Bank Foreclosure Homes Predicted to Flood Washington Region

by Peter Vernon on Foreclosure Rates

The Washington Region should expect another flood of bank foreclosure homes this year until 2011. This is what real estate brokers concluded based on current trends, including rising unemployment rates, declining home market values and resetting of adjustable-rate mortgages.

Housing Predictor editor Mike Colpitts said that Washington D.C. area should expect about 300,000 additional bank foreclosure homes this year until 2011. Housing Predictor looks at trends in local and state real estate markets.

According to Colpitts, many homeowners are in trouble of going into foreclosures but the process was delayed due to repossession moratoriums that mortgage companies, Federal Home Loan Mortgage Corp. and Federal National Mortgage Association put in place last fall and expired the end of March.

He said that the temporary foreclosure moratorium created an artificial lull and backlogs of troubled mortgages waiting to be processed.

Deputy director at the Center for Regional Analysis at George Mason University, John McClain said that recent data showed that foreclosure rate in the D.C. area has leveled off. However, the foreclosure problem is fast spreading beyond subprime mortgages, the category real estate experts deemed to be the most risky.

Jill Landsman of the Northern Virginia Association of Realtors said that the next wave of bank foreclosure homes will come from alt-A or alternative A-paper loans. Adjustable rate loans were taken out by marginal homeowners who had insufficient financial data. An adjustable rate mortgage usually resets every three years.

Colpitts said that many homeowners who took out adjustable rate loans may not be able to refinance their mortgages when it is time to reset because the values of their properties are less than the total mortgage they owed. He added that some areas in the region, such as Prince William County in Virginia, are experiencing a decline of almost 50 percent in home values.

Meanwhile, Landsman noted that loans that are not usually high risk such as 30-year fixed-rate and conventional adjustable rate mortgages are also expected to be in trouble, affected by the rising unemployment rate and declining home prices.

Colpitts predicted that home values in the Washington metro area will drop by another 11 to 15 percent. He believed that the coming flood of bank foreclosure homes in the region will also include a number of expensive houses, a category that is expected to experience the steepest value declines.