TOPICS > Economy

Foreclosures on the Rise in Big Cities

October 28, 2010 at 6:00 PM EST
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A new report shows that 133 out 206 American metropolitan areas had an increase in foreclosure activity this summer. Ray Suarez explores the spread of the foreclosure epidemic with Patchwork Nation director Dante Chinni and Rick Sharga of Realty Trac.
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TRANSCRIPT

JIM LEHRER: Now, Ray Suarez has our story on home foreclosures around the country.

RAY SUAREZ: There was fresh evidence today that the crisis is spreading to places that haven’t been hit as hard before now. Foreclosure listing firm RealtyTrac said today that 133 out of 206 metropolitan areas posted an annual increase in foreclosure activity this summer.

The sharpest increase was in Seattle, where filings were up 71 percent over last year. Chicago and Houston also saw big upticks. Still, California, Nevada, Florida, and Arizona remain the nation’s foreclosure hotbeds. Those states account for 19 of the top 20 metro areas with the highest foreclosure rates.

We take a look now at the continuing crisis and how it and the economy in general are fueling midterm elections around the country.

For that, we’re joined by Rick Sharga, a senior vice president at RealtyTrac, and Dante Chinni, the co-author of “Our Patchwork Nation,” a new book exploring American communities, and based on the Patchwork Nation project, which he directs.

Rick Sharga, let’s talk about numbers. Some months, sales are down. Some months, new starts are up. What does the foreclosure figure tell us about the state of the housing market today?

RICK SHARGA, vice president, RealtyTrac: If the housing market were a patient in the hospital, we’d probably list him as critical and stable, so not ready yet to get off life support, but at least not as bad as it was perhaps a year ago.

RAY SUAREZ: Well, we’re two years into the housing collapse, and just a couple of days before a big midterm election. How does that kind of number drive how people are feeling?

RICK SHARGA: I’m sure, if you’re looking at the average homeowner, even if they’re not in foreclosure, they’re nervous, because they see their neighbors in foreclosure.

We’re looking at historically high and almost unprecedented rates of foreclosure activity, six times the rate of activity we would normally expect to see in a regular mortgage market. And we’re five years into this cycle. It’s simply unprecedented historically. And it won’t get much better until the economy gets better and until jobs start to come back.

RAY SUAREZ: Has something changed about the nature of these foreclosures? Early on, we heard a lot about bad mortgages, toxic loans, liar loans. Who is getting — who is getting the notices now? Who’s losing their homes now?

RICK SHARGA: That’s a great question. In fact, when this foreclosure cycle started, none of the predictors were in place to suggest we would see a lot of foreclosures. The economy was growing at 4 percent, unemployment was at historically low levels. And what triggered the first wave of foreclosures were unsustainably high home prices.

People that really could only marginally afford to get into these homes were put into them with toxic loans that turned out to be ticking time bombs. That led to an economic downturn, which has since led to very high levels of unemployment.

And now we find people that have owned homes for a long time, who took out very conventional, safe loans, 30-year fixed mortgages, and who simply can’t afford to pay their mortgages now because they no longer get a paycheck. So, we’re seeing a far different kind of homeowner finding themselves in trouble.

And, in a lot of ways, it’s much harder to help that type of homeowner in trouble than it was some of the homeowners who had these bad loans earlier in the cycle.

RAY SUAREZ: Dante, when you look at these patterns through the Patchwork Nation lens — and we will talk a little bit more about what that is — what’s significant about those foreclosure numbers, politically, economically?

DANTE CHINNI, project director, Patchwork Nation: Well, politically, when you look at where it’s hitting right now, the places that we have seen — we have been tracking foreclosures in congressional districts, and then trying to compare them to things like Tea Party kind of enthusiasm.

So, Tea Party meetings over the last four months, comparing that with foreclosures over the course of the year, there’s a really strong correlation. The places with the most foreclosures have the most Tea Party meet-ups. You could really argue that the — you know, anger is driving the electorate, and foreclosures are driving the anger.

And in places like Nevada, Colorado, Ohio, Michigan, Florida, it’s going to make a big difference in statewide elections in particular.

RAY SUAREZ: And you’re looking at a very fine-grained map of America, right, not region-wide, not statewide…

DANTE CHINNI: Right.

RAY SUAREZ: … but something to closer to community-sized.

DANTE CHINNI: Exactly. Well, we look at the county level. And when we look at the county level, the — what we saw from the very beginning is these places that we call boomtowns, kind of — really had kind of explosive growth at the beginning of the last decade, really got hammered first.

