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Foreclosures in 2010? More of the same

MANATEE — Experts say the new year likely will bring little relief to Florida’s foreclosure crisis, which set another local record high in 2009.

A variety of factors, from rising unemployment to falling home values, will keep Florida residential foreclosure filings at elevated levels in 2010, the experts said. But they also expect the pace of filings to taper off later in the year, as efforts to alleviate the crisis take deeper root.

“Foreclosure numbers will be a little higher” in 2010, said Shari Olefson, a Fort Lauderdale real estate attorney and author of “Foreclosure Nation: Mortgaging the American Dream.” “It won’t increase that much, but it will get worse before it slowly gets better.”

Lenders and mortgage servicers filed 6,390 foreclosure suits in Manatee County Circuit Court as of 5 p.m. Thursday, according to a Manatee County Clerk of Court database. The final figure likely will be higher as last-minute filings are entered into the database next week, but it already has shattered the previous record of 5,592 filings, set in 2008.

Court officials estimate there are more than 456,000 foreclosure cases pending throughout Florida. The state has among the country’s highest foreclosure rates, with one in eight Florida homeowners in foreclosure proceedings in the third quarter, the Mortgage Bankers Association said.

Just as many were at least 30 days behind on their mortgages but not yet in foreclosure, the group said. That’s a bad sign, because rising delinquencies typically result in more foreclosures, experts said.

But other factors also are worrisome, they said:

n Unemployment remains high: The jobless rate was 12.9 percent in Manatee and 11.5 percent in Florida in November, according to state figures. Job loss is among the biggest reasons why people fall behind on their payments.

n Home values continue to fall: The median sales price of existing single-family homes sold in November was 12 percent lower than a year earlier, the Florida Association of Realtors recently reported. Lower values make it tougher for distressed homeowners to refinance or sell their home to avoid foreclosure.

n Tight credit: More stringent lending standards are making it harder for borrowers to qualify for a mortgage, thus reducing the pool of potential buyers for homes facing foreclosure.

n Interest rates: Mortgage rates, which have hovered around 5 percent for much of 2009, are widely expected to begin rising in 2010 — thus making it more expensive to buy a home.

Then there are fears that banks will unleash a “shadow inventory” of foreclosed homes on the market, potentially driving down home prices even more. Amherst Securities Group LP, an Austin, Texas, financial services provider to institutional investors in the mortgage sector, projects that inventory stands at 7 million U.S. homes.

And the pressure on the release valve is building, Olefson said.

“The system, it’s sort of like in a bottleneck,” she said. “I compare it to the lines at Disney World: It’s crowd control, but everyone eventually squeezes through.”

That has led some economists to predict U.S. home prices will fall another 5 to 10 percent — and by even more in Florida — in 2010.

Mark Zandi, chief economist for Moody’s, predicts homes prices in the Bradenton market will fall by another 26 percent this year. That’s the fourth-highest predicted price drop among the 100 largest U.S. markets, with only Miami, Orlando and Fort Lauderdale expected to experience steeper declines.

If that happens, even more homeowners will be “upside down” — or owe more than their house is worth — and more willing to give up their homes to the bank through a “strategic default,” experts said.

Falling home values also could spell trouble for homeowners with option adjustable-rate mortgages, or option ARMs, in which borrowers select how much they pay a month during the loan’s start period.

Not surprisingly, many choose low payments that often don’t cover principal and interest — the unpaid portions of which are tacked onto the end of the loan. But when the start period ends, those loans’ monthly payments are reset so that payments are large enough to pay off the loan during the remaining mortgage term.

Fitch Ratings projects most option ARMs will reset in 2010 and 2011, with monthly payments rising by an average of 63 percent. With home values falling, many borrowers will be unable to refinance their option ARMs unless they put more cash into the property and won’t qualify for federal mortgage help because they owe more than 125 percent of what their homes are worth.

But experts say those federal mortgage-relief efforts will gain traction in 2010 after a slow start, helping more homeowners avoid foreclosure. They also said things are bound to get better, both locally and nationally.

“In 2010, foreclosure activity will continue to increase but efforts for homeowners to dispose of their real property responsibly will increase,” Anne Weintraub, a Sarasota real-estate attorney, wrote in an e-mail. “Banks now realize that short sales are, in fact, in the best interest not only of the borrower in most cases, but also in the best interest of the bank. Banks are tired of taking back properties and would rather get some cash now than less later.”

Duane Marsteller, transportation/growth and development reporter, can be reached at 745-7080, ext. 2630.