More than a quarter million U.S. households received a foreclosure filing in October

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Nov. 13 (Bloomberg) -- More than a quarter million U.S. households received a foreclosure filing in October even as state laws designed to protect property owners from losing their homes slowed the pace of defaults, RealtyTrac Inc. said.

 

A total of 279,561 properties got a default notice, were warned of a pending auction or were foreclosed on, the Irvine, California-based seller of default data said today. Filings rose 25 percent from a year earlier, an improvement from average monthly gains of about 50 percent this year, after California passed a law delaying foreclosures for some borrowers.

 

Banks and states have moved to halt defaults as the economic outlook has worsened with climbing unemployment and a relentless fall in home prices. The U.S. jobless rate rose to 6.5 percent, the highest since 1994, and payrolls dropped for the 10th straight month in October, the Labor Department said last week. Home prices in 20 cities declined at the fastest pace on record in August and have fallen every month since January 2007, according to the S&P/Case-Shiller home-price index.

 

``The apparent slowing of foreclosure activity understates the severity of the foreclosure problem,'' RealtyTrac Chief Executive Officer James Saccacio said in a statement. ``The net effect may be merely delaying inevitable foreclosures'' should banks and the government fail to adopt a unified approach on mortgage modifications, he said.

 

California Improves

 

Filings rose 5 percent from September, RealtyTrac said. The biggest improvement came in California, the state with the most foreclosures of any in the U.S., where filings fell 44 percent in October from a year earlier after the new law required lenders to contact borrowers to discuss loan changes.

 

President-elect Barack Obama said in his first news conference Nov. 7 that the U.S. Treasury and government agencies should ``help families avoid foreclosures and stay in their homes.'' Fannie Mae and Freddie Mac, the largest U.S. mortgage- finance companies, said this week they would offer reduced interest rates and extend terms up to 40 years to borrowers whose loans are at least three months delinquent.

 

The loan modification effort is intended to be ``a standard for the industry,'' said Neel Kashkari, the Treasury's interim assistant secretary. About 10,000 borrowers a month may qualify for the program.

 

JPMorgan Chase & Co., the biggest U.S. bank, has said it would stop foreclosures on some loans and attempt to make payments easier on $110 billion of troubled mortgages. Bank of America Corp. has already modified 226,000 loans this year, and Citigroup has modified 370,000 since 2007 and will contact about 500,000 additional homeowners with $20 billion in mortgages in the next six months.

 

`Only a Dent'

 

``The size of the problem is so huge that it will be difficult for any of these programs to make more than a dent,'' Sam Khater, a senior economist at First American CoreLogic, a seller of economic data, said in an interview.

 

First American forecasts 3.2 million foreclosure filings this year, an 80 percent increase from 2007.

 

A further 5 percent decline in home prices means that 9.6 million U.S. households will have negative equity, or owe more on their loans than their house is worth, First American said.

 

``Negative equity hurts. It's a good predictor of default almost all the time,'' Robert Van Order, adjunct professor of finance at the University of Michigan in Ann Arbor and former chief economist at Freddie Mac, said in an interview.

 

In October, Nevada had the highest U.S. foreclosure rate for the 22nd straight month with one in 74 housing units in some stage of foreclosure, more than six times the national average, RealtyTrac said. Filings more than doubled from a year earlier to 14,483.

 

Arizona

 

Arizona had the second highest rate at one in 149 housing units, with filings up 176 percent to 17,507. Florida was third at one in 157 homes and had 54,324 filings, up 80 percent. California, Colorado, Georgia, Michigan, New Jersey, Illinois and Ohio also ranked among the 10 highest rates, RealtyTrac said.

 

California had the most total filings at 56,954, down from a peak of more than 100,000 in August. Filings rose 13 percent from a year earlier.

 

Florida, Arizona and Nevada ranked second through fourth in total filings, followed by Ohio, Michigan, Georgia, Texas and New Jersey in the top 10.

 

New Jersey had 8,473 filings and a foreclosure rate of one in 410 housing units. New York's rate was one in 2,102 units. The state had 3,761 filings, ranking 37th, said RealtyTrac, which collects property data from more than 2,200 U.S. counties that represent more than 90 percent of the population.

 

Las Vegas had the highest foreclosure rate among metropolitan areas with one in 62 housing units in a state of default, more than seven times the national average. Filings more than doubled from a year earlier to 12,155.

 

Florida's Cape Coral-Fort Myers and Miami ranked second and third, among metropolitan areas. Fort Lauderdale was eighth and Orlando was tenth. California's Stockton was fourth, Merced was fifth, Riverside-San Bernardino was seventh and Modesto was ninth, according to RealtyTrac.

 

To contact the reporter on this story: Dan Levy in San Francisco at dlevy13@bloomberg.net

Last Updated: November 13, 2008 00:01 EST