The spread of foreclosures slowed in the Capital Region over the summer as state government intervention efforts took effect, likely forcing lenders to delay some home seizure actions.
The quarterly slowdown provided little solace for the region’s economy, with local foreclosure and bankruptcy filings and unemployment rates all ending up significantly from where they stood a year earlier.
“That may have slowed down the process … There’s now an extra step lenders have to take,” said Stephanie Lane, a housing counselor for the TRIP Homeownership Center in Troy, of the subprime lending reform bill Gov. David Paterson signed into law in early August.
In the five-county region around Albany, 553 homes were in some stage of foreclosure by the end of the third quarter. That marked a 47.9 percent drop from 1,062 homes in foreclosure during the second quarter of 2008, but it was up 138.3 percent from the third quarter of 2007, according to statistics released Thursday by RealtyTrac.com, an Irvine, Calif., nationwide foreclosure tracking firm.
The decline pushed the Capital Region down on RealtyTrac.com’s Top 100 U.S. Metro Foreclosure list to the 96th ranking slot from 76th for the second quarter. During the three-month period ending Sept. 30, only 0.15 percent of area homes were in foreclosure. Stockton, Calif., topped RealtyTrac.com’s list with 3.69 percent of its homes in foreclosure.
Foreclosure activity nationwide rose 3 percent to 765,558 homes during the third quarter, but in September it fell 12 percent from a year earlier. RealtyTrac.com Chief Executive Officer James Saccacio attributed September’s slowdown to state initiatives that delay the foreclosure process and offer cash-strapped homeowners a short reprieve.
Saccacio singled out legislation passed over the summer in Massachusetts and California, where lawmakers required lenders to contact borrowers 30 to 90 days before issuing a notice of default, which initiates the foreclosure process.
In New York, Paterson on Aug. 5 signed legislation that required lenders to send pre-foreclosure notices to borrowers 90 days before issuing a notice of default. The law, which is taking effect in phases, requires the pre-foreclosure notices to list local government-approved housing counselors and mandates settlement conferences between lenders and certain subprime borrowers. While the settlement conference provision took effect immediately, the pre-foreclosure requirement took effect Sept. 1.
A state Department of Banking spokeswoman said the agency is still analyzing data to determine the law’s impact on foreclosure activity statewide. New York had 14,477 homes in foreclosure during the third quarter, down 9.6 percent from the previous period but up 19.3 percent from a year earlier, according to RealTrac.com.
A report released late last month by the State Foreclosure Prevention Working Group found that eight out of 10 seriously delinquent borrowers had not taken necessary steps to avoid foreclosure, up from seven out of 10 in April. The report by the group of state attorneys general and banking regulators said, “Servicers appear to have reached the low-hanging fruit of subprime loans facing interest rate resets, while not developing effective approaches to address the bulk of subprime loans which are in default before interest rate resets.”
The Bush administration is mulling over a plan to address the problem of borrowers struggling with mortgages regardless of interest rate resets. The White House might encourage lenders to modify mortgages by offering them federal loan guarantees and credit enhancements.
“If that happens, it would be helpful … It does make sense for the lender to work with the homeowner,” said Lane at TRIP.
The region’s lower foreclosure rate is a cold comfort when considering the 1,122 bankruptcy filings at U.S. Bankruptcy Court in Albany during the third quarter, up 35.8 percent from a year earlier. During the same period, non-business Chapter 13 filings — which halt the foreclosure process — rose 19.9 percent to 312.
In Albany, bankruptcy attorney Francis Brennan has received more calls from consumers interested in seeking bankruptcy protection, even though he specializes in business reorganization cases. But some of those calls are coming from entrepreneurs who initially are trying to save their small businesses but quickly find themselves overleveraged with lenders “coming home to roost against the individual personally.
“It’s been a lot of small business people who have been adversely affected by the economy,” said Brennan, the past president of the Capital Region Bankruptcy Bar Association.
However, small business owners are not alone in getting rocked by the economy. The region’s unemployment rate last month climbed to 5.2 percent from 3.8 percent a year earlier. That means the ranks of the area’s unemployed over the year rose 36.4 percent to 23,600.