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Foreclosure Numbers Detail More Pain To Come

Last Update: 7/25/2008 2:18:19 PM

By Dawn Wotapka and Aparajita Saha-Bubna
Of DOW JONES NEWSWIRES

NEW YORK (Dow Jones)–In yet more bad news for U.S. homeowners and the banks that
snapped up securities backed by mortgages, RealtyTrac detailed Friday how the
foreclosure epidemic is worsening.

RealtyTrac, a leading source for foreclosure data, said filings were reported on
nearly 740,000 properties in the second quarter, jumping nearly 14% from the
previous quarter, and soaring 121% from a year ago. Even more stunning: One in
every 171 households received a filing in the quarter, and all but five of the
nation’s 100 largest metro areas experienced year-over-year increases.

The problem goes beyond the so-called bubble markets - areas that saw dramatic
sales and price run-ups during housing’s heyday.

“Although much of the fallout from foreclosures is being driven by rampant
activity in a few states, such as Nevada, California, Florida, Ohio, Arizona and
Michigan, most areas of the country are seeing at least some increase in
foreclosure activity,” said James J. Saccacio, chief executive of Irvine,
Calif.-based RealtyTrac.

The news is bleak for two reasons: More Americans yet may still lose their homes
as the real estate slump shows little signs of abating. And banks, already
plagued by billions of dollars in write-downs, holding securities backed by the
mortgage payments on these homes may be forced to take deeper losses on their
holdings.

Bank repossessions accounted for 30% of the quarter’s foreclosure activity, up
from 24% in the first quarter, according to RealtyTrac.

Foreclosed properties occupy a separate line on banks’ balance sheets, known as
“other real estate owned” assets. These assets, which have swelled substantially
in recent quarters, could be troublesome. The problem for banks is that
foreclosures are expensive, saddling them with properties that they now have to
maintain, market and resell amid the worst real estate slump since the
Depression.

According to the Mortgage Bankers’ Association, it costs banks at least $30,000
to $60,000 in standard expenses - from maintaining the property to paying
brokers’ commissions - to wash its hands of just one foreclosed home. Adding to
that expense is the growing time it can take for a foreclosed property to sell.

In another sign that the U.S. housing market is further deteriorating, National
Australia Bank Ltd. (NAB.AU) on Friday said it set aside an additional provision
of A$830 million for its portfolio of complex investments containing asset-backed
securities with U.S. exposure. This comes on top of the A$181 million charge
taken in the company’s results during the first half of the year.

In addition, dismal housing data Thursday abruptly ended the fledgling rally in
financial stocks. Existing-home sales in the U.S. resumed falling in June, and
the median price also dropped as inventories crept higher. Sales fell to a 4.86
million annual rate, a 2.6% decrease from May’s pace, the National Association of
Realtors said. The median home price was $215,100 in June, down 6.1% from
$229,000 in June 2007. The median price in May this year was $207,900.

But there was a modest bright spot Friday. Government data showed the decline in
June new-home sales was smaller than analysts’ expectations. Sales slipped 0.6%
for the last month and dropped 33.2% from a year ago, according to the Commerce
Department.

“Perhaps the best piece of news was the sharp drop in the supply of new homes,”
said Omair Sharif, Strategist at RBS Greenwich Capital. “The number of new homes
for sale plummeted by 24,000 units in June, the largest monthly unit decline in
the history of the series (dating back to 1963). The 426,000 new homes for sale
last month were nearly 22% below the year-ago level, the largest year-over-year
drop in 11 years.”

That builders could finally be burning through their excess inventory helped
raise some stocks - building giants Pulte Homes (PHM) and Lennar Corp. (LEN)
recently traded up 4% and 5%, respectively. The Dow Jones US Home Construction
Index gained nearly 3%, before slipping slightly.

Even so, no one says that’s enough to assume recovery is near.

“Obviously, we haven’t found a bottom,” said Vicki Bryan, a Gimme Credit analyst.
“Foreclosure news all across the country has a negative effect on buyers’
psychology. … Sometimes you have to wait that out.”

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