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Florida is 'ground zero' in dramaForeclosures in Manatee, Sarasota
and Charlotte counties have doubled in the last year, and some experts think they will likely double again before the region
and nation sort out the current mortgage morass.
The rate of foreclosure in Florida was double the national average
in February, according to data provided to the Herald-Tribune by RealtyTrac, a California-based online marketer of foreclosed
property.
The total foreclosures in process -- 2,221 this year, compared with 1,106 at this time in 2006 -- is
the clearest symptom to date of Southwest Florida's painful hangover from the bubbly days of a heady housing market.
The phenomenon is being driven by a number of factors, but most prominently in this region by investors who got in
over their heads during the boom of 2004-05, by first-time home buyers who likely did not have the financial wherewithal or
credit to make a home purchase, and by people caught in the collapse of some area builders.
Florida is "ground
zero" for the credit crisis -- RealtyTrac's statistics show the state with the highest number of foreclosures nationally
at 19,144 -- and Southwest Florida is no exception, says Mark Zandi, chief economist for big Wall Street credit rating giant
Moodys.com.
He points to the "effective failures" of some of the region's financial institutions
-- most notably Coast Bank of Bradenton, which aggressively loaned to speculative home buyers during the boom and is now struggling
with loans to customers of a failed St. Petersburg home builder.
Zandi said more small banks are likely to have
similar problems. He is convinced that things are going to get worse before they get better, particularly with the rate of
foreclosures in Southwest Florida.
"I would not be surprised to see it double again a year from now."
Zandi's "ground zero" description might be more apt than he knows.
There is a blast radius
of foreclosures -- nearly a third of the region's total -- in an area within a 10-mile radius of the Sarasota-Charlotte
county line, a Herald-Tribune analysis shows.
There are hot zones around Sarasota, Bradenton and northern Manatee
County, but none so pronounced: Of the 2,221 foreclosures in process right now in the three-county region, 317 are in North
Port and 402 are in Port Charlotte.
Not coincidentally, those communities were a favored playing ground during
the boom for investors, with housing that was cheap enough to manage for someone looking to make a quick buy and equally quick
exit during the real estate run-up.
It also was the center of activity for a series of failed home builders, including
Construction Compliance of St. Petersburg and Sarasota's Jade Homes and Avalon Homes. There are other builders doing business
in North Port-Port Charlotte showing visible signs of trouble.
But foreclosures are a regional problem. During
February, one out of every 406 Sarasota County homes had entered some stage, while in Manatee, it was one of every 523, and
in Charlotte, one of every 694.
The region is better off than Florida as a whole, which has a rate of one for every
382 homes, but compares poorly to the national figure of one for every 884 homes.
The rise in Southwest Florida's
foreclosure rate does not appear to be an aberration.
While the 2007 rate is double that of last year, it also
is 82 percent higher than 2005.
The increases are statistically large because they started from a low base, but
foreclosures locally and nationally are building as subprime buyers are driven from the market.
Subprime refers
to a class of borrower with weak credit histories who would not qualify for standard mortgages.
Party on
As the three-year-long real estate boom wound down, mortgage lenders such as New Century Financial Corp. came up with a
bad idea: Instead of tightening lending criteria as the markets became less liquid, they loosened them in order to keep the
party rolling.
It did, at least for a time.
As late as 2006, many subprime lenders were making loans
with little or no cash-down requirements to credit-challenged borrowers.
Those decisions are now coming home to
roost across the nation.
"Not only are we going to see massive foreclosures in the market, but as you can
see, the subprime lenders are falling out like flies," said Priscilla Gratton, a 20-year Sarasota mortgage banking veteran
who recently left AmSouth to open her own shop, the Gratton Mortgage Group, in downtown Sarasota.
"There are
so many mortgage originators out there whose only goal was closing a transaction."
Too often, businesses making
loans inflated incomes, fudged application data or simply did not tell customers the truth about the real costs, over time,
of the loans they were being sold.
Particularly popular was the adjustable-rate mortgage, or ARM, which allowed
some marginal buyers to get into a home for a couple of years before the rates reset, many times to unsustainable levels.
In the last six months, more than two-dozen subprime lenders have shut their doors.
The biggest player,
New Century, filed for bankruptcy protection from its creditors last week.
It issued $51.6 billion worth of subprime
mortgages last year, second only to HSBC.
During the past 10 years, New Century underwrote as many as 4,000 loans
locally, property records show.
Some portion of those and other subprime defaults could eventually wind up among
already bloated real estate inventories.
"It appears that as subprime and FHA (Federal Housing Assistance)
loans default at higher than anticipated rates, and lenders tighten their underwriting standards, we're going to continue
to see a spike in the number of homeowners facing foreclosure," said James J. Saccacio, RealtyTrac's chief executive.
Fall-out from subprime
Some experts watching the unraveling of the subprime market think that lenders might
foreclose on up to 2 million more homes in the next two years as defaults climb to about $225 billion.
Within that
time, about $1 trillion in adjustable-rate mortgages will reset at higher rates. Of those, $650 billion, or 65 percent, are
in the subprime category, meaning that as many as one-third of subprime borrowers could default if predictions hold.
The likely fallout will be that the lending industry will tighten its standards, and that will prevent many without sterling
credit from buying a home. That, in turn, would boost inventory levels at a time when Southwest Florida already has an unusually
high number of homes for sale.
"Tougher lending standards imposed by the marketplace and the regulators are
necessary, but we need to be mindful of overcorrection," said David Lereah, chief economist of the National Association
of Realtors.
"Responsible lending practices are what the doctor ordered, not practices that cause a credit
crunch," he said.
A crunch is something that Zandi, the Moody's economist, worries about, too. A scenario
where prime borrowers are less able to buy property might be the greatest threat right now to the economy, he said.
Add to that problem the reality that many investors, particularly hedge funds and foreign banks and governments -- the traditional
secondary buyers of mortgage-backed securities -- are increasingly out of the game, Zandi said.
Intervention and
hot lines
In a sign of the times, a Miami-based nonprofit entity called the Florida Foreclosure Prevention Hotline
was launched recently as a resource for homeowners facing the prospect of losing their homes.
Damara Cohn, a real
estate agent who works with the hot line, considers herself a foreclosure workout expert.
If after all avenues
have been explored and tried, from refinancing to forbearance, Cohn steps in to "help those people who are upside down
in their loans or have no chance to sell their property.
"I take the most aggressive position possible with
lenders and work with them in order to create a win-win situation for everyone involved."
What Cohn is talking
about is called a "short sale," where a lender agrees to take less money than it is owed.
With the softness
in the market, many banks and lenders are likely to be more amenable to that kind of arrangement.
"Most borrowers
have no idea the alternatives they have available to them," Cohn said. "For some, however, they are in a position
where the sale of the property is the only choice.
"Act quickly," she advises. "Once you know you
are in an impossible situation with regard to paying the loan, take action.
"This will protect not only your
financial interests, but can keep that foreclosure off of your credit report."
Some of the nation's largest
banks also are trying to help borrowers avoid foreclosures.
CitiMortgage is contacting ARM borrowers months ahead
of reset dates.
Bank of America is using predictive computer models to identify and reach out to potential problem
borrowers.
The bank will work with borrowers, even to the extent of "re-underwriting" the mortgage at
reduced interest rates, said Bob Caruso, Bank of America's national mortgage servicing executive.
"We
want to keep customers in their homes."
Staff writers Maurice Tamman and Cindy Allegretto contributed to this
report
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