Foreclosure Rates Climb With Unemployment Claims

The reason might have changed, but the result remains the same – residential foreclosure rates continue to rise.

Blamed last year largely on the subprime mortgage loan mess, this year’s ongoing increases in residential foreclosure filings appear more closely linked to a national unemployment rate that has topped 10 percent. At least that’s the way the Mortgage Bankers Association apparently sees it.

That group has tracked foreclosures for more than 35 years, and on Nov. 19 released a report indicating 4.47 percent of all loans in the U.S. are in some stage of foreclosure. That’s an increase of 0.17 percent from the end of the second quarter, and a 1.5 percent increase from the same period last year.

“Despite the recession ending in mid-summer, the decline in mortgage performance continues,” MBA chief economist Jay Brinkmann said in a news release that coincided with the report. “Job losses continue to increase and drive up delinquencies and foreclosures because mortgages are paid with paychecks, not percentage point increases in GDP.”

The report also showed foreclosures on prime mortgages were responsible for 33 percent of all foreclosures last quarter. That’s up from 21 percent at the start of the year, according to the MBA.

Foreclosure figures in Northwest Arkansas are equally sobering, according to data provided by RealtyTrac, a California-based online seller of foreclosed homes. The company’s most recent statistics reflect the total number of foreclosure filings through the first 10 months of 2009, and in most cases those numbers are higher than those for all of 2008.

In Washington County alone, for example, a total of 3,387 foreclosure filings were made through Oct. 31. That’s an increase of 51.2 percent over all of 2008, when 2,240 such filings were made.

A spokesman for RealtyTrac explained that, according to the company’s reporting methods, a property might be counted in multiple months if it shows up in a new foreclosure category.

If a Notice of Trustee’s Sale is filed against a property in January, for example, it will be counted that way. If the property is taken back by the lender in June, however, it would be counted as part of the Real Estate Owned category for that month.

RealtyTrac’s method has remained constant, though, resulting in the ability to make an apples-to-apples comparison year-over-year. In Northwest Arkansas – or at least a combination of Benton, Crawford, Sebastian and Washington counties – that’s meant an increase in residential foreclosure filings of 21.5 percent from 2008 through the first 10 months of 2009.

While the numbers in Washington County are the most glaring, Benton and Crawford counties have seen sizable jumps, too. Sebastian County, which had 714 foreclosure filings through Oct. 31 compared to 744 in all of 2008, is the only area to maintain the status quo at this point.

In Crawford County, which had 323 foreclosure filings in 2008, there have been 364 so far this year. That’s an increase of 12.7 percent.

In Benton County, which had 4,053 foreclosure filings in 2008, there have been 4,474 through the first 10 months of this year. That’s a jump of 10.4 percent.

Analysts Agree
Paul Bynum is the owner, director and principal broker at Mount Data, a company that tracks and reports the real estate market in Northwest Arkansas. Bynum left a recent gathering of bankers and other industry affiliates at the University of Arkansas with one overriding impression.

“They’re all hurting pretty bad,” Bynum said of Northwest Arkansas banks. “They’re holding tremendous amounts of property.”

Those properties include empty lots numbering in the thousands, Bynum said, and represent the ongoing residential foreclosure crisis in Northwest Arkansas that reflects some of the struggles seen on a nationwide scale.

“We’re not an island,” Bynum said.

Many banks, in fact, don’t even list all of their foreclosed properties, according to Bynum. He said the banks are forced to hold onto huge amounts of properties because dumping them for fire-sale prices would flood the market and drive down prices to an even greater extent.

Jim Taylor, president of First Security Bank’s Northwest Arkansas operations, essentially confirmed that notion when discussing the company’s approach for riding out the current crisis.

“We feel very strongly the market in Northwest Arkansas will come back,” Taylor said. “Therefore, our strategy has been to hold onto properties rather than have a fire sale.

“Don’t get me wrong, everything we have is for sale. But we’re not giving anything away.”

Kathy Deck, director of the University of Arkansas’ Center for Business & Economic Research, doesn’t believe banks like Fist Security will alter their plans until demand for residential properties rises. That isn’t likely to happen, she added, without some external forces.

“There has to be something to turn it around,” Deck said. “What’s going to turn it around is job growth and demand for houses. We need to see that before we see foreclosure rates improve.”

Bynum echoed Deck’s sentiment and questioned anyone touting the end of the national recession.

“I’m a statistician,” Bynum said. “I don’t look at one month. I look at three months, I look at six months. I look at trends.

“Until I see improvement at least over a quarter, I’m not going to say things are getting a whole lot better.”

Hand in Hand
One thing most experts agree on is the connection between high unemployment rates and the continuation of rising residential foreclosures. RealtyTrac CEO James Saccacio said in a prepared statement increasing unemployment rates “continue to loom over any nascent recovery.”

“And despite all the efforts and resources directed at helping homeowners avoid foreclosure,” Saccacio added, “we continue to see foreclosure activity levels that are substantially higher than a year ago in most states.”

That includes Arkansas, which according to RealtyTrac, had 17,986 foreclosure filings through Oct. 31, compared to 16,611 in all of 2008. That’s an increase of 8.3 percent.

Those numbers are true despite the fact the state’s most recent unemployment rate – according to the Arkansas Department of Workforce Services – was 7.6 percent, compared to a national rate of 10.2 percent. Unemployment rates are even lower in Benton (5.3 percent), Crawford (6.6 percent), Sebastian (6.2 percent) and Washington (5 percent) counties.

Despite those relatively low totals, though, Deck said Northwest Arkansas’ foreclosure problems aren’t going away anytime soon.

“We’re not done,” she said, adding that a host of factors, like an unexpected job loss or unforeseen medical crisis can tilt a family’s balance sheet and put it in a precarious position.

“That’s just how the math works,” she said. “All it takes is one little thing to go wrong.”

And while Bynum agreed, he did manage to find what perhaps is a silver lining in Northwest Arkansas’ residential foreclosure storm. Despite its struggles, Bynum said, the area remains “young and vibrant” compared to many regions across the country.

That should result in long-term growth, both in terms of jobs and population, which would lead to an eventual end to the area’s skyrocketing foreclosure rates.

“As long as our unemployment index is still only about half the national average, I think people will still come here,” Bynum said. “People like it here.”