Regional hiccup in foreclosure data

Southeastern Pa.'s decline is at odds with South Jersey and the nation.

Posted: July 13, 2007

Mortgage foreclosures grew 87 percent nationwide in June, and by 8.2 percent in the Philadelphia area, according to a report released yesterday by a California firm that tracks mortgage defaults.

But a wide disparity in the number of defaults in South Jersey compared with defaults in Southeastern Pennsylvania left regional economists questioning the data's validity.

The Pennsylvania counties, including Philadelphia, had a 30 percent decline, while the total for Camden, Burlington and Gloucester Counties more than doubled, according to Irvine, Calif.-based RealtyTrac Inc.

RealtyTrac acknowledges that variances in the foreclosure process can cause discrepancies, even in neighboring states.

Frank Nothaft, chief economist of Freddie Mac, said Pennsylvania's job growth and overall economy kept real estate prices from falling as much as they had in other markets, but he could not explain why the South Jersey numbers had not followed Pennsylvania's "since they share the same economy."

New Jersey does have a slightly higher rate of past-due FHA and VA loans than Pennsylvania, which might account for some of the year-over-year increase.

Echoing the sentiments of other economists, however, Nothaft said he was "uncomfortable" with RealtyTrac's methods. He suggested that the numbers might be "overstated."

"Still, there is no question that there will be a pickup in the number of foreclosures going forward, especially when the rates [for] subprime loans taken out in 2006 begin adjusting," he said.

Rick Sharga, RealtyTrac vice president of marketing, said the numbers represented each stage of foreclosure - notice of default and notice of auction, as well as whether the bank takes the property (in what is known as an REO) rather than sells it at auction.

"The Mortgage Bankers Association doesn't capture the REO because by then, the loan is dead," said Sharga in explaining the discrepancy in data.

The marketplace is also dynamic, "so by the time we get the records from the county, they are out of date," he said.

The difference between the foreclosure rates on each side of the Delaware could be related to the laws in each state, with the New Jersey process taking longer.

"There is considerable disconnect," he said. "Sometimes Philadelphia goes up and the Pennsylvania counties go down. There can be all sorts of local reasons for it."

Many subprime borrowers are trying to refinance out of their loans, but tighter lending standards put into place by federal regulators in the last six months are working against them.

"Six months ago, most of my [refinancings] were the standard kind, with homeowners trying to cash in equity or a lower fixed rate," said Brett Warren, president of Buyer's Home Mortgage Inc., of Abington.

"Today, most people seeking to refinance are subprime borrowers, and we can't place their loans because of those tightened standards," Warren said.

"Abusive lending with teaser rates and exorbitant fees, which can give borrowers negative equity from the get-go, are clearly at play," said Lawrence Yun, senior economist for the National Association of Realtors. "Delinquencies and foreclosures are further anticipated to rise as more loans are scheduled to reset."

Yun agrees with Nothaft that the Philadelphia area is in better shape than most because prices did not accelerate as quickly or as much as in other markets, owing in part to the lower presence of investors.

"Foreclosures are a lagging variable," he said. "Even if the real estate market begins booming tomorrow, the foreclosure rate will continue to rise."

The majority of mortgages in both New Jersey and Pennsylvania are prime loans, which have a low foreclosure rate, according to the Mortgage Bankers Association's first-quarter 2007 loan survey.

According to RealtyTrac, foreclosures were the highest last month in California and Florida, where some home prices have fallen as much as 25 percent, and Ohio and Michigan, where the automotive industry fired more than 50,000 people in the last 10 years.

The jump in 30-year mortgage rates by more than half of a percentage point since May is putting a crimp on borrowers with the best credit just as a crackdown in subprime-lending standards limits the pool of qualified buyers. Foreclosures also are increasing as the supply of unsold homes hit a record 4.43 million in May, according to the National Association of Realtors.


Regional Foreclosure Filings

County                      June 2006            June 2007

Bucks                           141                   120

Chester                            73                     8

Delaware                        154                   16

Montgomery                     190                   32

Philadelphia                     940                   886

Burlington                        161                   342

Camden                           315                   650

Gloucester                        113                   230

Totals                      2,087                 2,284

Source: RealtyTrac               


Contact staff writer Alan J. Heavens at 215-854-2472 or aheavens@phillynews.com.

Bloomberg News contributed to this report.

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