Analysts: Foreclosure problem to get worse


Published: Sunday, January 4, 2009 at 6:01 a.m.
Last Modified: Saturday, January 3, 2009 at 10:52 p.m.

Homeowners who were unable to keep up with their mortgage payments got a break during the holidays when banks temporarily halted foreclosure proceedings on thousands of homes throughout Florida.

But the holidays are over, and experts predict an avalanche of foreclosures as banks gear up again to take back homes from delinquent mortgage-holders.

Financial and mortgage experts say a 9 percent dip in Florida's foreclosure rate in November, following two months of increases, shouldn't be seen as a sign that the housing market is stabilizing.

Instead, many analysts predict the foreclosure problem for Florida, which has the second highest number of foreclosures in the nation, will only get worse and Alachua County will likely be no exception.

"I think it's going to be an avalanche (of foreclosures) in the future," predicted Tim New, regional loan manager for Peoples First Community Bank, which has a mortgage office in Gainesville.

"The bank bailout with no strings attached has been a real hoax," he said. "(Interest rates) have come down, but it's not helping."

The economic stresses on families are becoming so great, New said, they are starting to no longer care about their credit rating. And that could be a tipping point in which property owners stop trying to hold on to what they have.

"There are going to be so many people with ruined credit, people won't care anymore," he said. "Credit isn't important anymore."

"People are saying, 'I'll just give it back to the bank. I don't care,' " New warned. "There are people that don't want to even deal with it."

And the most prevalent are people that bought homes as investments, thinking they could flip them for easy profits, he said.

In early December, Florida mortgage lenders agreed to voluntarily halt new foreclosures against homeowners for 45 days.

The banks' move to freeze foreclosures during holidays came after Gov. Charlie Crist said he was considering an executive order to mandate that banks temporarily stop foreclosing.

But that voluntary freeze on foreclosures will end mid-January.

Meanwhile, even with the 9 percent decline in Florida foreclosures in November, the data looks gloomy.

One in every 173 Florida homes was in foreclosure during that month, second only to California, according to a RealtyTrac U.S. Foreclosure Market Report.

RealtyTrac publishes a database of foreclosure and bank-owned properties and reports on foreclosure trends.

The difficulty in trying to solve the growing foreclosure problem is that there isn't a single solution, New said.

New said there needs to be a government program to suspend foreclosures for people who are in a position to still make some kind of payments on their homes and then compensate the banks for their loss.

"But the real problem is lack of jobs ... and I don't know how you're going to fix that," New said.

And as long as people keep losing their jobs in Florida, attempts at curbing foreclosures are just temporary solutions at best.

"What do I do with someone who has lost their job, their wife has lost her job and they're behind on their electric bill?" New said.

The November dip in Florida's foreclosures was likely due to an increase in home sales because owners had slashed their asking prices, said James J. Saccacio, chief executive officer of RealtyTrac.

That's seen in a recent study by Zillow.com, which reported that the average value, or sales price, of Gainesville homes fell 7.5 percent from a year ago. Nearly 40 percent of Gainesville homes that were purchased in 2006 are worth less in today's market than their owners paid for them.

Neighboring Ocala didn't fare much better.

Home values were down 12.3 percent from the same time one year ago. Worse yet, nearly 60 percent of Ocala homes purchased in 2006 are worth less in today's market than their owners paid for them.

"It will likely take years to move the large inventory of unsold homes throughout the state," Saccacio said. "Florida also faces a rapidly rising unemployment rate that is now above the national average."

And few counties, if any, are being spared Florida's unemployment rise.

Florida's unemployment rate was 7.3 percent in November, according to the U.S. Department of Labor, and is expected to be near 8 percent in December. At 8.9 percent, Marion County's October unemployment rate already topped that. It was the highest for the county since 1992.

Alachua County's unemployment rate was 4.6 percent, up from 3.2 percent in January 2008, and the highest for that county since 1992.

Statewide, Florida's unemployment rate is one of the worst in the nation, with nearly 680,000 unemployed workers in November, up about 50 percent since January 2008. The nation's leader in unemployment, California, had about 1.6 million unemployed, also about 50 percent more than in January 2008.

In addition, delinquencies on loans not yet in the foreclosure process jumped to nearly 7 percent in the third quarter of this year, a record high, according to a Mortgage Bankers Association report released last month. And many of those will eventually join the foreclosure rolls.

Also, more than 50 percent of loans modified in 2008 were delinquent again within six months, according to a joint report by two federal bank regulators, the Office of the Comptroller of the Currency and the Office of Thrift Supervision.

All of this points to foreclosure trends continuing to rise sharply after the new year, industry analysts say.

Lori Catto, vice president of mortgage loans at Independent National Bank, said the economic crisis is painting homeowners and their banks into a financial corner.

"And I think the economy still isn't stabilized," she said, adding the foreclosure problem will continue to fester, at least for the short term.

Independent National Bank is locally owned in Ocala and has three of its five branches there.

Catto agrees that the root of the problem is the area's unemployment.

"As long as that continues, how are they going to make ends meet if they don't have a job?" Catto said.

The bank's senior vice president, Tom Adair, said people shouldn't expect to see a change as long as growing unemployment persists.

And when people suffer through long periods of economic stress, they start giving up, Adair said, and put issues like their credit rating on the back burner. "They're not being mean. I think they're in a survival mode."

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