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U.S. Home Defaults, Foreclosures Rise 60% in February

March 13 (Bloomberg) -- U.S. home foreclosure filings jumped 60 percent and bank seizures more than doubled in February as rates on adjustable mortgages rose and property owners were unable to sell or refinance amid falling prices.

More than 223,000 properties were in some stage of default, or 1 in every 557 U.S. households, Irvine, California-based RealtyTrac Inc., a seller of foreclosure data, said today in a statement. Nevada, California and Florida had the highest rates.

``With declining prices, there is a pervasive problem of not being able to refinance or sell,'' said Susan Wachter, professor of real estate at the University of Pennsylvania's Wharton School in Philadelphia. ``I'm very concerned.''

About $460 billion of adjustable-rate mortgages are scheduled to reset this year and another $420 billion will rise in 2011, according to New York-based analysts at Citigroup Inc. Homeowners faced higher payments as fourth-quarter home prices fell 8.9 percent, the biggest drop in 20 years as measured by the S&P/Case- Shiller home price index.

``This is continuing to worsen,'' Wachter said in an interview. ``It tells us that we are not at a bottom.''

Foreclosure filings are likely to be ``explosive'' in May and June as more payments jump, after remaining at current levels this month and next, Rick Sharga, executive vice president of RealtyTrac, said in an interview. There may be between 750,000 and 1 million bank repossessions in 2008. Bank seizures rose 110 percent in February from a year ago, he said.

`Vicious Cycle'

``We're in a vicious cycle,'' Sharga said. ``We've got depreciating home values and loans resetting at an outstanding volume just as banks are retrenching. Even people who want to buy a home now are having trouble getting a mortgage.''

February was the 26th consecutive month of year-on-year monthly foreclosure increases, Sharga said. Total filings fell 4 percent last month from the previous month, said RealtyTrac, which compiles statistics from a database of more than 1 million properties and monitors default notices, auction sale notices and bank repossessions.

A surge in defaults among subprime borrowers spurred the collapse of the U.S. home loan market and has led more than 100 mortgage companies to stop lending, close or sell themselves. As the value of securities tied to mortgages plummeted, lenders and securities firms have written down more than $180 billion in assets tied to home loans.

Rising foreclosures pushed the inventory of existing homes last year to the highest ever, making it more difficult for property owners to sell.

Fed Efforts

Defaults are jumping even as the Federal Reserve has cut the benchmark interest rate five times since September and the Bush administration has urged lenders to help homeowners by modifying mortgage terms.

The Fed, struggling to contain a crisis of confidence in credit markets, said this week it will for the first time lend Treasuries in exchange for debt that includes mortgage-backed securities.

Economists are forecasting the U.S. housing slump will push the economy into a recession this year and there are no signs housing will recover in 2008. U.S. sales of new and existing homes probably will fall to 5 million this year, down 33 percent from the all-time high of 7.46 million in 2005, before rising to 5.23 million in 2009, Freddie Mac said in a March 3 forecast.

Government Proposals

A New York state program announced in July to refinance $100 million in adjustable-rate and other mortgages prone to default with more stable fixed-rate loans has only aided nine homeowners so far, said George Leocata, senior vice president of the State of New York Mortgage Agency. Most homeowners who asked for help were disqualified because they were already in foreclosure.

U.S. House Financial Services Committee Chairman Barney Frank today unveiled legislation to expand the federal government's role in shielding consumers in danger of losing their homes.

Frank's proposal would allow the Federal Housing Administration to insure and guarantee refinanced mortgages after lenders and loan holders reduce principal to a level borrowers can repay, according to a draft of the legislation.

Nevada led the nation with the highest foreclosure rate in February. Filings rose 68 percent last month to 6,167 from the year-earlier period. One in every 165 households there was in default or foreclosure, RealtyTrac said.

California, Florida, Texas

California had the second-highest rate with one in every 242 households. Florida was third with one in every 254.

The highest total number of foreclosure actions was in California, followed by Florida and Texas, RealtyTrac said. California reported a total of 53,629 last month, up 131 percent from February 2007. Florida had a total of 32,447, up 69 percent from the year earlier. Texas filings fell 1 percent to 12,261.

The Cape-Coral/Fort Myers, Florida, metropolitan area recorded the highest foreclosure rate of 229 metro areas tracked in the report. Its figure of one per 84 households was almost seven times the national average. Stockton, California, had the second-highest metro area rate.

The Mortgage Bankers Association said March 6 that mortgage foreclosures rose to a record at the end of 2007 as many borrowers with adjustable-rate loans walked away from properties even before their payments increased.

New foreclosures jumped to 0.83 percent of all home loans in the fourth quarter from 0.54 percent a year earlier. Late payments rose to a 23-year high, the Mortgage Bankers said in a report.

Borrowers with adjustable-rate subprime mortgages accounted for 42 percent of new foreclosures in the fourth quarter, according to the report. Those loans accounted for about 7 percent of all mortgages, the report said.

To contact the reporters on this story: Alan Mirabella in New York at amirabella@bloomberg.net; Sharon L. Lynch in New York at sllynchbloomberg.net.

http://www.bloomberg.com/apps/news?pid=20601087&sid=ad7WKM2zVEgc&refer=home
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