Philadelphia Foreclosures for Sale Drop, Defaults Loom

by Donald Hanz on cities

Philadelphia foreclosures for sale dropped in number in October, but defaults on residential construction mortgages loomed as more banks report on problems with their housing development loans.

According to a foreclosure report from a California-based real estate research company, 0.42 percent of residential units in the Philadelphia metro area were in foreclosure in October, much below the foreclosure-battered cities, such as Phoenix, where 2.43 percent were in foreclosure, and Las Vegas, where 5.13 percent were in foreclosure.

Statewide, foreclosure activity grew slightly by 0.93 percent from September and by nearly 39 percent from October last year, but compared to other states, Pennsylvania was performing better as it was 34th on the ranking of states based on foreclosure rates.

A total of 5,545 residential units in Pennsylvania were notified of delinquency or foreclosure, with more than 1,200 units already repossessed by banks. One unit out of every 988 housing units in Pennsylvania received a default or foreclosure notice.

According to analysts, the major causes of foreclosures, namely unemployment, negative equity and high-risk mortgage loans, are still expected to push many distressed homeowners into default.

In the coming months, more Philadelphia foreclosures for sale are expected, according to reports from local banks. As of the end of September, the percentage of problem construction and other mortgage loans in the 15 biggest banks in the city has risen to almost 3 percent, far above the 0.89 percent in September last year.

The 15 banks have about $1.1 billion in problem loans, which they have to remedy through restructuring, extension, foreclosure or other means.

To help these struggling banks in Philadelphia, the Federal Reserve kept its federal funds rates low at zero to 0.25 percent so the banks can borrow at very low costs and then earn from the fewer loans they have been making.

Kent Lufkin, head of TF Financial Corporation, said that banks now need to keep an eye on their reserves and their lending practices. He added that his bank has been able to keep nonperforming loans at a low level because of his bank’s strict lending practices.

In contrast, Abington Bancorp lent aggressively to the residential construction sector and now has the highest percentage of bad loans in the region. Among the buildings that it had repossessed recently was the American Loft, which it took back in June at a foreclosure sale for $8.6 million.