Foreclosure Listings: Same Cities in Top 10

After years of foreclosures and foreclosure auctions, why do the same few places still have the most foreclosures?

The top 10 list of housing markets with the highest rates of foreclosure actions is almost exactly the same as it was last year, according to the third quarter list from RealtyTrac. Las Vegas is still followed by a familiar list of sprawl towns in California, Florida and Arizona.

But it's not just the same cities still suffering from foreclosures -- it's often the same neighborhoods. In mid-2009, one of every four homes was in foreclosure in a single zip code on the northeast fringe of Phoenix. There, hundreds of empty, new homes lined freshly laid streets with names like Tombstone Trail and Desperado Way. A full year later, one in four homes in that zip code were still in foreclosure.

"In some cases, it might actually be the same houses," says Rick Sharga senior vice president for RealtyTrac.
Loans servicers are taking a tremendously long time to process and sell the homes now in foreclosure -- periods from 200 to 400 days are common. In New York State, 600 days is the average, Sharga said.

Banks have picked up the pace this year. The rate of foreclosure actions has stayed relentlessly high at roughly a third of a million foreclosure actions a month, including close to 100,000 foreclosure sales a month.

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Sharga expects the rate to stay high. But even with all these actions, progress is slow in clearing away the foreclosure mess. There are now 1.2 homes currently in foreclosure, says Sharga. Another 5 million homes are currently seriously delinquent, with payments more than 60 days late.

It will take at least two years to process all the bad loans now in the foreclosure pipeline -- and throughout that period the more or less steady flow of foreclosed properties into the housing market will be a constant weight on housing prices, especially in the neighborhoods with the most foreclosures.

To make matters worse, new waves of loans are now becoming delinquent. Sharga has predicted three waves of foreclosures:
  • the original wave of foreclosures caused by toxic mortgages and the overbuilding of overpriced houses;
  • foreclosures caused by unemployment created in the recession;
  • foreclosures on adjustable-rate mortgages that will soon reach the end of their term.

The same neighborhoods keep getting damaged by these successive waves. Foreclosure areas where property values fell the most in the first wave are the areas that have more homeowners who can't sell if they lose their jobs and can't refinance at the end of their loan terms.

Neighborhoods where foreclosure problems go on for years can fall into a cycle of decay, according to foreclosure experts. Homes that sit empty are often vandalized and become increasingly difficult to sell. (Also see: "Foreclosures: Illinois Town Invests in Them.")

In the hardest hit neighborhoods, it's not clear how many of these homes will eventually find buyers, even once the housing market recovers. "A lot of the vacant homes are in places people don't want to live," says Sharga. "There are probably some of these ex-urban communities where the excess inventory of houses is going to be bulldozed," he said.

Other empty homes will find new uses. Tens of thousands of investors are now buying foreclosed houses to be rented out, according to Sharga. Also, nonprofit community groups are using subsidies like the federal Neighborhood Stabilization Program to buy foreclosed homes and sell them at prices low enough so that families with modest incomes can qualify for a mortgage -- even with today's tough income standards.

For more on foreclosures, mortgages and related topics see these AOL Real Estateguides:

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