio said.

Cities that seem to be avoiding the foreclosure problem include Wichita, Kan., with one filing per 399 households, and Columbia, S.C., with one filing for every 757 households.

© 2007 McClatchy-Tribune Information Services, Tony Pugh. All rights reserved.