Here There and Everywhere

A greater number of foreclosures are hitting the high-end real estate markets in 2009 as price discounting continues to throw more and more properties underwater. It’s like a self-fulfilling prophecy: As some homeowners see their homes’ values drop below the balances due on their mortgages, they give up trying to save their homes.

Zillow’s chief economist, Stan Humphries, found that while high-end markets accounted for only 16 percent of foreclosures in 2006, by July 2009, 30 percent of foreclosures hit the top third of homes. “That means that top-tier homes make up almost twice the proportion of foreclosures as they did just three years ago,” Humphries wrote on his blog.

Foreclosures are no longer a primarily subprime problem. While in 2006 about 55 percent of foreclosures came on subprime loans, in 2009 subprimes represent just 35 percent of foreclosures, another 35 percent are in the middle tier and 30 percent are in the top tier. The primary contributing factor is higher delinquency rates in Prime, Alt-A and Option ARM mortgage products.

According to the Amherst Security Group, this problem won’t go away any time soon, because:

• Loans are transitioning into delinquency/foreclosure at a rapid pace, but moving out at a slow pace;

• Cure rates are low. In other words, fewer people are paying their past-due amounts and getting back on track.

• Loans are taking longer to liquidate. In other words, the length of time between the start of the foreclosure process and the point when the lender gets control of the property is growing.