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   ARTICLE   |   From Scotsman Guide Residential Edition   |   August 2012

Foreclosure Markets on the Move

As the Southeast and Southwest regions stabilize, other areas deteriorate

Recently, the geography of the foreclosure market has been shifting. Take a moment, for instance, and test your knowledge about foreclosures with the following question: Which region had the greatest increase in real estate owned properties (REOs) this past March yet also had the greatest decline in median home prices this past first quarter?

Many of you might have guessed that either the Southwest or Southeast was the answer to this question, as these regions have been hotbeds of foreclosures since the recession began. Recently, however, some of these states’ markets are on their way to stabilizing, shifting a bulk of foreclosure activity elsewhere in the country.

That’s one of the reasons why the answer to the aforementioned question may surprise many mortgage brokers and originators. According to data gathered by Clear Capital, the answer to the question is the Midwest. Brokers and originators would do well to keep themselves informed about the changing geography of foreclosures, as doing so can help them stay informed about the market and accordingly adjust their businesses.


The subprime meltdown in 2006 ignited the first wave of foreclosures on a scale not seen since the Great Depression. Southern California and Florida especially were prone to an increase in foreclosure rates, as these areas were rife with alternative lending. In 2007, the growing recession set off the second wave of foreclosures in markets that had been hit hard by layoffs — cities such as Detroit and Cleveland, for instance — as well as markets where plummeting values left many homeowners underwater on their mortgages.

There is now evidence that markets where foreclosure rates ballooned in 2009 and 2010 are doing better. For instance, Florida cities such as Miami, Fort Myers, Orlando and Sarasota recently have reported declines in their foreclosure rates. At the same time, however, certain Northeastern and Midwestern states are witnessing an increase in foreclosures, partially because of quicker processing of thousands of foreclosures that previously were backlogged because of concerns about lenders’ processing practices.

Recent foreclosure activity

Clear Capital reported that this past March’s nationwide REO rate increased 1.2 percent over the previous month and 1.8 percent over the previous quarter, rising to 27 percent overall. The research company also noted that the increase in REOs came most significantly from the Midwest region, where the REO rate climbed to 34.3 percent, an increase of 3.8 percent from the previous quarter. The nation’s other regions increased, as well, although less significantly.

Just as the foreclosure rate picked up in the Midwest, however, prices in the region simultaneously fell. This past first quarter, median home prices in that region dropped 2.4 percent in a quarter-over-quarter comparison, even as every other region of the country showed improvement.

All in all, what does this mean for brokers and originators? It may very well mean that, as the housing market slowly recovers from its long sleep, the Midwest may end up being the last region to hear the wake-up call. Of course, depending on your business’ makeup and approach, this may make closing loans in the Midwest seem more appealing or less appealing. Regardless, however, originators should be sure that they’re keeping a vigilant eye on the ever-shifting foreclosure market.


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