And when they got hit, the entire economy fell apart. Those places have not seen any relief. They’re mad. They want it fixed. They don’t know how it’s going to be fixed, but they’re angry, and they want it fixed.

The fact that it’s bleeding into these other areas now, you think of kind of like more lower-, middle-income, entering suburbs, that is a whole new area of trouble. And if it bleeds into those areas, those areas were very strong for Barack Obama in 2008. If those places start to feel that same kind of anger — and I really do think we may just be at the beginning of that, that kind of cycle of anger in the electorate — you’re going to be looking at a very — two years is not going to fix this problem.

We’re going to be back here in 2012 with the same electorate, same angry electorate.

RAY SUAREZ: You have been out in these communities during the campaign season. Take us to one of these places.

DANTE CHINNI: Well, I have been out with the NewsHour for the last couple weeks.

And when you go to places — we went to Canton, Ohio. It’s not really a foreclosure problem in the Ohio 16th, but it’s a struggling economy. And in those places, the people know that something has changed. They sense that they are having some problems. You know, the downtowns have emptied out. They sense that something has happened, something bigger has happened in the economy, and it’s not coming back.

But there’s no solution to it. And when you talk to the candidates, even — I talked to the Republican candidate. He’s very — he really cares about the community. I think he’s — what are you going to do to fix this district? What are you going to do to help these people?

And his answer is, well, we’re going to release the entrepreneurial spirit of the area, and that’s going to bring the area back.

I mean, that’s fine. That’s a nice thing to say. But how do you actually do that? That’s a whole ‘nother question.

RAY SUAREZ: Well, Rick, early on during the crisis, we were told that housing prices had to come down, and foreclosures was one way of repricing the marketplace. But now that we’re years into this process, is that working? Is this new inventory at a new price point moving? And are people coming off the sidelines to buy?

RICK SHARGA: Over 60 percent of current homeowners — or homebuyers are very interested in buying foreclosure properties and bank-owned properties. And, in fact, in two of the last three quarters, over 30 percent of all residential home sales have been those sorts of distressed properties.

So, there’s definitely a market for these kind of properties. And they are the properties that really led the race down in terms of home prices. We’re off somewhere between 28 and 30 percent nationally from peak prices a couple years ago.

So, there’s definitely a market for these properties. The banks have been slow to release them, which at this point is a good thing, because there are probably 600,000 bank properties not yet on the market. We don’t want them all hitting at once, or it would further deteriorate home prices across the board.

And I think your other guest is right. I think we’re looking at, at least in the housing market, at least another three years before things start to feel much better.

RAY SUAREZ: And what about these current problems that banks are having with the technical processing of the foreclosures, the talked-about moratoriums, the reexamination of all the documents? How is this affecting the process?

RICK SHARGA: Well, it certainly casts an awful lot of uncertainty into the marketplace. We have a lot of people that would like to buy these homes who are suddenly wondering if they’re safe to purchase.

We talk to realtors across the country who tell us that they have had — the banks issue 30-day delays on properties that were already in contract. So, there is going to be a bit of a hiccup in the marketplace relative to this.

To be clear, there’s really no excuse for the servicers not to have had processes in place and procedures and staffing adequate to handle the volume of loans at this point. Five years into a foreclosure crisis, this shouldn’t be a surprise anymore.

But also to be clear, the particular documentation we’re talking about will have no major effect on the ultimate disposition of these loans in foreclosure. Almost all of them are destined to be foreclosed on and will ultimately hit the market.

The longer it takes us to bring these properties to market, the longer we extend the housing downturn, and the more severe the price deterioration could be. So, a moratorium, although it sounds good on paper, is actually something that could ultimately lead to even more foreclosures and other economic problems.

RAY SUAREZ: Quick final comment?

DANTE CHINNI: Psychologically, it’s hard to ignore the importance of foreclosures.

We could have a big debate over what’s worse, unemployment or foreclosures, in terms of how the electorate feels — how the electorate feels about things, but you’re talking about losing home value means losing your nest egg. It means losing — losing your sense of comfort about basically the future. It is a strong, painful hit on incumbents this year. And it’s going to hurt the Democrats a lot.

RAY SUAREZ: Dante Chinni, “Our Patchwork Nation,” Rick Sharga from RealtyTrac, gentlemen, thank you both.

DANTE CHINNI: Thanks.

RICK SHARGA: Thank you.