Fourteen Percent of Florida Facing Mortgage Crisis


By Alan Zibel
The Associated Press
September 6, 2008

WASHINGTON – More than 4 million American homeowners with a mortgage, a record 9 percent, were either behind on their payments or in foreclosure at the end of June, as damage from the housing crisis worsened, the Mortgage Bankers Association said Friday.

Meanwhile, Florida leads the nation with 13.68 percent of homeowners late on their house payments or facing foreclosure, according to a survey from the Washington D.C.-based trade group. Mississippi was second at 12.42 percent, and Nevada was third at 12.17 percent.

Palm Beach and Broward counties, in particular, became foreclosure hot spots after the housing boom of 2000 to 2005, when escalating home values caused many buyers to overextend themselves. Many took out short-term, adjustable-rate mortgages that now are resetting with much higher interest rates.

But the source of trouble in the mortgage market has shifted from subprime loans made to borrowers with poor credit to homeowners who had solid credit but took out exotic loans with ballooning monthly payments.

“The problem that policymakers and Wall Street once assured us was ‘contained’ to subprime mortgages has proven to be anything but,” Mike Larson, a real estate analyst with Weiss Research in Jupiter, said in a research note.

The trouble is concentrated in a handful of states, the worst being Florida and California, which had some of the riskiest lending practices and rampant speculation.

“We are unlikely to see a national turnaround until we see a turnaround in the two largest states,” with the most outstanding home loans, said Jay Brinkmann, the mortgage association’s chief economist.

The latest quarterly figures broke records for late payments, homes entering the foreclosure process and for the inventory of loans in foreclosure. The trade group’s records go back to 1979.

The percentage of loans at least one month past due or in foreclosure was up from 8.1 percent in the January-March quarter, and up from 6.5 percent a year ago, using figures that were not adjusted for seasonal factors.

New foreclosures rose dramatically in eight states: Florida, Nevada, California, Arizona, Michigan, Rhode Island, Indiana and Ohio, but actually declined in Texas, Massachusetts and Maryland.

Almost 500,000 homeowners, or about 1 percent, entered the foreclosure process in the second quarter. But for the first time since the mortgage crisis started, delinquencies on subprime adjustable-rate loans declined. While more than one out of every five homeowners with a subprime ARM is still in default, that portion dipped 1 percentage point from the first quarter to 21 percent.

What’s driving the delinquency rate up now is the number of homeowners with risky, adjustable-rate prime loans made with little or no proof of the borrowers’ income or assets.

More than one out of 10 borrowers with a prime adjustable-rate loan is now delinquent or in foreclosure. That portion, 11.3 percent, was up from 9.7 percent in the first quarter and is expected to continue to rise as more homeowners see their monthly payments spike.

Many of these loans allowed the borrower to pay only the interest on the loan for a fixed period. Others gave the borrower the option to “pick-a-payment,” adding any unpaid interest to the principal balance.

Defaults on these mortgages, which earned the nickname “liar loans,” are costing Fannie Mae and Freddie Mac billions of dollars. The Treasury Department has even pledged to bail out the mortgage finance companies if necessary.

With home prices plummeting, particularly in Florida, California, Nevada and Arizona, many borrowers with these exotic loans now owe more on their home than it is worth. Worse still, these loans reset to higher monthly payments when borrowers reach maximum debt limits — typically around 10 percent to 25 percent more than the original loan balance.

Those resets can increase the borrower’s monthly payment by more than $1,000 a month on average, Fitch Ratings said in a report this week.

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The information herein is believed to be accurate but not guaranteed and may be subject to errors, omissions and changes without notice. This is not to be construed as a solicitation of property presently listed for sale.

All information is derived from the Palm Beach County Property Appraisers website and the MLS.

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Luxury Resort Portfolio – "The Definitive Source For Luxury Real Estate In South Florida" is Co-Founded by Boca Raton luxury real estate specialist Philip Lyle Smith and South Florida luxury real estate broker Carla Ferreira-Smith, collectively known as, “The Smiths”… and together we represent, market and sell the most prestigious Baca Raton Oceanfront Estates and Waterfront Luxury Real Estate. As former Sotheby’s International Realty and Christie’s International Real Estate affiliates and an authority in Boca Raton luxury real estate for more than a decade, Palm Beach County Realtors,The Smiths, specialize in the sale and acquisition of fine properties found along the Gold Coast of South Florida from Miami to Ft. Lauderdale and Boca Raton to the Palm Beaches. Philip and Carla Smith bring a sincere commitment to their profession and offer their clients incomparable firsthand knowledge and experience. Devoted and committed to our clients’ confidentiality, we provide our trusted advice and are appreciated for our family values with a great deal of respect for home and community. Representing both buyers and sellers of the finest residential luxury real estate in South Florida from the oceanfront estates of Highland Beach and Delray Beach through the waterfront intracoastal homes of Manalapan, Gulf Stream and the mansions of Palm Beach, Luxury Resort Portfolio instills in its’ real estate professionals the importance of understanding how personal the decision is to buy or sell your home and that that the procedure should not only be stress-free... but financially rewarding. It is with great pride that Philip Lyle Smith and Carla Ferreira-Smith offer to you their superb client services.