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September 2, 2010 |
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| September 13, 2006 |
By: Jaime O. Hernandez |
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oomsayers may expect foreclosures in Florida to skyrocket, but the state has consistently boasted one of the lowest foreclosure rates in the nation.
Florida ranked 47th in the nation last month for active foreclosures and 45th for new foreclosures compared to the total number of households in the state, according to Boca Raton-based Foreclosure.com, a foreclosure listing service. The state had 822 active foreclosures and 290 new foreclosures in August.
Florida has not ranked higher than 41st in new or active foreclosures all year, according to the Web site.
However, new foreclosures have risen in Florida since January, when the foreclosure rate was one for every 28,169 households, according to Foreclosure.com. Last month, there was one foreclosure for every 21,855 households.
“The economy in Florida has been so strong for a long time,” said Brad Geisen, president and chief executive of Foreclosure.com. “If you go back 10 or 15 years, foreclosures were high because Florida was a transient state. What we’ve been seeing is properties have been appreciating dramatically, so Florida is losing the middle market.”
Strong demand for homes priced under $300,000 is keeping foreclosures down, Geisen said. When owners of home below that price level can no longer afford to stay in place, a buyer is ready to swoop in.
“You’ll tend to see the majority of foreclosures in lower-priced homes,” he said. “They usually have financing with very little down payment.”
Owners of homes worth more than $300,000 tend to put more equity into their purchases, giving them the flexibility to drop their selling price and still make a profit if they come close to foreclosure, Geisen said.
State foreclosure laws also allow homeowners time to get rid of a home before the mortgage holder assumes control. Foreclosures in Florida can take at least six months to carry out, he said.
So-called vulture funds targeting distressed sellers also are keeping foreclosure rates down. Investors target properties in foreclosure or pre-foreclosure at below-market prices with hopes of selling for more.
However, Geisen doesn’t expect vulture funds to last, especially if market conditions do not improve soon.
“There is going to come a point where people can only hold on to homes so long,” he said.
Home sales have slowed drastically this year after a five-year boom that ended last year. The National Association of Realtors is still crunching the August numbers but expects to report the nation’s first one-year decline in home resale prices in 13 years.
Despite Florida’s low foreclosure ranking, Geisen expects foreclosures in the state to rise significantly in the coming months and years.
Many homeowners bought with nonconventional loans such as adjustable rate and interest-only loans because they may have not qualified for standard, fixed-rate loans.
“We predict middle- and upper-priced homes to be more foreclosed on,” he said.
Terry Claus, president of Coral Gables-based mortgage lender Home Financing Center, said numerous customers have walked in to refinance their adjustable-rate mortgages to fixed-rates.
In most cases, customers took out ARMs with a low introductory rate and were shocked when the rate climbed, significantly increasing their monthly payments.
He blames aggressive lenders who advertised loans without fully explaining how much the rates could climb over time. Many of the nonconventional loans have prepayment penalties, making it tougher for borrowers to refinance without taking on more debt.
In some cases, ARMs allow payments that don’t fully cover monthly principal and interest. Claus said many people don’t realize the unpaid amounts get tacked onto the mortgage. When those same clients want to refinance, they can end up owing more than they borrowed.
Claus said he has turned away working-class homeowners looking to refinance because they owed too much already.
“We’re getting a lot of people coming in to get out of that program,” Claus said. “Our government has got to implement some laws and govern these lenders and brokers who are allowed to advertise these programs.”
Claus said his company has about 6,000 loans in its portfolio, and only one is in foreclosure. The firm offers mostly fixed-rate, 15- to 40-year mortgages and an adjustable rate loan with fixed interest for the first five years.
Many ARMs were issued within the last five years and won’t adjust for at least another year to 18 months, experts say. That’s when many expect to foreclosures to climb.
Stanley Foodman, a forensic accountant in Miami, expects Florida’s foreclosure rate to climb steadily with rising interest rates on ARMs.
He also said aggressive lenders may have put themselves at risk of lawsuits.
“The question is how much due diligence is performed by banks on mortgage applications of customers who receive interest-only, variable-rate or home-equity loans,” Foodman said. “The types of enticing letters and advertisements which were used to lure in borrowers … may raise some questions about civil tort liability, which will be subject to review by attorneys with regard to predatory lending statutes.”
Jaime O. Hernandez can be reached at johernandez@alm.com or at (305) 347-6645.
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