Just about everyone has become familiar with America's foreclosure capitals – metropolitan areas like Las Vegas with the nation's highest rate of foreclosed properties (1 in 20) or No. 2 Merced, Calif., (1 in 27).
But the problem is expanding to new cities. In fact, as the subprime-mortgage crisis eases for some of the top metro areas, like Merced and No. 3 Cape Coral-Fort Myers, Fla., economic pressures are creating new foreclosure capitals. One of them, Reno-Sparks, Nev., broke into the Top 10 foreclosure metros in the third quarter, according to a RealtyTrac report released Thursday. And others are gaining fast.
"These are places that were on no one's radar screen a year ago," says Rick Sharga, senior vice president at RealtyTrac, an online foreclosure marketplace based in Irvine, Calif. Now, stressed by rising unemployment and the resetting of exotic mortgages, their foreclosure numbers are skyrocketing.
Take Reno-Sparks. It saw its total foreclosures jump 80 percent over the past year. Its 2.7 percent foreclosure rate is now the ninth-highest in the nation and thus makes it our No. 1 fast-growing foreclosure capital (click on the chart above for the entire list).
No. 2 Boise City-Nampa, Idaho, saw foreclosures jump even more – 142 percent – and now has a rate that's 2.5 times the national rate. Rounding out the Top 5 are other surprising cities: Provo-Orem, Utah (No. 3), Jacksonville, Fla. (No. 4), and Prescott, Ariz. (No. 5).
Sometimes, the cause of rising foreclosures is clear. Unemployment clearly played a role for No. 6 Chico, Calif., where unemployment hit 12.2 percent in September, No. 8 Rockford, Ill. (15.2 percent), and No. 9 Lansing-East Lansing, Mich. (11.0 percent).
Another factor behind the foreclosure rise is that exotic adjustable-rate mortgages, known as Alt-A Option ARMs, are now being reset at higher rates. These loans were rather shaky to begin with. They were made to Alt-A customers (just one step up in credit terms from the subprime group), offering borrowers the option each month of making a full payment, a smaller payment that just covered the interest, or a minimum payment that meant their mortgage balance actually went up!
Now that rates are being reset higher and the recession has made their homes worth less, some homeowners are being squeezed out of their properties.
This kind of rolling foreclosure crisis – easing in some cities, rapidly mushrooming in others – doesn't bode well for a speedy recovery in the housing market. "We're really not going to see foreclosure activity get down to anything near normal until 2012," Mr. Sharga says.
Nevertheless, it may preferable to all these problems hitting at once and triggering, perhaps, another steep drop in home values.
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