Web-Based Foreclosure Auctions Spark Controversy

Web-Based Foreclosure Auctions Spark Controversy

Will the Internet replace public foreclosure auctions?

Public auctions of foreclosed properties began in the 19th century as a practical way to ensure there was no chicanery between lenders and public officials.

Next month, Duval County, Fla., will become the first county in the country to hold an Internet foreclosure auction, forgoing the traditional courthouse sale in the hope of attracting buyers from other areas.

If the Web-based process works out well, and other states sign on, it will be an earth-shifting change in the way foreclosures are handled.

Some real estate professionals think it is a bad idea.

"There are things about the title that you just can't find on the Internet," says Bruce Norris, CEO of the Norris Group, a real estate investment firm in Riverside. "They can't tell you whether you're buying a first mortgage or a second mortgage. If you're buying a second, then you don't own the home free and clear."

Source: The Los Angeles Times, William Heisel (10/05/08)

Mixed Regional Results

There were differences in delinquency and foreclosure rates by state. While delinquency rates rose across the country from the first quarter to the second quarter of 2008, not all states experienced the same pattern.

The top five states with the highest quarter-over-quarter increase in delinquency rates were Delaware (104 basis points), Mississippi (103 basis points), Massachusetts (100 basis points), Maryland (96 basis points), and Indiana (92 basis points). On the flip side, the states with the smallest change in delinquency rates were South Dakota (20 basis points), North Dakota (27 basis points), Wyoming (32 basis points), Colorado (33 basis points), and Oregon (34 basis points).

In terms of foreclosure rates, the national numbers masked surprising quarter-over-quarter regional changes. The rate of foreclosure starts dropped in 12 states from the first to the second quarter of 2008. Massachusetts recorded the largest decline-33 basis points - followed by Maryland (a 9 basis point decline) and Mississippi (7 basis point decline). The other states with declines in foreclosure starts were Nebraska, Arkansas, Texas, South Dakota, Missouri, Colorado, Montana, Michigan, and Louisiana.

Meanwhile, foreclosure inventory rates also dropped in 17 states over the first two quarters of 2008. Wyoming posted the greatest drop-24 basis points - followed by Massachusetts (declining 21 basis points), and Mississippi (a decline of 20 basis points). Foreclosure inventory rates also declined in Alabama, Arkansas, Indiana, Iowa, Kansas, Louisiana, Michigan, Missouri, Nebraska, North Dakota, Ohio, Oklahoma, South Dakota, and Texas.

These positive changes were nonetheless offset by foreclosure rate increases in states like Florida, Nevada, Arizona, California and New Jersey. These states experienced significant increases from the first to the second quarter of 2008, both in terms of foreclosure starts and foreclosure inventory rates. Florida posted the highest figures, with a 139 basis point jump in foreclosure inventory and a 35 basis point increase in foreclosure starts. The changes were similar in the other four states-Nevada (80 basis point change in inventory, 31 basis point change in starts), Arizona (68 basis point change in inventory, 29 basis point change in starts), California (73 basis point change in inventory, 23 basis point change in starts) and New Jersey (39 basis point change in inventory, 14 basis point change in starts).

A mix of Good and Bad News (Foreclosures)

Nationally, the rate of foreclosures started was up 20 basis points compared with that reported in the first quarter of 2008. In the second quarter of this year, the foreclosure starts rate increased from 0.54 percent to 0.67 percent for prime loans from a year ago. Foreclosures on subprime loans rose from 4.06 percent to 4.70 percent and from 0.50 percent to 0.65 percent for VA loans. FHA loans also posted an increase of 16 basis points in foreclosure starts -- from 0.87 percent to 1.03 percent. That increase follows a decline posted in the first quarter rate.

The foreclosure inventory rate also increased nationally for all loans, from 2.47 percent in the first quarter of 2008 to 2.75 percent in the second quarter of 2008. On a year-over-year basis, the foreclosure inventory rate increased 135 basis points (from 1.40 percent in the first quarter of 2008). The foreclosure inventory rate rose for all loans except FHA loans. The foreclosure inventory rate rose 20 basis points for prime loans, 107 basis points for subprime loans, and nine basis points for VA loans. Foreclosure inventory rates for FHA loans actually experienced a 16 basis point drop.

Utah's foreclosure rate better than most of nation

A smaller share of Utahns are losing their homes to foreclosure, bucking a national trend of increased numbers of people who can't pay their mortgages. Only 0.66 percent of Utah home loans were in the foreclosure process at the end of the third quarter, down slightly from 0.68 percent in the same three months in 2006. Utah's foreclosure rate has been falling in recent years after hitting 1.52 percent in the third quarter of 2004. Utah's rate is the fifth-lowest nationally and well below the national rate of 1.69 percent, the Mortgage Bankers Association reported today in its National Delinquency Survey. The state's high ranking can be tied to the state's comparatively strong economy and its real estate market, which has had minimal exposure to the subprime lending debacle. Subprime refers to the riskiest borrowers, many of whom are having trouble repaying loans made to them in recent years. But another measure of mortgage activity is not as encouraging. Utah's delinquency rate, which measures the total share of loans that are more than 30 days past due but not yet in foreclosure, rose to 3.92 percent in the quarter, up from 3.71 percent in the third quarter. The state's delinquency rate had been decreasing in recent years.

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